JGB Yields Fall for the First Time in Two Weeks and Yen Bounces as Fin Min Calls on Nation's Pension Funds to Boost Domestic Allocation

The US dollar is softer against most currencies today. The main feature is the recovery of the yen, not in response to material intervention but on the call from the finance minister for Japanese pension funds to invest more in domestic assets. The Nikkei rally 1.2% and the 10-year JGB yield fell for the first time in two weeks. The 13 basis point decline was the largest single day decline this year. The dollar, which had been near JPY162.40, fell to JPY161.30 before finding new bids. Separately, the PBOC set the dollar’s reference rate below CNY6.80 for the first time in three years. 

Federal Reserve Chair Warsh named key personnel for the new task forces. They appear highly respected and credible, and some diversity of experiences and political perspectives. It seems like a healthy exercise to examine first principles from time-to-time. Meanwhile, technical talks between the US and Iran reportedly are continuing and August WTI, which peaked on Wednesday slightly above $76, approached $71 today and is near $72 ahead of the start of the North American session. 

Prices 

G10

• The euro traded in a $1.1375-$1.1475 range on July 2 and remained within it this week. The euro managed to push above the 20-day moving average (~$1.1440 today) and rose to $1.1460 before it reversed lower in Europe and fell to new session lows near $1.1425. It has not settled above it since the eve of the June 17 hawkish hold announced by the FOMC. Yesterday’s low was around $1.1415 and a close below it weakens the technical tone. That said, there are 2.6 bln euro in options that expire today in between $1.1400 and $1.1405. 

• Despite reporting a record current account surplus earlier in the week and yesterday’s Ministry of Finance weekly data that showed Japanese investors continued to sell foreign stocks and bonds last week, the yen found little traction. However, the yen has come back bid today on the back of a firm PPI and the call by Finance Minister Katayama to encourage the national pension funds to increase their investment in domestic assets. The dollar was sold to JPY161.30, slightly ahead of the week’s low set Monday, closer to JPY161.20. The greenback has recovered to about JPY161.85 in the European morning. The intraday momentum indicators suggest there may be scope for additional USD gains, with the JPY162 posting the initial hurdle. 

• Sterling continues to trade impressively and rose yesterday for the tenth session in the past 11. The daily momentum indicators are not overextended. The next target is around the June 15 high, $1.3460, which also corresponds to the (61.8%) retracement of sterling’s losses since the May Day high (~$1.3660). It reached slightly above $1.3450 in the Asia Pacific session before stalling. It eased back to almost $1.3410 in Europe. Support is seen in the $1.3380-$1.3400 area. There are options for GBP1.37 bln in that band that expire today. 

• The Canadian dollar edged slightly higher yesterday, but it was not convincing. Perhaps some were deterred by anticipation of today’s labor market report, which will be hard pressed to be better than last month’s (154k jump in full-time employment and a drop in the unemployment rate to 6.6% from 6.9% on a steady participation rate). The greenback frayed the 20-day moving average (~CAD1.4165 today) for the first time in nearly two months but it settled above it and held above the CAD1.4150 support. Follow through US dollar selling today saw it fall to almost CAD1.4135 today, its lowest level since June 19. However, the greenback recovered from Asia Pacific low and returned to the CAD1.4170 area in the European morning. The intraday momentum indicators suggest this may be the extent of the US dollar’s recovery. 

• The Australian dollar was stuck in a quarter-cent range yesterday above $0.6925. The week’s high had been near $0.6960 but it reached $0.6970 today. It stalled and slipped back to almost $0.6940 where it was bought in Europe. The intraday momentum indicators are constructive.

EM 

• Mexico reported that headline price pressures subsided to their mildest in five years last month. Given the better risk environment yesterday and pullback in the US dollar more broadly, one might be forgiven for expecting the peso to have recovered more of Wednesday’s losses. The US dollar traded to about MXN17.5275, which is a little below Tuesday’s high (~MXN17.5450). Today, the Mexican peso enjoys a slightly firmer today. The US dollar found support near MXN17.50. The Colombian peso extended its post-election surge. Its nearly 1.5% surge yesterday, half of the week’s rally coming into today, led the emerging market complex higher. It has appreciated by about 12% since the end of May presidential election. 

• In line with its broadly heavier tone yesterday, the greenback slipped against the yuan. It had reached CNH6.81 on Wednesday and found bids near CNH6.7935 yesterday. However, encouraged by a new three-year low dollar fix, the offshore yuan reached its best level in about two-and-a-half weeks (~CNH6.7785). The dollar can finish below the 20-day moving average (~CNH6.7895) for the first time since the FOMC’s hawkish hold last month. The PBOC set the dollar’s reference rate at a fractionally new three year low today (CNY6.7989 vs. CNY6.8036 yesterday and CNY6.8047 a week ago).

• The Indian rupee edged up today. After falling in the middle of the week, the rupee spent yesterday and today consolidating with a slightly positive bias. The dollar reached INR95.6085 on Wednesday and saw INR95.2250 today. 

Other Markets

• With a few exceptions, the large equity markets recovered yesterday from the midweek air pocket. Investors seem to have concluded that given the nature of the two regimes, a wider berth must be given the Middle East “ceasefire”, while recognizing the unknown breaking point. The large equity market Asia Pacific rallied today, with the notable exception of China and Taiwan. South Korea’s Kospi’s 2.5% gain led the region, Europe’s Stoxx 600 fell in the first three sessions of the week. It recovered yesterday and is slightly firmer near midday in Europe today. US index futures are narrowly mixed. 

• Benchmark 10-year yields fell 4-7 bp in Europe yesterday and 4-5 bp in the US and Canada. It helped peripheral premiums, and in this case including France, narrowed. Yields are lower today, led by a 13 bp drop in Japan’s 10-year yield. European rates are mostly 2-3 bp lower and again peripheral premiums are narrowing. The 10-year US Treasury yield is off a couple of basis points to 4.53%, a three-day low. 

• Gold settled firmly yesterday and snapped a three-session slide that followed a three-session rally at the end of last week. It stalled today and slipped back below $4100. A close above the $4135 area would end the week on a firm note even if below last week’s close (~$4177). Silver also snapped three-day slide, which followed a four-day rally last week. It has struggled to find much buying interest above $60 in recent sessions after it settled last week a few pennies below $62.50. It rose to about $60.75 earlier today but met sellers that pushed it back to $59.50. 

• August WTI recorded yesterday’s session lows late in the NY afternoon near $71.40. Wednesday’s low was $71.75. It reached a three-day low today near $71.15. It is not a return to the status quo ante, but it does seem to be consistent with the idea that perhaps because neither side wants escalation that the ceasefire can be more resilient than one would have suspected.

Data

• Canada’s June employment report is the main feature of today’s North American session. It is difficult to envisage a better report than May’s, which saw a 154k increase in full-time employment and fall in the unemployment rate to 6.6% from 6.9% and a steady participation rate (65%). Still, after contracting in Q4 25 and Q1 26, the Canadian economy appears to have returned to growth in Q2. 

• Yesterday, Mexico confirmed consumer price pressures are moderating. At 3.37% in June, the headline pace is the lowest in five years. The core rate fell for the fifth consecutive month and at 4.03%, it is the lowest since April 2025. Today, data may show the economic recovery is uneven. May’s industrial output is expected to have contracted by 0.7% after the 2.1% surge in April. That would be sufficient to push the year-over-year rate back below zero, which, with a few (4) exceptions, has generally been shrinking since mid-2024. 

• Japan reported a 0.4% rise in June’s PPI, which lifted the year-over-year rate to 7.1% from a revised 6.6% in May (initially 6.3%). It is the fourth consecutive increase in the year-over-year rate and the highest since early 2023. Meanwhile, the chip and AI frenzy has seen Japanese machine tool orders soar. They rose 52.8% year-over-year in June after a 37.5% jump in May and a 45.1% increase in April. Japanese machine tool orders ae the strongest since late 2021 and early 2022. 

Disclaimer