Asian morning bites

US Treasury yields finished lower, though not before the yield on the 10Y bond tried to reach 3.50%. at one point. 10Y yields ended down 8.9bp at 3.19%. 10Y US Treasury futures are positive, so it feels like we may see some further declines in yield today. 2Y Treasury yields also dipped by 9.7bp to finish at 3.093%. European yields were mainly up on the day, in response to the SNB move, though Italian bond yields continued to be cushioned by talk of the ECB’s theoretical anti-fragmentation tool. Whatever that ends up being.

The USD was weaker, though, despite plunging market sentiment. EURUSD recovered to 1.0548. mostly during the US session. Cable also rose, touching 1.24 at one point and now 1.2347. The AUD is also back above 0.70 again trading at 0.7043 currently. Ahead of what might be an interesting Bank of Japan (BoJ) meeting today (lots of market chatter about a possible change to the yield curve control boundaries), and the JPY is back down to 1.32. That may be enough to keep the BoJ from any action today (consensus is for no change), though the 10Y JGB yield is only just below 0.25% at 0.249%, so rule nothing out (see also below).

Asian FX was a very polarised group yesterday, with JPY gains at one end, dragging along the SGD, CNH and KRW for the ride. At the other end, the THB continues to languish. The PHP and IDR also missed out on gains, though may have better luck today.

Japan: The Bank of Japan meets today and markets expect no change which would leave the BoJ a dovish outlier. Inflation of above 2% and a weak JPY have created a conundrum for the BoJ. At today’s meeting, we expect the BoJ to stress its efforts to support the fragile economy but also express concern about the risk of further and, more importantly, “rapid” weakness in the JPY due to the widening yield gap with other major economies.

Interestingly, according to several newswires, there is a split in policy expectations inside and outside Japan. Although the domestic consensus remains unchanged, overseas analysts are forming a consensus that the BoJ will widen the bandwidth for YCC or expand its bond-buying operation from 10Y to other maturities. We believe that the likelihood of such an option is growing, and the BoJ may shift its stance on the YC sometime in 2H, but not at today’s meeting.

Meanwhile, the Japanese government announced that it will raise travel subsidies to a max of 11,000 yen/day per person (vs 7,000 current) and expand the program nationwide in July. The program will run until the end of August, excluding the Obon summer holidays. Such a program will boost domestic demand but also play a factor to push inflation further up.

Singapore: May NODX is just out and posted a stronger than expected 12.4% YoY pace of growth (consensus 7.5%). The electronic sub-sector grew by a robust 12.9%YoY. Non-electronics exports rose 12.2%, though this must have been mainly due to the catch-all "other" category as pharmaceuticals and petrochemicals were both quite soft.

Singapore NODX (17 June)

Malaysia trade (17 June)

BoJ meeting (17 June)

US industrial production (17 June)