TARIFFS: Europe To Respond To US Later, Watching Pharma Developments

A former RBNZ economist shares his OCR outlook.  
On MNI Policy MainWire now, for more details please contact sales@marketnews.com

Yen is the only G10 currency tracking higher against the USD at this stage. The BBDXY index is close to unchanged in the first part of Tuesday dealings, last near 1292.4. 

• USD/JPY was last near 149.20/25, up around 0.25% in yen terms. Session lows rest at 148.99, which is just under Monday intra-session lows of 149.10.
• We have had comments from Japan's Finance Minister Kato, who stated the country is not devaluing the currency. This comes after Monday comments from US President Trump that weaker FX levels from Japan (and China) were harmful to the US and could result in tariffs.
• US yields continue to track lower, the 10yr last near 4.12%, off a further 3.5bps. This is lows back to Oct last year. This is likely helping yen at the margins. US equity futures are marginally higher, following strong cash losses in Monday trade. Regional equities are mostly tracking lower in line with Wall St moves.
• Tariff concerns remain front and center, while the US has also announced it will cease military aid to the Ukraine.
• On the data front, Japan's Q4 Capex was weaker than expected. This suggests Q4 GDP will be revised lower. Ex software spending was still positive in q/q terms. Company profits were also up strongly, providing some offset.
• AUD/USD is down, but at 0.6205/10 is still up from Monday lows (0.6199). We are 0.25% weaker against the USD, with NZD/USD down by a similar amount, last near 0.5605/10.
• The RBA mins have printed, which outlined the RBA's hawkish cut case. On the data front, retail sales rose 0.3%m/m, in line with forecasts, while net exports will add 0.2ppts to Q4 GDP (which prints tomorrow). Public sector demand is expected to have added 0.2ppt to Q4 growth. 

In Tokyo morning trade, JGB futures are stronger, +8 compared to settlement levels, after reversing overnight weakness.

• Alongside a slightly higher-than-expected jobless rate, today’s data calendar has revealed other softer-than-expected economic indicators. Capital spending fell 0.2% y/y, missing the +5.0% estimate, while company profits rose 2.5%, falling short of the 3.0% forecast. Meanwhile, February’s monetary base data aligned with expectations at -1.8% y/y.
• “Japanese businesses boosted capital investment in the final three months of 2024, but the pace of gains slowed on a quarterly basis, and outlays fell year on year for the first time since early 2021, as some firms turned cautious due to emerging concerns over the incoming US administration’s protectionist policies.” (per BBG)
• Cash US tsys are 2-3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
• Cash JGBs are flat to 3bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.3bps lower at 1.401% ahead of today’s supply.
• Swap rates are 1-3bps lower, with a flatter curve. Swap spreads are mostly tighter.