JGBS: Futures Weaker Overnight, Natl CPI Broadly In-Line

In post-Tokyo trade, JGB futures have upticked, +2 compared to settlement levels, after the US Treasury curve bull-flattened following Monday’s holiday, as market focus remained on Trump administration policies post-inauguration. US yields ended 1-5bps lower.

• Offshore data was limited: the January Philly Fed non-manufacturing survey was soft, and Canadian CPI came in below expectations.
• With 2025 Fed rate cut expectations fairly static (and the FOMC is in its pre-January meeting blackout period), the US tsys short end remained anchored.
• Wednesday's US data calendar remains light, with MBA mortgage data and the December Leading Index - more focus will be on $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
• Today, the local calendar will see BoJ Rinban Operations covering 1-25-year JGBs.
• BoJ Policy Decision is on Friday, with a 25bp hike expected. A hike will put the BoJ's key rate at 0.5%, its highest level since 2008.

Q4 headline inflation was significantly impacted by some volatile components thus making underlying measures important to gauge the trend. The RBNZ releases its sector factor model estimates today at 1500 NZDT (1300 AEDT) and core is likely to moderate further towards the target band from its Q3 reading of 3.4% y/y. Non-tradeables inflation has a 77% correlation with the RBNZ’s core measure and the two have moved very closely since 2021. The former remained elevated but moderated 0.4pp to 4.5% y/y in Q4, lowest since Q3 2021, signalling a further easing in underlying inflation when the RBNZ data is released. 

NZ CPI y/y%

The USD is better bid following a Trump press conference at the White House. NZD/USD is down 0.30% to 0.5660. AUD/USD off 0.20% to 0.6260. EUR/USD is down by the same amount to 1.0405/10. USD/CNH is back above 7.2800. CAD and MXN are around 0.10% weaker against the USD. 

• The meeting started with a focus on AI investment, but market focus rested with remarks on tariffs.
• Trump made a number of remarks, see below for key quotes: ""Trump says his threats to impose 25% tariffs on Mexico and Canada and 10% on China on Feb. 1 have nothing to do with renegotiating the USMCA treaty, but instead it’s about the flow of fentanyl into the US." BBG
• This follows an earlier WSJ story, where it was reported the tariff threat was a negotiation tool: "*TRUMP USING TARIFFS THREAT TO PUSH FOR EARLIER USMCA TALKS: WSJ"
• "Trump: “We’re talking about a tariff of 10% on China, based on the fact that they’re sending fentanyl to Mexico and Canada.” BBG
• "U.S. President Donald Trump on Tuesday said his administration is discussing imposing a 10% tariff on goods imported from China on Feb. 1 because fentanyl is being sent from China to Mexico and Canada." RTRS
• The comment around the Feb 1 date, was spoken by Trump as he was discussing timelines for Mexico/Canada, so the market may want to seek greater clarity on any planned tariff dates.
• Trump also noted: ""TRUMP: EUROPEAN UNION WILL BE IN FOR TARIFFS - [RTRS]".
• These comments followed earlier remarks from Trump, which highlighted his fondness for former President William Mckinley. 
  "And he praises former president William McKinley’s use of tariffs to raise revenue, calling him “the tariff king.”" BBG. Trump remarked this was the US's richest period (in a relative sense).
• This suggests tariffs will be front and center from a policy standpoint in the Trump administration.