Japan\u2019s broad money supply measure, M2+CD, eased in June, with year-on-year growth slowing to 2.2% from 2.5% in the prior reading. The data point to a cooler pace of monetary expansion compared with the previous month.<\/p>\n\n
We see the recent dip in Japan’s money supply growth to 2.2% as a significant disinflationary signal. This reinforces our view that the Bank of Japan will remain on hold with its policy for the foreseeable future. Any talk of a rate hike is likely off the table for now.<\/p>\n\n
Consequently, we are positioning for further weakness in the Japanese Yen. The interest rate gap remains a key driver, with the latest US 10-year Treasury yield at 3.9% far exceeding Japan’s 1.0%. We will be looking at long USD\/JPY call options or futures, targeting a move higher in the pair.<\/p>\n\n
A weaker yen is typically a strong tailwind for Japan\u2019s export-heavy stock market. We’ve seen historically how a 10% depreciation in the yen can add several percentage points to Nikkei 225 earnings growth. We are therefore adding to long positions in Nikkei 225 futures, anticipating that exporter strength will lift the broader index.<\/p>\n\n
This data also solidifies our view on Japanese Government Bonds (JGBs). With the central bank firmly in a dovish stance, we don’t expect any upward pressure on domestic yields. We see opportunities in buying JGB futures, as any further signs of economic weakness could even push yields lower.<\/p>\n\n\n\n