0631 GMT - The dollar edges lower ahead of the U.S. nonfarm payrolls report at 1230 GMT as investors look for evidence on whether the Federal Reserve should raise interest rates as markets expect. With the U.S. and Iran signing a memorandum of understanding in June to end the war, the U.S. labor market comes into more focus for foreign exchange markets, Commerzbank's Volkmar Baur says in a note. However, this data will have less importance than in the past as new Federal Reserve Chair Kevin Warsh hasn't spoken much about the labor market and recent payrolls figures seem to be somewhat more volatile than previously, he says. The DXY dollar index falls 0.1% to 101.304. (renae.dyer@wsj.com)
0620 GMT - Risk of FX intervention is higher when the yen is underperforming, which the currency has only just begun to do, says RBC Capital Markets' Abbas Keshvani in an email. "For now, JPY is not as weak against Japan's major trading partners' currencies as it was before previous rounds of intervention," the director of Asia Macro Strategy says. The yen's nominal effective exchange rate has only fallen 0.7% during the past month, Keshvani estimates. By contrast, the yen NEER dropped 1.4% in the month before May's FX intervention and declined 2.4% in the month before July 2024's FX intervention, Keshvani estimates. The dollar is 0.2% lower at 162.21 yen, according to LSEG data. (ronnie.harui@wsj.com)
0605 GMT - Japan's upcoming public and private investment plans require careful attention to the risks of intensifying inflationary pressures and destabilizing the Japanese economy, says Mitsubishi UFJ Morgan Stanley Securities strategist Naomi Muguruma. As the Bank of Japan's latest tankan survey signals that companies are no longer hesitating to pass on rising costs, corporate inflation expectations are marching higher, driven by an acute labor shortage, high crude oil prices and a weak yen, she says. Such a shift suggests that any aggressive investment push could overheat the economy before productive capacity catches up. (megumi.fujikawa@wsj.com)
0553 GMT - Government bond issuance in the eurozone will come from Spain and France for a combined volume of up to 20.75 billion euros. Spain will auction 5 billion to 6 billion euros in May 2031-, April 2034- and October 2036-dated nominal bonds, plus a further 250 million to 750 million euros in November 2036-dated inflation-linked bonds. France, meanwhile, will offer 12.5 billion to 14 billion euros in May 2036-, November 2036-, April 2041- and May 2046-dated nominal bonds, or OATs. The supply should weigh on markets and investors may use it to scale into tactical longs in 10-year German Bunds at yields above 2.9%, Commerzbank's Erik Liem says in a note. (emese.bartha@wsj.com)
0543 GMT - U.S. Treasury yields rise in Asian trade across maturities as economic data remain solid. Thursday's focus will be on the June employment data, to be published a day earlier due to the holiday on Friday. "An outcome around expectations--and note that the outcome has surprised on the upside over the past three months--means that the Federal Reserve can continue to set the inflation target ahead of the employment target," SEB's Karl Steiner says in a note. Inflation, meanwhile, is expected to be on the way down as long as the Iran conflict continues to subside and doesn't have large second-round effects, the head of analysis says. The 10-year Treasury yield rises 1.8 basis points to 4.492%, according to Tradeweb. (emese.bartha@wsj.com)
0534 GMT - U.S. economic data will remain strong and clear way for the Federal Reserve to hike interest rates three times in 2027, Capital Economics' James Reilly says in a note. That would be more than is currently discounted, "putting further upwards pressure on short-term real yields," the senior markets economist says. However, Capital Economics thinks that these hikes will be unwound in 2028 and suspects the long-end of the Treasury curve will remain quite well anchored, with the 10-year nominal yield holding at around 4.25%-4.50%, he says. (emese.bartha@wsj.com)
0532 GMT - The U.S. Treasury yield curve has flattened over recent weeks despite an offsetting fall in inflation expectations, and could even invert, Capital Economics' James Reilly says in a note. "We wouldn't be surprised if this curve inverted, but we don't think a U.S. recession is likely," the senior markets economist says. The flattening over the past month or so has been driven by rising two-year yields as the 10-year yield has edged down. Falling term premia has helped bear down on long-dated real yields, strong economic activity has pushed up short-dated real yields, and the collapse in oil prices has put downward pressure on short-term inflation expectations, he says. "Our sense is that this curve flattening has room to run." (emese.bartha@wsj.com)
0520 GMT - The outlook for government bonds has improved amid easing geopolitical tensions and falling energy prices, analysts at The Investment Institute by UniCredit say in a note. However, they reckon that the cautious stance of central banks is likely to prevent a significant decline in yields. They expect the 10-year U.S. Treasury and 10-year Bund yields to trade around 4.5% and 3%, respectively, over the coming quarters. Short-dated U.S. Treasury yields have room to decline, as rate hike expectations appear overly aggressive, while the long end remains more exposed to fiscal risks, they say. On Wednesday, the 10-year Bund yield closed at 2.876%, according to Tradeweb. The 10-year U.S. Treasury yield last trades at 4.487%, up 1.4 basis points. (emese.bartha@wsj.com)
0518 GMT - Malaysia's economic growth could be constructive in 2H, reaching around 4%-4.5%, supported by strong exports and domestic consumption, FSMOne's Alwyn Chew Chuan Shyn says at an event in Kuala Lumpur. Despite elevated oil prices due to the Middle East conflict, the impact on inflation could be manageable, given the government's cash aid program, the analyst says. He expects inflation to be around 2% in 2026 but says the cost pass-through warrants close monitoring. Chew sees Bank Negara Malaysia keeping rates on hold throughout 2026 and the dollar reaching 4.05-4.15 ringgit by the year-end. The dollar is 0.3% lower at 4.0800 ringgit. (yingxian.wong@wsj.com)
0515 GMT - There is more value in eurozone government bonds than in U.S. Treasurys, according to The Investment Institute by UniCredit. The reason for this view is that the U.S. is more exposed to fiscal risks, its analysts say. In the eurozone, they envisage the 10-year Italian BTP-German Bund yield spreads to hover around 70 basis points. The analysts see the scope for a substantial decline in German yields as limited given the European Central Bank's hawkish stance. The 10-year BTP-Bund yield spread closed at 78 basis points on Wednesday, according to Tradeweb. (emese.bartha@wsj.com)
0500 GMT - There seems to be a high chance for joint U.S.-Japan foreign-exchange intervention to prop up the yen, TD Securities' Macro Research team says in a research report. In a media interview reported Wednesday, Japanese top currency diplomat Mimura's "repeated mention of the U.S. is an attempt to jawbone the market that U.S. officials may be agreeable to a bilateral intervention, which would be a more forceful FX intervention," the team says. "In this scenario, USDJPY could fall much more than the typical 5 figure drop in previous unilateral intervention episodes," the team says. TD Securities perceives Mimura's comments as "deliberate attempt to send a clear warning to yen speculators from pushing USDJPY beyond the 163 level." The dollar is 0.1% lower at 162.39 yen, LSEG data show. (ronnie.harui@wsj.com)
0434 GMT - If Japan's Prime Minister Sanae Takaichi uses her "Basic Policy" economic blueprint--for which Cabinet approval is expected this month--to discourage additional interest rate hikes, it could push back the timing of the Bank of Japan's next move, says Nomura Research Institute economist Takahide Kiuchi. "Even if the government objects, the BOJ will raise rates when it judges doing so necessary--but it will likely show some degree of deference to the government's wishes regarding timing," he says. "Government pressure against BOJ rate hikes risks further weakening the yen and pressuring bond prices lower, which would undermine the stability of the economy and financial markets," he adds.(megumi.fujikawa@wsj.com)