Japan's market on the 4th could see a triple rise, with stocks, the yen, and bonds all advancing. The retreat in US rate hike expectations following comments by Federal Reserve Board Governor Waller is a tailwind. For the yen and bonds, speculation that the Bank of Japan's accelerated rate hikes will reduce future inflation risks, as well as expectations that the Government Pension Investment Fund (GPIF) will increase its purchases of yen bonds, are also supportive. Stocks are set to follow the sharp rise in US equities on the back of easing rate hike expectations. Fed Governor Waller indicated that there are signs of improvement in price pressures, and if next week's inflation data improves, he could support holding rates steady at this month's Federal Open Market Committee (FOMC) meeting. The probability of a September rate hike implied by federal funds futures has fallen from around 70% earlier in the week to about 50%. This has also lifted US Treasuries (with yields falling), providing a tailwind for yen bonds. The yen, which surged over the past two days, is expected to remain firm today. While there may be moves to buy the dollar on its perceived cheapness domestically, yen buying is likely to be favored given recent comments by US Treasury Secretary Bessent and speculation of accelerated BOJ rate hikes. Depending on upcoming US economic indicators, such as the employment report due out tonight Japan time, the yen could test the 155 level, which has been a resistance ceiling against the dollar over the past six months.
Speculation of accelerated BOJ rate hikes and reduced inflation risks support yen bonds, pushing yields down.
