Japanese Yen Strengthens Amid US ADP Job Report Fallout and Market Speculations

Market Responses to US ADP Report

A less than stellar US ADP job report has sent ripples through the financial markets, affecting long-dated yields the most. Investors saw yields on treasuries with maturities ranging from 10 to 30 years decline by 6.1 to 8.9 basis points (bps). Specifically, the yield on the 10-year bond moved below the 4.13% support level—a key halfway point in the increases seen during 2023—and stabilized just above a subsequent support level at 4.09%. While there was a slight gain in yields at the short end of the curve, there is speculation that the market has fully priced in the potential for Federal Reserve rate cuts anticipated to begin in March 2023.

Global Yield Trends and Central Bank Decisions

In alignment with the US, German bond yields followed a similar pattern, albeit with more moderate fluctuations. The long end dropped by 7.5 bps, outshined by the UK's government bonds, which showed even stronger performance amid rising bets on policy pivots by major central banks. Meanwhile, in Asia, the Japanese bond market struggled significantly, with yields rising sharply following hints from Bank of Japan officials that an end to negative interest rates might be on the horizon, and a poorly received 30-year bond auction. This led to increased speculations about an imminent rate hike.

Impact on Foreign Exchange and Policy Rates

The yen surged in strength, bringing the USD/JPY exchange rate to its lowest since September, while the EUR/JPY extended its downward trend. In contrast, other major currency pairs saw limited movement. In terms of policy rates, both the National Bank of Poland and the Bank of Canada held them steady, at 5.75% and 5.0%, respectively, but hinted at different paths moving forward. The markets perceive that these banks, like others, may soon be inclined to adopt easing policies.

Markets, Yields, Currencies