Daily Agenda: Japanese Bond Yields Rise

Japanese government bonds sell off on deflation worries; U.S. jobs data takes center stage ahead of the September Fed meeting; South Korean GDP stronger than forecast.

Bank of Japan

TOKYO JAPAN - MAY 9, 2015: Bank of Japan. Bank of Japan is the central bank of Japan which is often called Nichigin for short.

On a day when U.S. employment data puts Federal Reserve policy in the spotlight, markets indicate growing concerns over the limits of monetary policy. A shift in Bank of Japan asset purchases saw yields climb for long-dated Japanese government bonds in Tokyo this morning, with ten-year bonds climbing close to positive levels and as long-dated bonds fell to multimonth lows in trading. Japanese investors have found it difficult to come to a clear understanding of Bank of Japan intentions after a July meeting that included confusing rhetoric about the need for a policy reassessment combined with a public dismissal of a so-called helicopter money strategy by Bank of Japan governor Haruhiko Kuroda. While Japan’s central bankers fret over further experiments in negative rates or asset purchases, most indicators seem to demonstrate that the growth and inflation they crave remains elusive. Even the record low unemployment rate reported by Japan’s Statistics Bureau on Monday was undermined by anemic wage growth that many economists fear will continue to dampen inflation. Declining exports and production and a pullback in stock markets following a rally in the yen — even after this week’s reversal — remains a drag on external demand. As the summer ends, the question for many allocators is whether Prime Minister Shinzo Abe will be able to roll out the stimulus measure announced over the summer in time to support quantitative-easing actions that so far have failed to gain traction.

U.S. employment data weaker than expected. U.S. Department of Labor employment figures for August released this morning were slightly softer than consensus forecasts, with a payroll increase of 151,000 versus an anticipated 180,000 and an unchanged headline jobless rate of 4.9 percent. Critically, July payrolls were adjusted upward to 275,000. While indicating that the pace of improvement in the labor market is moderating, multiple analysts noted that the data was still strong enough to support a gradual tightening policy by the Federal reserve in the coming months.

GDP in South Korea bests expectations. South Korean Finance ministry data released today revealed that the pace of growth during the second quarter was more robust than consensus forecasts at 0.8 percent. According to a report by Reuters citing unnamed ministry sources, Korea’s economy is likely to achieve the 2.8 percent annualized paced targeted by the government for full-year 2016. Separately, many analysts see the decision by government officials in Seoul to not seek a merger candidate for Hanjin Shipping to avoid a bankruptcy as a signal South Korean leaders are no longer willing to support failing private sector players.

SpaceX rocket destroyed on pad in explosion. Private-sector space firm SpaceX, controlled by billionaire Elon Musk, suffered a setback on Thursday when a launch vehicle exploded during fueling at the company’s launch site at Cape Canaveral. The blast did not result in injuries but destroyed the satellite on board owned by Spacecom in a joint effort with Facebook and Euteslat Communications that’s part of a program to improve connectivity in sub-Saharan Africa. SpaceX has successfully launched 25 rockets from the site previously.

In advance of spin-off, Yum takes on Chinese investors. Today Yum! Brands announced a sale of shares in its Chinese unit totaling more than $450 million in value to Primavera Capital Group and an Alibaba Group investment vehicle. The move to sell a stake in advance of a planned IPO spin-off in late October. Primavera’s CEO Fred Hu will serve as chair of the newly independent Yum China.