Key Highlights

• Japan’s Komeito party plans to exit its coalition with Japan’s ruling LDP due to disagreements over party funding rules.
• China will impose reciprocal special port fees on U.S. vessels from October 14.
• President Dina Boluarte of Peru has been impeached and replaced on an interim basis by Congress Leader José Jerí.

Chart of the Day

Pressure on JPY intensifying, but sales also at risk of reversal

^{Source: BNY}

JPY has found some relief over the past 24 hours, as the 26-year-old alliance between the Komeito party and the ruling LDP has come to an end. Various other smaller parties including Ishin and the DPP are talking up the chances of collaboration, increasing the possibility that Takaichi might not become prime minister, although this is still not the market’s base case. On a tactical basis, this puts several positions established since the LDP leadership election on October 4 at risk. Our data indicate that JPY has been on its worst run of sales since early Q2, and that was almost exclusively attributed to external factors at a time when the country looked to be heavily impacted by U.S. tariffs. The difference this time around is the perception that JPY could damage its traditional safety status with a new round of policies akin to the first stages of Abenomics. This week also generated the biggest outflow in JGBs in over a month, though the magnitude was relatively light and we don’t see external investors being able to move prices on a marginal basis. Ultimately, Takaichi is expected to find a path to the premiership, but if that comes at a price of material moderation in her economic and social policies, JPY and JGB-related “hedging” flow could also face strong reversals.

What's Changed?

Investors are searching for the sweet spot where balanced risk and reward can be found across asset classes. The drop in gold prices to below $4,000 should be a signal for hopes that such a place is in sight, but risk aversion has persisted in uneven fashion: APAC sold equities on rises in Japanese political uncertainty and U.S./China trade tensions. In Japan, the LDP has lost its longtime coalition partner Komeito over budget disputes. There are mounting doubts in Japan over whether Takaichi can implement pro-market policy like former PM Shinzo Abe. Warnings over potential JPY intervention rose as well, with Finance Minister Katsunobu Kato concerned about “one sided, rapid moves” driving USD lower overnight. This helped bonds and hit shares. In China, following more rare-earth restrictions, new chip import restrictions, U.S. ship port fees and monopoly investigations started today. European markets were mixed, as France’s return to normal helped OATs move back into line with Italian BTPs, while Mārtiņš Kazāks of the ECB has pushed for more joint defense budgeting and holding rates here. EU shares saw autos and big banks gaining back, as pharmaceutical companies lagged behind. U.S. futures are slightly positive: there is no end in sight for the federal government shutdown, but there is at least talk of talks to do so, with the U.S. Senate skipping its recess next week. BLS workers are also being recalled to produce the CPI report for October, which is key for many government obligations, such as TIPS, social security and other contracts. The day ahead is set up for further concerns about the U.S. economy, with the University of Michigan consumer survey expected to drop further into recession territory. The focus on inflation expectations is also important in the report, as stagflation fears are back in vogue after comments from Fedspeakers this week. All this puts USD into a key role for the day, as the current pullback from the weekly highs in the index sets the tone for a moderate return to shares ahead of Q3 earnings reports next week. 

What You Need to Know

Japan’s ruling coalition has been fractured, as Komeito announced its withdrawal from the 26-year partnership with the Liberal Democratic Party (LDP). This came after the LDP, under its new president Sanae Takaichi, refused to accept Komeito’s proposal on political donations. Komeito leader Tetsuo Saito informed Takaichi on Friday that his party would end the alliance and nominate him, not Takaichi, for prime minister in the upcoming parliamentary session. The proposal, co-drafted with the Democratic Party for the People, called for stricter limits on corporate donations, including a ¥20mn annual cap per party and a ban on contributions to individual lawmakers. The LDP, Japan’s main beneficiary of corporate donations, rejected the restrictions while vowing selective cooperation on future legislation. Takaichi called Komeito’s departure “unilateral” and “regrettable,” but called for more talks next week. Nikkei -1.012% to 48088.8, USDJPY -0.236% to 152.71, 10y JGB -0.8bp to 1.688%.

Peru’s Congress has voted overwhelmingly to remove President Dina Boluarte from office on grounds of “permanent moral incapacity.” 122 out of 130 lawmakers supported the motion. The decision followed mounting unrest amid soaring crime rates and public outrage over corruption scandals, including the “Rolexgate” investigation and criticism of her salary increase. Boluarte, one of the world’s least popular leaders, with an approval rating of 2-4%, faced multiple impeachment bids during her turbulent tenure, which was marked by frequent protests and violent unrest. Congress leader José Jerí was sworn in as interim president early on Friday, as Peru currently has no vice-president. Boluarte’s removal makes her the sixth Peruvian leader ousted since 2018, underscoring persistent political instability. MSCI NUAM Peru General +1.453% to 39174.94, USDPEN -0.523% to 3.4265, 10y PGB +4bp to 6.16%.

China’s transport ministry has announced additional port fees per voyage for vessels owned or operated by U.S. firms or individuals, as well as those built in the U.S. or flying its flag. These will take effect from October 14. The measure is a direct counter to new U.S. port fees targeting Chinese-linked vessels, which will also take effect the same day. Under the U.S. rules, ships built in China or operated or owned by Chinese entities will be required to pay a fee at their first U.S. port of call. Washington’s move is part of a broader effort to bolster domestic shipbuilding and curb China’s influence in global commercial and naval shipping. CSI 300 -1.967% to 4616.83, USDCNY -0.085% to 7.124, 10y CGB 0bp to 1.851%.

French President Emmanuel Macron is scheduled to meet representatives of political parties at the Élysée Palace this afternoon, excluding the far-right Rassemblement National and far-left La France Insoumise. The invitation, sent overnight by text message, comes amid ongoing uncertainty over the appointment of a new prime minister. Names reportedly under consideration include Jean-Louis Borloo, Bernard Cazeneuve and outgoing premier Sébastien Lecornu. Macron’s decision to engage only with parties he deems “republican” and open to compromise underscores his efforts to restore stability before the 2026 budget submission later this week. The Bank of France governor and the head of the Cour des Comptes have urged political leaders to act responsibly to prevent a prolonged fiscal and institutional crisis. CAC40 +0.229% to 8059.77, EURUSD +0.13% to 1.1579, 10y OAT -2.3bp to 3.502%.

Australia’s economy remains in a “pretty good spot,” according to Reserve Bank of Australia Governor Michele Bullock, with inflation now within the 2-3% target band and unemployment still low. Speaking before parliament, Bullock noted that rising household consumption is offsetting weaker public demand, supporting continued growth. The RBA kept its cash rate unchanged at 3.6% last month, following three cuts since February, as it awaits clearer signs that inflation will remain near the midpoint of its target. Officials will assess September employment data and the third-quarter inflation report on October 29 before the November 3-4 meeting, where markets expect another easing. Bullock cautioned that services inflation remains “sticky” despite improved overall conditions. ASX -0.155% to 5130.2, AUDUSD 0% to 0.6556, 10y ACGB +1.5bp to 4.364%.

What We're Watching

U.S. October preliminary University of Michigan Consumer Sentiment forecast to ease to 54.0 from 55.1. The focus will be on current conditions, set to slow to 60 from 60.4, and 1y and 5-10y inflation expectations forecast to be unchanged at 4.7% and 3.7%, respectively.

Central bank speakers: Chicago Fed President Austan Goolsbee gives opening remarks at the reserve bank’s 19th Annual Community Bankers Symposium; St. Louis Fed President Alberto Musalem speaks about the U.S. economy and monetary policy in a fireside chat at the Springfield Area Chamber of Commerce. 

What iFlow is Showing Us

Mood: iFlow Mood continues to drift further into negative territory, with greater selling force in equities than core sovereign bonds. iFlow Mood is at -0.038.

FX: HUF, JPY and USD were most sold within the iFlow universe, against good buying flows in DKK, CZK and PHP, followed by GBP and CHF. Elsewhere, FX flows were biased toward buying, in light magnitude.

FI: Strong buying demand for Eurozone and Singapore government bonds and U.K. gilts. There were notable outflows in Chilean and Turkish government bonds. Elsewhere, cross-border flows showed a fourth straight day of buying for U.S. Treasurys.

Equities: Australian and U.K. equities were significantly sold followed by Canada, Europe and Peru. Japan and South Africa posted the most inflows. Elsewhere, EMEA equities were sold, against mixed flows in APAC equities.

Quotes of the Day

“It’s a good place when all you have is hope and not expectations.” – Danny Boyle

“Be sure you put your feet in the right place, then stand firm.” – Abraham Lincoln

Economic Details

Italy’s seasonally adjusted industrial production fell 2.4% m/m in August 2025 following two months of modest increases, while output for the June-August period declined 0.6% q/q. All main sectors contracted m/m, with energy down 0.6%, consumer and intermediate goods both down 1.2% and capital goods down 2.2%. On a calendar-adjusted y/y basis, overall production dropped 2.7%, as energy fell sharply by 8.6% and consumer goods by 2.3%, while capital and intermediate goods rose 0.7% and 0.2%, respectively. The strongest annual gains were seen in pharmaceuticals (+16.1%), transport equipment (+9.9%) and refined petroleum products (+7.1%), while electricity, gas, steam and air supply posted the steepest decline at -13.5%. FTSEMIB -0.062% to 42765.05, EURUSD +0.13% to 1.1579, 10y BTP -1.9bp to 3.489%.

Switzerland’s consumer sentiment weakened slightly in September 2025, with the SECO Consumer Sentiment Index falling to -36.5 from -33.7 in September 2024. The decline was driven mainly by a sharp deterioration in expectations for the overall economy, which dropped to -53.0 from -19.4, signaling greater pessimism about future conditions. In contrast, perceptions of households’ past financial situation improved markedly to -40.0 from -53.1, and expectations for future finances also strengthened to -28.4 from -33.0. The subindex measuring the suitability of making major purchases rose to -24.8 from -29.4, suggesting a modest recovery in buying intentions. Overall, while financial confidence improved, economic outlook concerns continued to weigh on sentiment. SMI +0.018% to 12611.38, EURCHF -0.007% to 0.93242, 10y Swiss GB -0.7bp to 0.231%.

Sweden’s GDP rose 1.1% m/m in August, seasonally adjusted, while calendar-adjusted output was 2.4% higher y/y, according to the preliminary GDP indicator. The increase was driven by stronger household consumption and rising business sector production. Before reconciliation, GDP growth from both the production and use sides was estimated at 1.0% y/y, resulting in a final reconciled figure of 1.0%. The data, based on limited preliminary statistics, form part of ongoing experimental estimates outside official national accounts. August’s figures reflected one fewer working day than a year earlier, and only current-quarter months were subject to revision under Statistics Sweden’s regular balancing procedures. OMX +0.378% to 2740.366, EURSEK -0.143% to 11.0135, 10y Swedish GB -2.5bp to 2.704%.

Sweden’s household consumption rose 0.4% m/m in August 2025 on a seasonally and calendar-adjusted basis, and was 2.5% higher y/y in constant prices. Over the past three months, consumption increased by 2.6% y/y. Transport and motor vehicle services grew 2.6% m/m, while retail trade was flat and housing-related spending fell 0.3%. On an annual basis, all major sectors expanded, led by transport (5.4%) and recreation and culture (4.8%). Private sector production rose 0.9% m/m and 3.7% y/y, with industry output surging 5.1% m/m and 10.6% y/y. Construction rose 4.2% m/m but fell 2.4% y/y, while services grew marginally by 0.1% m/m and 3.0% y/y. Both datasets remain preliminary pending future revisions.

Sweden’s total industrial orders rose 7.2% m/m in August 2025 in seasonally adjusted terms, and were up 7.3% y/y on a calendar-adjusted basis. Both domestic and export markets contributed to the monthly rise, with domestic orders up 4.3% and export orders up 8.0%. On an annual basis, domestic orders grew 3.0% while export orders surged 10.1%. For January-August, total orders were 5.3% higher y/y, driven by a 9.1% increase in export demand, while domestic orders edged down 0.2%. The July figures were revised to show a smaller monthly decline of 1.7% and a 0.4% annual drop. August data remain preliminary pending further revisions.

Norway’s September 2025 CPI rose 0.4% m/m and 3.6% y/y, while the CPI-ATE (excluding energy products and taxes) increased 0.2% m/m and 3.0% y/y. Price gains were led by education (+2.5% m/m), clothing and footwear (+4.0% m/m) and communications (+1.1% m/m), while food and non-alcoholic beverages (-0.8%) and restaurants and hotels (-0.4%) declined. Housing, water, electricity, gas and other fuels rose 0.7% m/m and 6.2% y/y, reflecting ongoing housing cost pressures. By delivery sector, consumer goods prices increased 0.6% m/m and 3.9% y/y, services rose 0.1% m/m and 3.4% y/y and labor-dominated services excluding administered prices were up 0.5% m/m and 4.1% y/y, underscoring continued inflation in service components. Seasonally adjusted house prices were also up 1.3% q/q, 5.0% y/y for Q3 2025. OSE +0.045% to 1653.87, EURNOK +0.28% to 11.676, 10y NGB -2.9bp to 4.078%.

Czech consumer prices fell 0.6% m/m in September 2025, mainly due to a 21.1% drop in package holiday prices after the summer season and lower food prices, notably for vegetables (-3.9%), potatoes (-9.0%) and pork (-5.5%). Transport costs declined 0.7% amid cheaper fuels, while education costs rose 3.4% with the start of the school year. Goods prices fell by 0.4% and services by 0.9%. On a y/y basis, inflation eased to 2.3% from 2.5% in August, marking a third month of slowdown. Housing and utilities remained the main upward driver, with rents up 5.7%, water up 4.2% and heat up 2.2%. The harmonized CPI fell 0.8% m/m but rose 2.0% y/y, below the euro area’s 2.2%, confirming a continued moderation in price pressures. Prague SE +0.571% to 2375.16, EURCZK -0.329% to 24.295, 10y CZGB -1.8bp to 4.455%.

Türkiye’s total turnover rose 36.7% y/y in August 2025, driven by strong gains across all sectors, notably construction (+53.2%), services (+40.6%), trade (+35.6%) and industry (+32.4%). On a monthly basis, total turnover increased 2.0%, reflecting expansions in construction (+9.4%), services (+2.8%), industry (+1.9%) and trade (+0.9%). Separately, the trade sales volume grew 6.9% y/y, supported by wholesale and retail trade and motor vehicle repair (+12.8%) and retail sales (+12.2%), while wholesale trade rose 3.4%. Compared with July, total trade volume fell 1.4% as wholesale activity declined 3.1%, though retail sales advanced 0.9%. Overall, August data indicate continued robust annual growth in Türkiye’s trade and turnover indices, led by construction and services. BI 100 +0.066% to 10734.05, USDTRY +0.208% to 41.8252, 10y TGB -13bp to 31.21%.

New Zealand September PMI manufacturing stood unchanged at 49.9, signaling continued contraction and a lack of momentum in the sector. BusinessNZ’s Director of Advocacy, Catherine Beard, said that while it was good to see the September result not showing increased contraction from August, the sector remains agonizingly close to returning to expansion mode. Despite the sector remaining in technical contraction, four of the five main subindex values were in expansion during September. This was led by deliveries of raw materials (51.1), followed by finished stocks (50.4) and new orders (50.3). Production (50.1) managed to keep its head above water, but employment (47.5) was the primary factor behind the September PMI result not being able to reach expansion territory. NZX 50 -0.763% to 13467.26, NZDUSD +0.192% to 0.5756, 10y NZGB +3.1bp to 4.139%.

Japan September PPI rose 0.3% m/m, rallying from a -0.2% m/m decline in August. The y/y rate of increase stood steady at 2.7%. Export and import prices index both rose 0.1% m/m. Key monthly contributors to the rise in PPI included agriculture, forestry and fishery products (+0.29%), nonferrous metals (+0.08%) and petroleum and coal products (+0.04%). Export prices gains were led by metals and related products (+0.21%) and transportation equipment (+0.06%). Import prices increased mainly due to metals and related products (+0.13%) and petroleum, coal and natural gas (+0.10%). Overall, the data indicate moderate upward pressure on producer prices in September 2025, supported by commodity price gains and a stable yen exchange rate. Nikkei -1.012% to 48088.8, USDJPY -0.236% to 152.71, 10y JGB -0.8bp to 1.688%.

The BoJ’s quarterly sentiment report shows Japanese households’ longer-term inflation expectations rose to the highest level on record as the cost of living remained elevated. While the median forecast for annual inflation over the next five years was unchanged at 5%, the average projection edged up to 10%, the highest in a data series going back to June 2006. Households expect inflation to rise 11.9% over the next year on average, slightly down from 12.8% in the previous survey. Elsewhere, Japan saw total lending growth at major, regional and shinkin banks of 3.8% in September, from a downwardly revised 3.5% y/y. Excluding trust, total major and regional bank loan growth came in at 4.2% from 3.8% y/y.

South Korea’s official foreign reserves rose by $5.7bn in September to $422.0bn, up from $416.3bn in August. Securities accounted for 89.7% of total holdings at $378.4bn, followed by deposits at $18.5bn (4.4%), special drawing rights (SDRs) at $15.8bn (3.7%), gold at $4.8bn (1.1%) and the IMF position at $4.5bn (1.1%). The rise was driven mainly by a $12.3bn increase in securities, offset by a $6.5bn decrease in deposits. As of end-August, South Korea ranked tenth globally in foreign reserves, behind Hong Kong and ahead of other major economies such as Germany and Saudi Arabia. KOSPI +1.73% to 3610.6, USDKRW +1.035% to 1420.9, 10y KTB -0.8bp to 2.959%.

Malaysia proposed a 2026 federal budget of MYR 419.2bn, up 1.7% from 2025, targeting GDP growth of 4-4.5% and a fiscal deficit of 3.5% of GDP. The plan allocates MYR 338.2bn to operating expenditure and MYR 81bn to development, while revenue is expected to rise 2.7% to MYR 343.1bn. Subsidies and social aid spending will be cut by 14.1% to MYR 49bn amid efforts to better target support. Petronas dividends will drop to MYR 20bn, the lowest since 2017, reflecting lower oil prices. Inflation is projected at 1.3-2%. Prime Minister Anwar Ibrahim reaffirmed a commitment to fiscal discipline and reform, to strengthen revenues in the face of external risks and U.S. tariff pressures. KLCI -0.444% to 1622.44, USDMYR +0.143% to 4.223, 10y MGB -1.8bp to 3.494%.

Malaysia’s Industrial Production Index (IPI) expanded by 4.9% y/y in August 2025, up from 4.2% in July, supported by strong mining sector growth of 16.8%. Manufacturing output rose 2.8%, while electricity saw a steady 1.6% increase. The manufacturing sector was driven by export-oriented industries, which grew 2.3%, led by electronics (6.7%) and electrical equipment (7.4%), in line with a 1.9% rise in national exports. Domestically oriented industries grew 3.8%, aided by food processing (9.7%) and metal products (4.9%). On a m/m basis, overall IPI was up 2.4%. By region, there were rises for China (5.2%) and Taiwan (14.4%), but contractions for Japan, Thailand and Singapore. Over January-August, the IPI rose 2.7%, with slower manufacturing growth and declines in mining and electricity.

Malaysia’s manufacturing sector sales reached MYR 168.3bn in August 2025, expanding 2.7% y/y, down from 3.5% in July 2025. Growth was led by the food, beverages & tobacco sub-sector, which rose 9.6% (July: 8.9%). The electrical & electronics products and non-metallic mineral products, basic metal & fabricated metal products sub-sectors grew by 3.7% (July: 6.9%) and 3.3% (July: 3.8%), respectively. Export-oriented industries, accounting for 72.2% of total sales, grew 2.0% y/y (July: 2.7%), supported by manufacture of vegetable & animal oils & fats (+8.2%), computer, electronics & optical products (+3.8%) and machinery & equipment (+4.9%). Month-on-month, export-oriented growth rebounded to +4.2% (July: -0.3%). Domestically oriented industries expanded by 4.5% y/y (July: 5.6%), driven by food processing (+11.6%), basic metals (+4.3%) and fabricated metal products (+4.6%), with a 1.7% m/m increase.