Snapshot: The Nikkei 225 closed down 1.23% at 59,804, driven by a surge in Japanese government bond (JGB) yields to levels not seen since 1996. This hawkish shift is fueled by stronger-than-expected economic growth and increasing expectations of a Bank of Japan (BoJ) rate hike, possibly as early as next month.
- Watch for further moves in the 10-year JGB yield; continued upward pressure will likely weigh on the Nikkei.
- Increased volatility presents downside risks; monitor upcoming Japanese trade and inflation data for confirmation or reversal of tightening expectations.
Bias into NY: We expect continued selling pressure on the Nikkei as higher JGB yields and global risk aversion, signalled by rising US real yields, create a challenging environment. Look for initial support around 59,500.