Large yen swings followed the BOJ rate hike, though broader currency moves were contained. Sovereign bond yields rose, with 10-year US Treasury yields back near 5%. US equities were little changed, while major European indices weakened

US equities were little changed into the end of last week, despite a weak session for major European indices and a move higher in global bond yields. The US 10-year Treasury yield rebounded towards 5.0%, while French yields reached their highest level since 2008. The yen experienced large swings after the Bank of Japan meeting, although broader currency market moves were contained. Brent crude held steady near US$104 per barrel as energy markets assessed the potential for renewed diplomacy and the expected partial restoration of Saudi Arabia’s East-West pipeline.

The Bank of Japan raised rates by 25bp to 1.25%, as widely expected, though the decision was not unanimous, with board members Toichiro Asada and Ayano Sato dissenting in a 7–2 vote. The BOJ reiterated that it would continue raising rates if its outlook for economic activity and prices is realised. Governor Kazuo Ueda offered mixed guidance on the path ahead, saying the stage for policy setting had shifted while also noting it was difficult to determine the terminal rate for the current tightening cycle.

The yen initially weakened after the meeting, with USD/JPY rising above 158 from around 156, as traders were disappointed by the lack of clearer guidance on further rate hikes. USD/JPY reversed sharply lower overnight Friday after the Nikkei reported that the Bank of Japan had conducted rate checks, often viewed as a precursor to intervention. Outside the yen, G10 currencies were little changed from the NZ close after an initial move higher in the US dollar reversed.

The NZD traded in a narrow range around 0.5715, with only small net moves on the main cross rates. NZD/AUD had fallen to fresh cycle lows during Friday’s local session and dipped below 0.8020 offshore, after earlier comments from RBA Governor Bullock during parliamentary testimony were interpreted as hawkish. She noted that upside inflation risks appeared to be materialising and said the RBA would need to consider whether previous rate increases had been sufficient. Separately, NZD/CNH slipped to a fresh multi-year low as the PBOC continued to guide the yuan stronger against the US dollar ahead of a meeting between Presidents Xi and Trump.

Global bond yields rose despite limited data and no obvious catalyst. Treasury yields moved steadily higher through the session, with the 2-year yield rising 7bp to 4.74%, its highest level since July 2024, and the 10-year yield touching 5.00% driven by an increase in real yields. The move was mirrored in bunds and gilts. The French 10-year spread to bunds widened to 105bp, a 14-year high, as investors demanded more compensation for France’s large budget deficit and ongoing political uncertainty.

August NZ inflation partials were slightly stronger than we expected, nudging our Q3 annual CPI estimate up to 3.8%. Our quarterly forecast remains 0.7% q/q due to rounding. This is still below the RBNZ’s September MPS forecast of 0.8% q/q and 3.9% y/y, so Q3 is unlikely to deliver an upside surprise. Q4 looks more challenging, with higher fuel prices and a weaker NZD adding to inflation pressure. Our current annual inflation forecast is 4.2%, above the RBNZ’s 3.9% projection.

The NZ curve ended lower and flatter in Friday’s local session, tracking offshore moves. The 2-year rate fell 4bp to 3.98%, while the 10-year rate declined 6bp to 4.64%. The 2s10s curve flattened to +66bp, returning to its July cycle low. Australian 10-year bond futures are around 5bp higher in yield terms relative to the local close, suggesting an upward bias for yields on the open.

There is no domestic or international economic data scheduled today. The week ahead is also relatively light, with the NZ calendar clear. Offshore, flash PMIs are due in the US, UK and euro-zone. In Australia, August labour force data will be the final key release before the RBA’s 29 September decision. In the US, attention turns to a busy schedule of Fed speakers.

Stuart Ritson is a senior Strategist at BNZ Markets.