BoJ hikes into a weaker yen as Ueda declares policy 'regime change'

EU mid-market update: Oil prices decline for 3rd straight session; BoJ hikes into a weaker yen as Ueda declares policy “regime change”; Huawei spends memory and optics around the lithography gap.

Notes/observations

- Japan has reached the awkward part of normalization where a rate hike can worsen the problem the hike is meant to contain. The BoJ raised rates 25bp to 1.25% in a 7–2 vote, but Ueda’s language was more consequential than the number: the old assignment was to drag inflation up toward 2%; the new one is to stop it wandering away from 2% in either direction. He gave markets no cadence, no terminal rate and no comfort that moves will remain 25bp - consecutive hikes and 50bp were left available - yet the yen promptly weakened roughly 1.0% toward 157.50 level and Japanese 2Y yields fell. That reaction creates an unpleasant loop: cautious guidance preserves the U.S.–Japan rate gap, the weaker yen re-imports oil inflation, and imported inflation increases the case for exactly the pre-emptive tightening Ueda says he wants to avoid having to do violently later. At 1.25%, the BoJ is already inside its own estimated 1.1–2.5% neutral range; the next hike can no longer be described lazily as “normalization” — it is an actual claim about where neutral is. Ueda’s line that going slowly is not always good is therefore less hawkish theatre than insurance against the possibility that excessive caution manufactures the need to move faster.

- UK has just done almost the mirror image: it removed duration from the market while preserving the option to make money itself more expensive. The BoE held Bank Rate at 3.75% by 6–3, paused active gilt sales for six months and permanently stopped selling long-dated bonds; the 30Y yield subsequently fell about 12bp to 5.74%. Then this morning August retail volumes unexpectedly rose 0.5% versus -0.2% expected, even as fuel sales weakened under higher pump prices. The sequence is telling: on Thursday the BoE stopped dumping duration into a market already short of natural long-end buyers; on Friday the consumer gave the MPC less reason to abandon its inflation vigilance. A November hike and zero long-gilt sales are perfectly compatible policies. Britain has effectively separated the price of money from the quantity of duration the private sector is being forced to warehouse.

- Iran says it struck an oil tanker for attempting an “illegal” Hormuz passage, and Brent is down another 2%, as Trump is threatening to “annihilate” the Iranian regime while his own State Department is still preparing to let Iran President and Foreign Min into New York for UN. That combination would have looked absurd two weeks ago. Saudi Arabia is reportedly working to restore roughly half of Petroline capacity, while additional barrels are being offered through ship-to-ship transfers off Oman; Brent has fallen toward $102.5 and WTI is back below $100 despite the tanker incident and renewed Saudi-Houthi exchanges. Oil is currently trading the amount of redundancy available behind the disrupted route rather than simply counting attacks. As long as Sohar transfers, inventories and partial Petroline restoration keep molecules moving, Iranian enforcement at Hormuz initially appears as extra insurance, freight and handling cost instead of a one-for-one loss of crude. The vulnerability has merely moved: destroying one workaround now has more price leverage because the market has already capitalised it into cheaper oil. Trump also preserves the option to move from maximalist rhetoric to negotiation without first rebuilding a channel he had already closed. For oil, that combination is awkward rather than reassuring: the military tail has become more explicit, but the diplomatic machinery has deliberately not been dismantled.

- Huawei’s Atlas 960E is an admission that China cannot yet win the AI contest one die at a time - and a serious attempt to make that fact less relevant. One SuperPoD uses as many as 4,096 Ascend NPUs, claims 8 EFLOPS FP8 and up to 1PB of HBM, while 5,500 Hi-ONE near-packaged optical engines replace what Huawei says would otherwise require roughly 48,000 800G optical modules, cutting more than 550kW of interconnect power. Nvidia’s Rubin is the opposite engineering philosophy: enormously capable silicon, 288GB HBM4 and up to 22TB/s per GPU, tied together through NVLink; the systems are not remotely apples-to-apples, but that is precisely the point. Huawei is spending memory, optics and machine size to compensate for weaker compute density. U.S. controls therefore push China’s bottleneck sideways: lithography scarcity becomes an HBM-per-useful-FLOP and interconnect-power problem. TrendForce already expects HBM supply to remain tight through 2027, while even Nvidia is evaluating lower-memory Rubin Ultra configurations. If Huawei can make 4,096 imperfect processors behave coherently enough, Washington eventually has to think about the components that make imperfection scalable—not just the accelerator itself.

- Humanoid startup Figure’s 56% success rate is still nowhere near household-product reliability; the economically interesting number is the zero hours of training collected inside those 30 houses. Helix 2.5 carried bed-making, towel-folding and tidying behaviours into 30 unseen homes with no site-specific fine-tuning, and Index pretraining alone lifted complete-task success from 9% to 56% while requiring half the task-specific data of the comparable Helix 02 policy. Figure also says increasing human pretraining data by 8× continued lowering action-prediction loss and that Index is now ingesting roughly 35 minutes of human experience every second - equivalent to about 50,400 human-hours of behaviour per day. The commercial bottleneck in humanoids has always been nastier than the robot sticker price: every new warehouse, hotel or house threatens to become another data-collection and integration project. A transferable policy attacks that labour bill directly. Figure has already committed $3.5B of compute to Helix, which makes its IPO story increasingly unusual: it is funding a foundation-model data centre whose output happens to have arms and legs.

- Amid new rumors about his health, China Pres Xi may arrive in Washington with several companies that U.S. policy has spent years trying to keep out of Washington’s market. Reuters says BYD, CATL, Xiaomi, Gotion, Hisense, Wanxiang and Bank of China are among names being considered for the September 24 delegation; BYD and CATL sit on Pentagon lists, Chinese connected vehicles face a U.S. sales ban from model year 2027, and Chinese EVs still face a 100% tariff. Trump, however, said last week he would welcome Chinese automakers if they build in America, while Beijing wants reciprocity after Trump brought U.S. CEOs to China in May. The guest list could therefore expose the real shape of the next trade bargain: Washington may remain hostile to Chinese imports and Chinese control of connected technology while becoming considerably more receptive to Chinese factories, employment and capital on U.S. soil. The White House has reportedly rejected Beijing’s proposed broad CEO roundtable, which makes the distinction sharper—selected industrial localisation may be negotiable even when broad commercial normalisation is not.

- US financial press reports that people close to the Sec of State Rubio have explored the timing of a possible departure and that he may sit out a contest if Vice President Vance runs; publicly, Rubio said last week that he has “no plans at this time” to run and is focused on his two government roles. The timing is conspicuous because Rubio currently spans State and national-security responsibilities while Washington is simultaneously managing the Iran war, the September 24 Trump–Xi meeting and a Pentagon review that could alter the U.S. troop footprint in Europe. He spoke with Wang Yi yesterday about upcoming high-level U.S.–China contacts and the Middle East. The reported private-sector option is therefore worth taking literally: leaving would not necessarily be the first act of a presidential campaign; it could simply be a decision to stop owning the administration’s foreign-policy balance sheet before the next cycle begins. For markets, the observable question is who would inherit the China/Iran/NATO coordination sitting inside Rubio’s unusually broad portfolio, not where an unannounced 2028 campaign would rank.

- Cross-asset: the strangest price of the morning is still the yen: USD/JPY ~157.5 after a BoJ hike, while the Nikkei gained close to 2% and Japanese 2Y yields fell around 4bp. Asian risk was broadly stronger, including KOSPI +2%+, helped by the third straight oil decline. Brent ~$102.5, WTI ~$100.0; the U.S. 10Y has retreated back toward ~4.95% after this week’s break above 5%, while DXY ~100.3 and EUR/USD ~1.148. European equities opened slightly softer overall but AI-linked names remain firmer, with ASML/Infineon among the relative supports; gold is holding around the $4.3k area after Thursday’s sharp post-Fed rebound.

Asia

- Bank of Japan (BOJ) raised Target Rate by 25bps to 1.25% (as expected) with vote being 7-2 (**Note: dissenters sought steady rates). Tone less hawkish overall (hawkish on direction but deliberately cautious on pace).

- Japan Aug National CPI Y/Y: 1.9% v 2.0%e; CPI (ex-fresh food) Y/Y: 1.7% v 1.8%e; CPI (ex-fresh food/energy) Y/Y: 1.9% v 2.0%e (**Note: reading showed stabilization without acceleration).

- South Korea Aug PPI Y/Y: 7.9% v 7.7% prior.

- New Zealand Aug Food Prices M/M: 0.3% v 0.1% prior.

- New Zealand Aug Trade Balance (NZD): -1.4B v -1.9B prior; Exports: 6.7B v 7.2B prior; Imports: 8.0B v 9.3B prior.

- RBA Gov Bullock reiterated monetary policy was well placed to respond to developments, reducing inflation was essential. Stressed that inflation outlook remained concerning.

- China President Xi ‘illness’ rumor's spread ahead of a planned Trump summit. Xi last publicly seen at the BRICS summit in New Delhi last Sunday.

Global conflict/tensions

- Trump said he was nearing a pivotal decision on whether to restart large-scale military operations against Iran if diplomatic efforts failed to end the conflict. (**Note: decision could be influenced by a planned meeting with leaders from six Gulf States on the sidelines of the UN General Assembly).

- Pakistan Army Chief urges Iran to restrain the Yemen Houthis.

Europe

- France PM Lecornu noted that the 2027 budget would include effort to create €54B in savings; Targeting 2027 budget deficit at 5% of GDP and aimed to keep 2026 below 5.5% of GDP.

- UK Chancellor Healey said to be set to urge EU finance ministers to ensure the bloc’s proposed “Made in Europe” industrial policy includes the UK.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.72% at 10,738.79, DAX -0.68% at 25,559.50, CAC-40 -0.70% at 8,130.02, IBEX-35 -0.58% at 19,721.68, FTSE MIB -0.46% at 52,145.50, SMI -0.07% at 13,937.40, S&P 500 Futures +0.26%].

Market focal points/key themes: European equities declined on Friday, with the FTSE 100 falling 0.72%, the DAX dropping 0.68%, the CAC 40 off 0.70%, the IBEX 35 down 0.58% and the FTSE MIB slipping 0.46%, as markets consolidated after Thursday’s strongest single-session rally in more than two months yet remained on course for a 0.54% weekly advance—their first in three weeks. The week’s path swung from Tuesday’s sharp sell-off, triggered by a Saudi East-West pipeline attack and Red Sea Houthi strikes that drove Brent past $113 and the U.S. 10-year yield above 5%, to Thursday’s rebound after the Federal Reserve raised rates 25 basis points to a 3.75%-4.00% range—its first hike since mid-2023—and the Bank of England held steady at 3.75% while flagging a possible November increase. The most notable individual movers were Soitec, rising 3.5% on a Barclays upgrade to Overweight that doubled its price target, and Infineon Technologies, up 3.0% after an Oddo BHF upgrade, against Airtel Africa’s 6.5% drop on a sharply lower Airtel Money IPO fundraising target and Coca-Cola HBC’s 4.0% decline amid intensified Russia-expropriation risk following Nestlé’s local seizure. Brent eased 1.5% to near $104 yet still posted a nearly 15% weekly gain as tankers secured alternative routes through Oman, while rate-sensitive luxury names led the modest pullback under elevated yields and S&P 500 futures traded 0.26% higher.

Equities

- Consumer discretionary: Nestlé [NESN.CH] -1.5% (Russia placed Nestlé's local operations under temporary external administration, prompting the group to assess legal and operational options), Coca-Cola HBC [CCH.UK] -4.0% (Russia-expropriation risk intensified after the seizure of Nestlé's local business, weighing on the bottler given its material Russian earnings exposure).

- Energy: Shell [SHEL.UK] -0.5% (Brent declined for a third session as supply concerns eased, outweighing a report that the Shell-led LNG Canada project could approve a capacity-doubling expansion).

- Technology: Infineon Technologies [IFX.DE] +3.0% (Oddo BHF upgraded the chipmaker as an improved semiconductor backdrop reinforced the overnight US technology rally), ASM International [ASM.NL] +2.5%, ASML [ASML.NL] +1.5%, BE Semiconductor Industries [BESI.NL] +1.5% (European semiconductor-equipment stocks tracked sharp overnight gains across major US chipmakers), Soitec [SOI.FR] +3.5% (Barclays upgraded to Overweight from Equal Weight and raised its price target to €200 from €110).

- Telecom: BT Group [BT.A.UK] -3.5%, Deutsche Telekom [DTE.DE] -3.0%, Vodafone [VOD.UK] -3.0%, Swisscom [SCMN.CH] -2.0% (European telecoms sold off after T-Mobile US fell 5.6% overnight, directly pressuring majority owner Deutsche Telekom and triggering peer sympathy selling), Airtel Africa [AAF.UK] -6.5% (Airtel Money is reportedly seeking at least $800m from its IPO, below the previous $1.5bn-$2bn target range).

Speakers

- ECB chief Lagarde reiterated stance to decide on monetary policy meeting by meeting. Growth had been a bit more promising than anticipated. Reiterated that not yet seeing any 2nd round effects of inflation.

- ECB’s Vujcic (Croatia) noted that market bets on further ECB rate hikes were being driven largely by higher energy prices but would look at a much wider set of economic indicators when deciding their next moves. High inflation through autumn could dampen growth. Rate hike pace worth keeping 'for time being'.

- ECB's Kazaks (Latvia) stated that must do everything to avoid 2nd round effects; All meetings were ‘live’.

- ECB's Kaasik (Estonia) noted that more tightening was needed if inflation risks materialized; Exact level of neutral rate not a big concern now.

- France PM Lecornu reiterated that significant effort was needed on budget.

- German Fin Min Klingbeil stated that needed to intervene in energy market; could not ignore impact on citizens.

- BOJ Gov Ueda post-rate decision press conference reiterated overall economic assessment that domestic economy recovering moderately albeit with some weakness. Reiterated stance to keep raising rate in response to economy, prices. Believed phase of policy had changed significantly and getting more important to achieve 2% target stably. Stage for policy conduct had changed. No specific pace in mind for rate hikes. Difficult to say where terminal rate should be; Hard to predict appropriate level of neutral rate. Paying attention to FY27 wage talks and have been a big factor for price trend. Needed to avoid negative effects caused by drastic rate hike.

- Japan Fin Min Katayama stated that would not hesitate to conduct further coordinated FX intervention; would work to maintain orderly FX market.

Currencies

- BOJ delivered the widely anticipated 25bp hike to 1.25% on a 7-2 vote, but the statement and voting breakdown together paint a picture of a board that was marginally less hawkish. USD/JPY tested above 157.80 as the BOJ press conference as BOJ Gov Ueda noted that needed to avoid rapid hikes causing asset price swings.

- EUR/USD staying under the 1.15 level as ECB members were out in force highlighting concerns over energy prices but conceding little evidence of 2nd round effects at this time.
GBP/USD staying below the 1.34 level following the ‘dovish’ BOE hold from Thurs.

- Lower oil prices on continued hope of dialogue between US-Iran remained the current catalysts for price action. Lower oil helping to cap the upside in bond yield at this time. The 10-year German Bund yield last at 3.50%, France 10-year Oat at 4.48% and 10-year Gilt yield at 5.26%; 10-year Treasury yield: 4.95%; 10-year JGB: 2.96%.

Economic data

- (DE) Germany Aug PPI M/M: 1.1% v 0.6%e; Y/Y: 4.6% v 3.9%e.

- (UK) Aug Retail Sales (ex-auto/fuel) M/M: +0.6% v -0.2%e; Y/Y: 2.7% v 1.9%e.

- (UK) Aug Retail Sales M/M: +0.5% v -0.2%e; Y/Y: 2.4% v 1.9%e.

- (PL) Poland Aug Sold Industrial Output M/M: -7.5% v -5.7%e; Y/Y: 4.3% v 7.1%e.

- (CN) Weekly Shanghai Deliverable Copper Inventories (SHFE): 56.1K v 54.8K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 11th: $281.0B v $284.0B prior.

- (EU) Euro Zone Aug Consumer Expectation Survey: 1-year ahead CPI expectations: 3.0% v 3.1%e; 3-year ahead CPI Expectations: 2.9% v 2.8%e.

- (EU) Eurozone July Current Account Balance: €27.6B v €35.1B prior.

- 04:00 (PT) Portugal July Current Account Balance: -€B v -€0.3B prior.

- (IT) Italy July Current Account Balance: €7.4B v €5.8B prior.

- (GR) Greece July Current Account Balance: +€0.2B v -€0.6B prior.

- (RU) Russia Narrow Money Supply w/e Sept 11th (RUB): 22.73T v 22.56T prior.

- (EU) Eurozone July Construction Output M/M: 0.0% v -1.5% prior; Y/Y: -2.0% v -1.4% prior.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2041 and 2076 bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2038, 2043 and 2058 Bonds.

- 06:00 (PT) Portugal Aug PPI M/M: No est v 0.8% prior; Y/Y: No est v 5.8% prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.0B respectively).

- To sell combined £B in 1-month, 3-month and 6-month Bills on Fri Sept 25th (£B, £B and £B respectively).

- 07:30 (IN) India Forex Reserve w/e Sept 11th: No est v $785.7B prior.

- 08:00 (MX) Mexico Q2 Aggregate Supply and Demand: 6.2%e v 5.0% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 09:15 (US) Aug Industrial Production M/M: 0.3%e v 0.2% prior; Manufacturing Production M/M: 0.3%e v 0.2% prior; Capacity Utilization: 76.4%e v 76.3% prior.

- 09:15 (IN) India announces upcoming bill issuance (held on Wed).

- 10:00 (US) Aug Leading Index: 0.1%e v 0.2% prior.

- 11:00 (CO) Colombia July Economic Activity Index (Monthly GDP) Y/Y: 1.9%e v 3.5% prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Ireland; Moody’s on Germany & Greece); Fitch on Sweden; DBRS on France & Finland).

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 15:00 (AR) Argentina Aug Trade Balance: $2.0Be v $2.1B prior.