Dollar’s grip slips while the Yen sits on a JGB time bomb

CATL’s power play

Asian markets roared back to life, snapping a four-day losing streak on the back of CATL’s blockbuster IPO and a softening tone in U.S. trade policy. But don’t let the green-on-screen fool you—beneath the bounce, the FX market is navigating a two-front war: the messy recalibration of U.S. trade dynamics, and the slow-motion trainwreck unfolding in Japan’s bond market.

Let’s start with the spark. CATL’s Hong Kong debut wasn’t just a listing—it was a power play. The world’s EV battery juggernaut just pulled off the largest equity raise of 2025, and did it not in New York, not in Frankfurt—but in Hong Kong. This wasn’t about raising capital. It was about planting a flag. The center of the electrification universe is shifting East, and this IPO hammered that point home. For anyone still narrating the EV story from a Palo Alto zip code, it’s time to zoom out—the future is being engineered in Shenzhen and financed in HKEX.

It also gave Hong Kong a much-needed jolt. For years, critics said HKEX was losing its edge. Now it’s back in the game—not just a conduit to Chinese capital, but a launchpad for global tech heavyweights. This is Asia’s message to the world: We’re not just building batteries. We’re building balance sheets.

The FX market is signalling unease

The dollar couldn’t hold its footing in Asia, with USDJPY sliding toward 144. Traders are front-running a potential FX communique from the upcoming Bessent-Akawaza summit, but timing couldn’t be worse for Japan. Forget the G7. The real crisis is at home.

Japan’s 20-year JGB auction was a disaster. The tail blew out to 1.14%—the worst since 1987, and 40-year yields hit all-time highs. This wasn’t just a bad print—it was a total buyer strike. And now, the BoJ is cornered. QT is draining liquidity. Duration is toxic. Regional banks are choking on mark-to-market losses. They can either capitulate with fresh QE and YCC and trigger a yen collapse, or hold the line and watch the sovereign bond curve implode from the long end in.

There are no soft landings here. Just hard choices with asymmetric fallout.

Back in the U.S., sovereign risk hasn’t disappeared—it’s just been repriced into spreads. The 10-year USD swap spread is still hovering around 54bps, signaling the market isn’t buying Bessent’s “don’t worry” tour. Wednesday’s $16bn 20-year auction is a landmine with a slow-burning fuse. Moody’s may not have triggered the blowup, but the credibility fog hasn’t cleared either. As we said: fiscal credibility doesn’t implode—it corrodes.

In Europe, EURUSD is grinding higher, aided by persistent U.S. sovereign risk premium (10-year swap spreads still wide at 54bps) and talk of continued equity inflows into the eurozone. If today’s current account data confirms the rotation, it adds fuel to the case for EURUSD pushing through 1.1265/1.1300 toward 1.1380, especially in a week lacking hard U.S. data

Asia Markets are cheering CATL’s listing and a temporary trade détente, but FX traders see the deeper cracks forming. The dollar may be soft, but the yen is sitting on a fuse, and JGB dysfunction is no longer a theory—it’s live. The U.S. sovereign story is stalled, not solved. And the euro is quietly picking up the flow-through from a global reweighting of both capital and conviction.

This isn’t just a bounce—it’s a battleground. And it’s only Tuesday.

The view

While Wall Street fixated on U.S. credit downgrades, the real bond market blow-up happened half a world away. Japan just logged its ugliest 20-year JGB auction since 1987, with the tail exploding to 1.14% and 40-year yields ripping to all-time highs. It wasn’t just bad—it was catastrophic for a market that's been artificially stabilized by decades of BoJ intervention.

Now the BoJ is boxed in. QT is choking liquidity, duration is in freefall, and local banks are bleeding on their own government paper. The choices? Pivot back to NIRP and YCC and torch the yen, or stay the course and watch a full-blown JGB death spiral unfold.

There’s no exit ramp here—just a cliff on either side. This isn’t policy tightening. It’s policy cornered.