Japan's Tankan survey for July-September delivered mixed readings that reduce near-term Bank of Japan rate hike pressure. Large manufacturer sentiment rose to +24 in September from +22 in June—the highest since March 2018—but missed the +25 consensus. Non-manufacturer sentiment fell to +35 from +37, snapping a five-quarter gain and falling short of the +36 forecast.
The BOJ raised its policy rate to 1.25 percent in September and will review the Tankan data at its October meeting. But stable inflation expectations—2.6 percent over three years, unchanged from June, and 2.5 percent over five years—diminish urgency for another hike. Companies see little reason for rapid additional tightening.
In the United States, Goldman Sachs pushed its Fed rate hike forecast from October to December following softer-than-expected inflation data. The personal consumption expenditures price index rose 3.4 percent annually in August, below the 3.7 percent consensus. Goldman had been modeling a 25-basis-point hike in October but now expects the Federal Open Market Committee will likely determine no additional rate increases are necessary.
Federal Reserve Bank of New York President John Williams said Tuesday the central bank has ample time to assess incoming data before deciding on further moves, underscoring the Fed's data-dependent stance.
Rate futures repriced sharply. CME Group's FedWatch Tool shows a 38 percent probability of a 25-basis-point October hike, down from 51 percent the prior session and 71 percent a week ago. The shift reflects a re-pricing of near-term duration risk as traders recalibrate for a less aggressive tightening cycle.
Treasury yields barely moved. The two-year note traded at 4.98 percent; the 10-year at 4.71 percent. The inverted curve persists, signaling bond investors remain cautious on future growth. The nonfarm payrolls report for September is due Friday.
