The Morning Edge: Japan Signals Willingness to Play "Treasury Card" in High-Stakes US Trade Talks

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Global Sentiment: Risk-on 
Factors: Corporate Earnings, Trade negotiations

TODAY’S WATCHLIST

• India Manufacturing PMI for April
• Eurozone CPI Inflation for April
• US employment data for April

THE BIG STORY
In a striking shift of tone, Japanese Finance Minister Katsunobu Kato acknowledged that Tokyo's $1 trillion-plus holdings of US Treasuries—the world's largest—could become leverage in ongoing tariff negotiations with Washington. The comments, made during a televised interview, mark a dramatic departure from Kato's stance just last month when he explicitly ruled out using Japan's Treasury portfolio as a bargaining chip. While emphasizing that the primary purpose of these holdings remains yen stabilization, Kato stated "we need to put all cards on the table," suggesting the threat of massive Treasury sales could be deployed if talks turn contentious. The remarks came as Japan's top trade negotiator engaged in critical second-round discussions with US Treasury Secretary Scott Bessent—though Kato declined to confirm whether the nuclear option was discussed.

The thinly veiled threat exposes the high-wire act Japan must perform maintaining its crucial security alliance with America while protecting economic interests from Trump's aggressive tariffs. Market analysts warn that even the suggestion of Japan reducing its Treasury purchases could rattle bond markets, potentially triggering a sell-off that would raise US borrowing costs. With negotiations ongoing and Kato carefully noting "whether we actually use that card is a different question," the stage is set for one of the most delicate financial diplomacy challenges in recent memory—one that could redefine how economic superpowers wield their dollar reserves in trade wars.

DATA
US factory activity deteriorated further in April, with the ISM manufacturing PMI slipping to a five-month low of 48.7, remaining in contraction territory for the 17th consecutive month. The reading, below economists' 48.0 forecast, highlighted how Trump's tariffs continue disrupting supply chains and maintaining elevated input prices. With manufacturing representing 10.2% of the economy, the persistent weakness suggests ongoing headwinds to growth from trade policies. 

WHAT HAPPENED OVERNIGHT
US stocks extended their rally on Thursday, with the Dow and S&P 500 notching an eighth consecutive gain as strong earnings from tech giants Microsoft (+7.6%) and Meta (+4.2%) bolstered sentiment. Microsoft hit a January high after forecasting robust Azure cloud growth, briefly overtaking Apple as the world's most valuable company, while Meta's advertising-driven revenue beat lifted shares to a three-week peak. The results helped offset lingering concerns about AI investment returns.

US Treasury climbed on Thursday after stronger-than-expected factory data revealed persistent tariff-driven supply chain pressures and input price inflation, potentially postponing Fed rate cuts. The 10-year yield rose 4.3 basis points to 4.218%, while the 30-year yield increased 4.5 basis points to 4.725%. The more policy-sensitive 2-year yield jumped 8 basis points to 3.701%, reflecting reduced expectations for near-term monetary easing.

The US dollar extended its rebound on Thursday, buoyed by renewed optimism surrounding trade negotiations and a dovish shift from the Bank of Japan. The dollar index climbed 0.52% to 100.19, as investors responded to the BoJ’s downgraded economic outlook, which dampened expectations for future rate hikes. The greenback gained 1.72% against the Japanese yen to 145.53, while the euro slipped 0.34% to $1.1289.

Brent crude oil prices climbed nearly 2% on Thursday after US President Donald Trump threatened secondary sanctions on Iran, following the postponement of a fourth round of US-Iran talks. Brent crude rose $1.07, or 1.8%, to settle at $62.13 a barrel, while US West Texas Intermediate gained $1.03, or 1.8%, to close at $59.24.

Day’s Ledger

Economic Data:

• India PMI for April
• India weekly FX Reserves
• Germany Manufacturing PMI for April
• Eurozone Manufacturing PMI for April
• Eurozone CPI Inflation for April
• US employment data for April
• US Manufacturing PMI for April

Corporate Action:

• Jan-Mar Earnings: Aether Industries, Ami Organics, Archean Chemical Industries, City Union Bank, Deep Industries, Dhampur Bio Organics, Dhani Services, Godrej Properties, Gravita India, Indian Overseas Bank InfoBeans Technologies, Jindal Saw, Latent View Analytics, Marico, Moksh Ornaments, Newgen Software Technologies, Nitco, Omax Autos, Parag Milk Foods, PNB Gilts, R R Kabel, Sadhana Nitrochem, Sanofi Consumer Healthcare India, Subex, Sunteck Realty, Tatva Chintan Pharma Chem, Transwarranty Finance, TRF, V-Mart Retail, Yasho Industries
• Mahindra & Mahindra Financial Services to consider fund raising plan
• Tata Motors to consider fund raising plan
• V-Mart Retail to consider bonus issue of shares

Policy Events

• ECB to release economic bulletin

TICKERS

• AMBUJA CEMENTS has received observation letters from BSE and NSE for its proposed merger with Penna Cement.
• ASTER DM HEALTHCARE has completed the acquisition of a 5% stake in Quality Care through a share swap deal.
• CESC subsidiary has won the power supply contract for Adani Electricity Mumbai.
• EICHER MOTORS reported total motorcycle sales of 86,559 units in April, up 6% on year; its commercial vehicle dispatch growth hit a 20-quarter high.
• ESCORTS KUBOTA reported a 1% year-on-year decline in April tractor dispatches, with India sales down 4%.
• ETERNAL has shut down Zomato Quick and Everyday food delivery services, citing unviability.
• HBL POWER SYSTEMS secured ₹1.46-bln order from Western Railway for the provision of 'Kavach' safety systems.
• HYUNDAI MOTOR INDIA saw domestic sales decline 12% YoY in April, while exports rose 22%.
• INFOSYS will collaborate with the UK's Yorkshire Building Society to deliver digital services.
• IREDA announced that CMD Pradip Kumar Das will continue in his role beyond his tenure until further notice.
• JSW ENERGY's subsidiary signed an agreement with Uttar Pradesh Power Corporation for a hydro energy project.
• MAHINDRA & MAHINDRA recorded a 28% YoY rise in SUV dispatches in April, with exports jumping 82%.
• MARUTI SUZUKI posted a 7% increase in April sales, driven by strong SUV demand and higher exports.
• NBCC received an INR 957-mln order from the Sushma Swaraj Institute of Foreign Service.
• NTPC GREEN ENERGY to begin commercial operations of a 75 MW capacity plant from Friday.
• OLA ELECTRIC announced that deliveries of its Roadster X motorcycle will begin in May.
• TATA MOTORS reported a flat year-on-year performance in domestic dispatches for the fourth straight month in April.
• TVS MOTOR's April dispatches reached the highest level since October; export growth hit a three-month high.
• VARUN BEVERAGES has commenced commercial production of soft drinks at its new facility in Bihar.

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