BNY’s Geoff Yu notes that China has expanded its export control list to include more Japanese entities, raising supply chain risks for defense and rare earths, while Japanese commercial sales grew strongly in May. Despite USD/JPY trading near 162, iFlow shows JPY outflows and negative scored holdings, suggesting persistent bearish positioning even as geopolitical and domestic data remain supportive.

Supply chain tensions and weak flows

"China blacklisted more Japanese firms on Monday as its dispute with the Takaichi government intensified. The Ministry of Commerce added 20 Japanese organizations to its export control list and placed another 20 entities under closer monitoring. The measures ban Chinese exports with commercial or military uses to the blacklisted firms, while also restricting overseas entities from supplying Japanese companies with dual-use technology originating in China."

"Targets include defense-related institutes, Mitsubishi units, Mitsui E and S, and Japan Nuclear Fuel. Beijing said that Japan has not reversed its remilitarization path, while Tokyo has rejected that claim. The move raises supply chain risks, especially for rare earths and defense manufacturing, and extends tensions linked to Taiwan comments."

"Japanese commercial sales for May came in at ¥52.549tn, up 5.0% y/y and 1.4% m/m on a seasonally adjusted basis. Wholesale sales rose 4.9% to ¥39.102tn, while retail sales increased by 5.3% to ¥13.447tn. Within wholesale, gains were led by mineral and metal materials, other wholesale, agricultural and marine products, machinery and chemicals, while pharmaceuticals and building materials declined."

"Retail growth was broad-based, with strong gains in automobile and machinery sales. Department stores, supermarkets, convenience stores, drugstores, home centers and large home appliance retailers all posted y/y increases. Nikkei +0.15% to 69468, USDJPY +0.075% to 161.86, 10y JGB +1.9bp to 2.64%."

"USD and NZD attracted inflows, while CAD, JPY and NOK saw outflows. JPY scored holdings turned negative."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)