USD/JPY briefly reached 162 last week, the yen’s weakest level since 1986. Japanese officials reiterated they would intervene in the FX market if necessary, but the lack of immediate action suggests no imminent intervention. The yen weakened further amid reports that government policy guidance could limit the BOJ’s ability to raise rates aggressively.
The U.S.-Iran ceasefire agreement eased concerns over further rate hikes, lifting overall market sentiment and supporting equities, although the Philadelphia Semiconductor Index saw heavier profit-taking.
U.S. nonfarm payrolls increased by 57,000 in June, below market expectations of 113,000 but still above the 12-month average. The labor market showed no meaningful deterioration and remained broadly stable. The softer-than-expected employment data modestly eased concerns that the Fed could begin raising rates earlier than expected. Interest rate futures now point to October, rather than September, as the likely timing for the first rate hike. On a weekly basis, bond prices were relatively weak.
China Industrial Profits Improve as AI Demand and Geopolitics Drive Sector Divergence
Industrial profits at China’s major enterprises rose 18.8% YoY in the first five months of 2026, while May growth slowed to 21.1% from 24.7% in April. Upstream sectors continued to outperform, with mining profits up 33.5%, led by coal, oil & gas, and non-ferrous metals.
Global equities rallied in 1H26, but performance diverged sharply based on AI exposure. Markets with greater AI participation—including the U.S., Taiwan, South Korea, and Japan—outperformed, while markets with limited AI exposure lagged.
AI industry trends remain bifurcated, with semiconductors and hardware continuing to lead. Nvidia maintains its dominance in AI training, while major hyperscalers are rapidly increasing shipments of in-house AI chips.
