Japan's 20-Year Bond Auction Tests Investor Confidence Amid Yield Surge and Fiscal Uncertainty

Economic

Bond

Summary:

Japan’s 20-year government bond auction is under intense scrutiny as rising yields, fiscal concerns ahead of a key election, and weak institutional demand raise the risk of poor auction performance, potentially shaking the broader debt market....

Investor Caution Grows Ahead of Crucial Bond Auction

On Thursday, Japan's Ministry of Finance will auction 20-year government bonds in a test of market resilience amid growing fiscal and political uncertainty. Despite a brief pullback in yields during morning trade in Tokyo, interest rates on 10-, 20-, and 30-year debt remain elevated, reflecting persistent concerns over Japan’s expanding budget deficit and volatile global market conditions. The auction comes just ten days before a national election, with political parties promising fiscal stimulus and tax cuts raising fears of deteriorating fiscal discipline.

Investor hesitancy is particularly pronounced among large domestic institutions. According to Ryutaro Kimura of AXA Investment Managers, Japanese banks and life insurers are likely to sit on the sidelines, preferring to assess the post-election fiscal landscape before committing to super-long JGBs. This cautious stance follows similar patterns seen in earlier auctions and aligns with broader skepticism around long-term bond issuance in Japan’s current macro environment.

Yield Pressures Reflect Structural and External Forces

The sale is set against a backdrop of rising sovereign yields globally. U.S. Treasury yields recently climbed near 5% on 30-year bonds amid renewed fears of unsustainable fiscal spending. Japan is facing similar scrutiny, with concerns that additional stimulus measures such as cash handouts proposed by the ruling coalition and tax relief from opposition parties could widen the deficit and stoke inflationary expectations.

Compounding the domestic strain is uncertainty over trade policy. The U.S. has announced it will raise tariffs on Japanese goods to 25% starting August 1, unless a bilateral deal is reached. The prospect of deteriorating trade terms with the U.S., Japan’s second-largest export market, raises the risk of a technical recession, adding another layer of caution for fixed-income investors.

Auction Metrics in Focus: Bid-to-Cover Ratio and Tail Risk

Market participants are watching key indicators from the bond auction to gauge demand strength. The bid-to-cover ratio, which measures demand relative to the amount of bonds offered, will signal investor appetite, while the tail the gap between the average and lowest accepted prices will reveal how aggressively buyers are bidding. A wide tail would suggest weaker demand and could send shockwaves through the yield curve, particularly in the 10-year segment, which serves as Japan's benchmark bond.

Shoki Omori from Mizuho Securities warned that a poor auction result could spill over into other maturities, particularly if liquidity concerns in the long-end intensify. This concern is not hypothetical: May’s 20-year bond sale saw the largest tail since 1987, a sign of extreme caution, and parallels are already being drawn with that outcome.

Supply Reductions Offer Limited Relief

In response to prior auction volatility, Japan has already moved to reduce supply of long-dated bonds. The government announced a ¥3.2 trillion ($22 billion) cut in issuance of 20-, 30-, and 40-year bonds through March 2026. While this measure has supported recent 30-year bond sales, it has not reversed the overall trend of rising yields. According to Kazuya Fujiwara of Mitsubishi UFJ Morgan Stanley, the relatively stable liquidity of the 20-year sector might cushion some of the impact, but success will still hinge on market confidence and geopolitical clarity.

Major insurers remain wary. Meiji Yasuda Life Insurance recently stated it would avoid heavy exposure to long-term JGBs over the next one to two years, citing concerns about rising interest rates and uncertain supply dynamics. This withdrawal of long-horizon capital comes as the Bank of Japan, the dominant bondholder, continues to step back from aggressive bond buying, part of its slow exit from yield curve control.

This structural shift in the buyer base, combined with heightened supply risk and subdued global liquidity, has created a fragile demand environment that could be tested severely by today’s auction outcome.

The July 20-year JGB auction will be a pivotal moment for Japan’s bond market. A weak result especially one with a wide tail or low coverage ratio could reverberate across the yield curve and weaken investor confidence further. With fiscal policy in flux, U.S. trade pressure looming, and major institutional buyers stepping back, today’s auction may not just reflect investor sentiment, but also signal the bond market’s tolerance for Japan’s rising fiscal risks in the months ahead.

Source: Bloomberg

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Economic

Cryptocurrency

Rising Popularity of Stablecoins Spurs Regulatory Alarm

As the global interest in digital assets accelerates, a prominent Chinese industry body has raised alarms over fraudulent activities tied to stablecoins. In a statement released late Wednesday, the Beijing Internet Finance Association warned of rising incidents where unscrupulous individuals and institutions are promoting high-yield crypto schemes under the guise of financial innovation. These warnings come as stablecoin-related equities in China and Hong Kong have soared in recent months, with China’s concept stock index up 88% and Hong Kong’s equivalent more than doubling.

The association emphasized that many of these schemes leverage buzzwords such as “stablecoins,” “Web 3.0,” and “DeFi” to lure retail investors. In many cases, early returns are funded by capital from new joiners a classic Ponzi structure masked by crypto hype. The association stressed that such activities risk evolving into financial fraud, pyramid schemes, illegal fundraising, and money laundering, threatening market stability and public trust.

China’s Strict Stance on Crypto Remains Firm

This warning is consistent with Beijing’s longstanding ban on crypto trading, introduced in 2021 due to financial stability concerns. The new alert underscores the government’s position that crypto-related innovations, while technologically promising, carry significant risk when deployed without proper oversight. The fact that fraudulent activity is increasing despite the ban reveals how speculative sentiment in digital assets continues to penetrate informal or gray market channels within China.

The authorities are particularly concerned that speculative retail enthusiasm fueled by surging stablecoin-linked stocks is blurring the line between regulated financial products and unlicensed schemes. The popularity of these assets reflects a correlation between investor behavior and regulatory lag, where the lack of clarity invites both legitimate innovation and criminal exploitation.

Contrast Between Mainland and Hong Kong Regulatory Trajectories

While mainland China remains cautious, Hong Kong is taking a divergent path, aiming to become a regional digital asset hub. New stablecoin legislation is expected to come into effect on August 1, offering a structured legal framework for stablecoin issuance and trading. Major Chinese firms such as JD.com and Ant Group have announced their intentions to issue stablecoins in Hong Kong under this new regime.

This divergence creates a complex environment for cross-border digital finance. It illustrates how regulatory arbitrage may emerge, with firms legally operating in Hong Kong but potentially influencing investor sentiment in mainland China, where trading remains prohibited. The spillover risks reinforce Beijing’s urgency in issuing public warnings and enhancing financial literacy around digital assets.

The recent surge in crypto interest has rekindled systemic risks tied to speculative investments and weak investor protections. China's warning against stablecoin-related scams signals a preventative regulatory approach, aimed at curbing potential financial disruptions before they escalate. As Hong Kong and other jurisdictions move to formalize digital asset laws, Beijing's focus remains on shielding its domestic economy from spillover effects while maintaining strict enforcement against unauthorized crypto activities. For investors, the message is clear: innovation does not eliminate risk, and promises of high returns should be treated with caution.

Source: Reuters

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Economic

Commodity

Rising U.S. Inventories Add Downward Pressure

Oil prices steadied on Thursday after facing contrasting market forces. The U.S. Energy Information Administration reported a 7.1 million-barrel increase in crude stockpiles, marking the largest weekly build since January. Inventories at the Cushing, Oklahoma delivery hub also rose for the first time since May, signaling a possible oversupply risk in the near term. This unexpected stockpile expansion reflects a mismatch between refined product demand and domestic production trends, increasing concerns about potential softness in short-term consumption.

The accumulation of inventory typically exerts downward pressure on prices, as it indicates weakening refinery throughput or demand stagnation. However, the market reaction has been tempered by offsetting external risks and expectations for stronger seasonal demand.

Trump’s Trade Offensive Casts a Shadow on Demand Outlook

President Trump’s latest batch of tariff announcements including a 50% levy on Brazilian goods and a copper tariff under national security rationale has introduced another layer of uncertainty for global commodities. While oil itself has not yet been directly targeted, the ripple effect of deteriorating trade relations could dampen industrial activity and oil demand, particularly in emerging markets.

The tariff threat environment is now viewed as an evolving variable in oil price modeling. Traders are assessing not just the impact on supply chains but also the potential for retaliatory measures from affected countries. Although the market is not pricing in immediate demand destruction, the broader trade regime has introduced an element of macroeconomic caution.

OPEC+ Output Hike Meets Mixed Sentiment

On the supply side, OPEC+ announced a larger-than-expected production increase for August, banking on strong summer demand to absorb the added barrels. Brent and WTI have so far absorbed this news without significant price correction, implying that traders believe short-term consumption particularly for transportation fuels will remain firm through the peak travel season.

Yet concerns persist about a possible market surplus in the final quarter of 2025. As seasonal demand cools and refinery maintenance season begins, inventories could climb further unless exports increase or consumption beats expectations.

Geopolitical Risk Supports Price Floor

The Middle East remains a focal point of supply risk. Houthi rebel attacks in the Red Sea have intensified, sinking two commercial vessels and killing crew members. These events come against the backdrop of a fragile truce between Israel and Iran, which has temporarily paused broader regional conflict. The escalation of maritime hostilities could threaten oil transit routes, particularly through the Bab el-Mandeb Strait, prompting risk premiums to return if shipping security deteriorates further.

Although the current impact on oil flows is limited, the situation introduces an upside risk that may counterbalance bearish fundamentals from the U.S. inventory side. Traders are watching for signals of further Iranian involvement or a breakdown in ceasefire arrangements, which could trigger a regional shock to global supply.

Oil prices remain range-bound as traders weigh rising U.S. crude inventories against geopolitical tensions and tariff uncertainty. While strong summer demand may offer temporary support, the risk of oversupply and policy-induced demand drag keeps sentiment cautious. Brent holding near $70 and WTI around $68 suggests the market is awaiting clearer signals on inventory trajectory, global trade stability, and Middle East developments before committing to a new price direction.

Source: Reuters

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Economic

Forex

Currency Policy Unlikely to Be a Target in U.S.–Japan Trade Tensions

Masatsugu Asakawa, Japan’s former vice finance minister for international affairs and a seasoned currency negotiator, has dismissed speculation that the United States will push Japan to strengthen the yen in the current trade negotiation climate. While President Trump has publicly criticized Japan for maintaining a weak currency amid a significant trade surplus, Asakawa noted that exchange rate matters remain largely within the purview of finance officials and are unlikely to become bargaining chips in trade talks.

This view reflects a continuation of past diplomatic strategy. During Trump's first presidential term, Japanese Prime Minister Shinzo Abe succeeded in persuading the U.S. to isolate currency policy from broader trade negotiations. That precedent, Asakawa said, appears to remain intact, with no active discussions between U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato on currency realignment.

Limited Likelihood of Coordinated Currency Intervention

The idea of a coordinated effort to weaken the U.S. dollar similar to the 1985 Plaza Accord was also dismissed by Asakawa as implausible. A coordinated depreciation would require alignment not just with Japan, but also with China and the European Union, which is currently lacking. Despite the dollar’s recent weakness, falling 11% in the first half of 2025 and 7.5% against the yen alone, there is no indication that such alignment exists or is being pursued through formal channels.

The declining dollar has been partially attributed to investor concerns following Trump’s sweeping tariff plans announced in April, which have since sparked global trade frictions. A weaker dollar theoretically benefits U.S. exports, but prolonged depreciation could increase domestic inflation a risk that policymakers like Bessent are likely cautious about.

Japan's Strategic Options in Bilateral Negotiations

Asakawa acknowledged that Japan still faces risks from Trump’s tariff escalation strategy. On Monday, the U.S. announced that tariffs on Japanese goods would rise to 25% from the previous 10%, unless a deal is reached before the August 1 deadline. However, he emphasized that Japan retains several strategic options that could help in negotiations, including promises to increase U.S. investment, relax domestic automotive safety regulations, and support American energy projects such as LNG development in Alaska.

He suggested that presenting these offers as a unified package, rather than in piecemeal fashion, would improve Japan’s leverage and negotiating clarity. This tactic mirrors the structured and high-stakes style of past U.S.-Japan economic dialogues, where timing and presentation often mattered as much as content.

Currency Matters Remain Technocratic, Not Political

At the core of Asakawa’s assessment is the distinction between trade politics and currency governance. While Trump frequently invokes exchange rates in public rhetoric linking currency weakness to unfair trade advantages the operational responsibility still lies with finance ministries and central banks, which typically follow more rules-based approaches. There is no formal evidence that the U.S. is pursuing a bilateral agreement with Japan on currency values, nor is there an international framework currently being discussed to cap yen depreciation.

The dollar index’s sharp slide this year reflects broader global monetary dynamics, not just bilateral frictions. Yen strength is more a byproduct of global capital flows and shifting interest rate expectations than targeted manipulation. Hence, even with Japan’s trade surplus in focus, any direct U.S. pressure to appreciate the yen would likely face institutional resistance.

Although Japan remains a potential target in Trump’s aggressive trade agenda, currency realignment is unlikely to become a central demand. Asakawa’s insights suggest that policymakers on both sides continue to treat exchange rate policy as a technical issue rather than a political lever. As Japan prepares its negotiating stance ahead of the August 1 tariff deadline, its strategy will likely focus on offering economic incentives and maintaining policy discipline rather than conceding ground on the yen’s valuation.

Source: Reuters

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Economic

Forex

Dollar Softens Amid Lower Yields and Diminished Tariff Shock

On Thursday, the U.S. dollar index declined 0.1% to 97.286 after touching a two-week high the previous day. The pullback followed a strong 10-year Treasury auction that pushed yields lower and calmed investor fears surrounding “Sell America” sentiment seen earlier this year. As Treasury yields dropped, so did the dollar’s appeal, especially in the absence of further macroeconomic shocks from President Trump’s new wave of tariff threats.

Although Trump issued additional tariff letters this week including an unexpected escalation to 50% on Brazilian goods most of the new tariffs mirrored the earlier "Liberation Day" announcement on April 2 and were largely priced in. Markets outside Brazil largely shrugged off the news, reinforcing investor expectations that the worst-case trade scenarios are unlikely to materialize.

Brazilian Real Slides on Political-Driven Tariff Threat

Brazil’s real was the outlier. Following Trump’s threat to impose a 50% tariff on Brazilian exports by August 1, the currency sank as much as 2.8%, hitting 5.6047 against the dollar its lowest level since June 6 before recovering slightly to 5.5826. Unlike other tariff announcements that focused on trade imbalances, Trump’s Brazil move was motivated by political disapproval over former president Jair Bolsonaro’s trial.

This politically charged approach added volatility to Brazilian markets and underscored Trump’s willingness to leverage tariffs as a tool for non-economic disputes. The market response also reflected Brazil's unique trade relationship with the U.S., where the U.S. actually maintains a trade surplus, implying Brazil’s retaliation could impact key American exporters.

Bitcoin Nears Record on Risk-On Sentiment

Investor risk appetite improved significantly, helping Bitcoin rise 0.3% to $111,114 just shy of its overnight record of $111,988.90. Optimism around broader market stability, alongside dovish signals from the Federal Reserve minutes suggesting rate cuts later this year, supported the bullish momentum in crypto assets.

Bitcoin’s resilience appears linked to the diminishing likelihood of disruptive global trade outcomes. According to IG’s Tony Sycamore, while the latest rally lacked explosive upside so far, conditions remain favorable for Bitcoin to test the $120,000 mark in the near term, especially if macroeconomic uncertainty continues to ease.

Market Currencies Move in Step with Lower Dollar Pressure

The euro gained 0.2% to $1.1747, while the British pound climbed to $1.3612, reflecting investor rotation away from the dollar. Safe-haven currencies also moved, with the yen strengthening to 145.84 per dollar and the Swiss franc appreciating to 0.7922 per dollar. These moves suggest modest rebalancing across FX markets as investors reassess risks following a relatively subdued reaction to Trump’s trade actions.

While Trump’s trade rhetoric remains aggressive, especially in the case of Brazil, the global market response has been relatively restrained. The dollar’s retreat alongside lower yields points to stabilizing investor sentiment. Bitcoin’s near-record high and gains in major currencies further signal confidence that geopolitical frictions may remain contained. However, Brazil’s currency plunge illustrates that politically motivated trade interventions can still provoke sharp localized reactions and may become more frequent as election-year strategies unfold.

Source: Reuters

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Economic

Escalating Diplomatic Pressure Through Trade Policy

President Donald Trump’s recent letter to Brazilian President Luiz Inácio Lula da Silva has sparked a fresh international dispute, as the U.S. threatens to impose a punitive 50% tariff on Brazilian goods unless the country halts what Trump calls a “witch hunt” against former President Jair Bolsonaro. Unlike other tariff threats linked to trade imbalances, this one stems from political grievances regarding Bolsonaro’s trial, marking a rare instance of U.S. trade pressure explicitly tied to the internal judicial affairs of a foreign nation.

Trump’s demand, published on his Truth Social platform, diverges from previous tariff communications that emphasized trade deficits. This time, the issue is Bolsonaro’s legal exposure over alleged coup plotting following the 2022 election loss, for which he is now standing trial in Brazil. Lula responded strongly, invoking Brazil’s Law of Economic Reciprocity and warning that any unilateral tariff escalation would be met with retaliation.

Unique Trade Dynamics Amplify Tensions

The threat against Brazil is distinctive. In contrast to the 21 other countries that received tariff letters this week, Brazil had not previously been targeted in the reciprocal tariff list announced in April. Moreover, the U.S. runs a trade surplus of $6.8 billion with Brazil, meaning the U.S. exports more to Brazil than it imports. This surplus implies that any retaliatory tariffs from Brazil could disproportionately harm American exporters particularly in agriculture, machinery, and chemicals raising the potential for economic blowback within the U.S.

This situation highlights a deviation from Trump’s usual rationale, which tends to center on trade imbalances. Instead, the tariff threat functions more as a political instrument intended to influence foreign legal proceedings. While similar methods were used earlier this year with Colombia successfully coercing a reversal on deportation policy Brazil’s firm response indicates such tactics may now face stronger resistance from nations asserting judicial independence.

Copper Tariffs Justified Under National Security Claims

On the same day, Trump unveiled a 50% tariff on copper imports, citing national security concerns. This move followed an executive order signed in February mandating the Commerce Department to assess the risks associated with foreign copper dependence. Copper, crucial for semiconductors, batteries, and defense equipment, is widely used by the Department of Defense. Trump framed the tariff as necessary to rebuild a “dominant” American copper industry, branding current import levels as a strategic liability.

The market reaction was immediate. Copper futures spiked 13.1% on Tuesday to a historic $5.69 per pound its largest single-day surge on record before retracing slightly the following day. The sudden rise reveals a strong correlation between tariff announcements and commodity price behavior, reflecting how policy signals alone can reshape market expectations.

However, analysts remain skeptical about the feasibility of reviving domestic copper production in the short term. The U.S. currently imports more than half its copper, primarily from Chile, China, Japan, and Congo. With no clear development plans or major projects under construction, tariffs are unlikely to bridge the structural supply gap. As Saxo Bank's Ole Hansen noted, the new tariff functions more as a consumer tax, potentially making U.S. manufacturing and infrastructure projects more expensive due to input cost inflation.

Unfolding Tariff Campaign Expands to More Countries

Trump’s tariff escalation appears to be part of a broader campaign. This week alone, he sent tariff letters to 22 countries, with rates as high as 50%. Nations such as the Philippines, Moldova, Libya, and Iraq have been placed on notice, with tariff levels adjusted either upward or downward compared to earlier threats. While many of these moves are framed as tools to correct trade imbalances or push back against perceived unfair treatment of American goods, the political undertone in Brazil’s case stands out.

Trump has made it clear that companies based in these countries can avoid tariffs by relocating manufacturing to the U.S., continuing a pattern of using tariffs as leverage to drive reshoring. However, such proposals have met with mixed reception internationally and have yet to yield significant deal-making. Lula’s defiant response to the Brazil threat suggests that diplomatic friction may be intensifying rather than subsiding.

Trump’s dual announcements the Brazil tariff threat over judicial proceedings and the copper tariff based on national security signal a sharp broadening of U.S. trade policy objectives. No longer focused solely on economic metrics, tariffs are now being used as direct tools of geopolitical influence and domestic industrial policy. While these moves may score points with certain domestic constituencies, they also introduce higher uncertainty for global trade flows, strain U.S. relationships with strategic partners, and risk fueling inflation through elevated input costs. As the August 1 deadline approaches, further market and diplomatic reactions are likely, and the long-term economic consequences remain deeply uncertain.

Source: CNN

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Daily News

[Quick Facts]

1. Brazil to respond to US based on law of reciprocity.

2. Trump issues tariff letters to 7 additional countries.

3. Fed meeting minutes: Some participants open to considering rate cut at next meeting.

4. Timiraos: Fed minutes reveal division into three camps.

5. Houthis claim sinking of Israel-bound vessel.

6. Holzmann: ECB needs no further rate cuts.

7. Nagel: ECB should neither plan nor rule out future cuts.

[News Details]

Brazil to respond to US based on law of reciprocity

Brazilian President Lula responded to Trump in a social media post. In light of the public statement made by US President Donald Trump on social media Wednesday afternoon (9th), "Brazil is a sovereign country with independent institutions that will not accept being taken for granted by anyone." Lula explained that in Brazil, freedom of speech should not be conflated with aggression or acts of violence. All domestic and international companies operating in Brazil must comply with Brazilian laws. Claims regarding a supposed US trade deficit with Brazil are incorrect. The US government's own statistics demonstrate that over the past 15 years, the US has maintained a $410 billion trade surplus with Brazil in goods and services. "Any measure to unilaterally raise tariffs will be responded to in accordance with Brazil's Economic Reciprocity Law."

Trump issues tariff letters to 7 additional countries

On July 9 local time, US President Trump published tariff letters addressed to leaders of seven countries on his social media platform Truth Social. The countries include the Philippines, Brunei, Moldova, Algeria, Iraq, Libya, and Sri Lanka. Among them, Libya, Iraq, Algeria, and Sri Lanka will face 30% tariffs. Brunei and Moldova will be subject to 25% tariffs, and the Philippines will have a 20% tariff rate. The new tariffs will take effect on August 1st. On July 7th local time, Trump had already sent the first batch of tariff letters to 14 countries including Japan and South Korea, with tariff rates ranging from 25% to 40%. He also indicated that more such letters would follow this week.

Fed meeting minutes: Some participants open to considering rate cut at next meeting

According to the latest minutes from the Fed's June meeting, participants noted that if tariffs lead to inflation exceeding expectations with greater persistence, or if medium- to long-term inflation expectations rise significantly, maintaining a tighter monetary policy stance would be appropriate, particularly amid stable labor market conditions and economic activity. However, should labor market conditions or economic activity weaken substantially, or if inflation continues to decline while expectations remain well-anchored, adopting a less restrictive monetary policy stance would be suitable. Participants observed that should persistently high inflation coincide with a deteriorating employment outlook, the Committee might face difficult trade-offs.

Timiraos: Fed minutes reveal division into three camps

Nick Timiraos noted on Wednesday (local time) that the Fed meeting minutes disclosed what was already known - officials were divided into three main camps regarding interest rate trajectories: 1. Cut rates this year but rule out July (mainstream camp); 2. Keep rates unchanged throughout 2024; 3. Advocate immediate action at the next meeting (Only "a couple" of members (likely 2 officials- Waller and Bowman) floated the idea of a cut as soon as the July meeting, contingent on the data evolving as expected).

The minutes also stated that "several officials said they thought the current overnight funds rate 'may not be far' from a neutral level, meaning only a few cuts may be ahead." In other words, unless the economy slows substantially, room for subsequent rate cuts would remain limited even if rate reductions resumed.

Houthis claim sinking of Israel-bound vessel

On the evening of July 9th, Yemeni Houthi military spokesperson Yahya Sarea announced that the Houthis launched an attack using a drone speedboat and six missiles against the vessel "ETERNITY C," which had violated their sailing route to Eilat, Israel. The assault successfully hit the target, causing the vessel to sink. The Houthis added that after the attack, they rescued some crew members and transported them to a safe location. This marks the second cargo ship sunk by the Houthis within a week for violating their maritime ban.

Holzmann: ECB needs no further rate cuts

ECB Governing Council member Robert Holzmann stated in a speech on Wednesday that there is no reason for further rate cuts, certainly not at the next meeting, nor for the remainder of this year. The Austrian central bank governor added that current borrowing costs, in his assessment, place Europe at least at neutral, but likely in expansionary territory.

Following eight rate cuts since June 2024, the ECB is widely expected to leave rates unchanged at this month’s meeting. This will mark Holzmann’s final meeting before his term ends in August.

Nagel: ECB should neither plan nor rule out future cuts

ECB Governing Council member Joachim Nagel said that the central bank should neither commit to nor rule out additional interest-rate reductions, arguing that policymakers must keep every option open as the inflation outlook remains uncertain.

"It can be said that we are able to respond to further developments." However, it would be unwise to commit to a certain interest rate path, contemplate further measures, or rule out taking further measures."

As one of the more hawkish members of the Governing Council, Nagel noted that "The intensification of uncertainty will not disappear quickly." Therefore, the ECB "is best advised to proceed cautiously and make decisions based on data at each meeting."