Foreigners' record ¥1.25 trillion weekly JGB sell-off pressures yields as the ECB's revised Supercore gauge turns more cyclical.

The ECB updated its domestic and Supercore inflation indicators in Statistics Paper No 54, using new FIGARO import data and the ECOICOP v2 classification. The domestic indicator now uses a 12% import share threshold, down from 18%, and covers 56.5% of HICPX weight, up from 51.1%. The updated Supercore includes 29 cyclical items, down from 47, covering 37.5% of HICPX weight, down from 69.6%. The new Supercore is more cyclical, with a correlation of 0.76 with the unemployment gap versus 0.61 previously, but less forecast-accurate, with a pre-pandemic RMSE of 0.90 versus 0.77. These changes affect how the ECB monitors underlying inflation, potentially influencing policy signals.

The IRS and Treasury proposed regulations classifying the refunded portion of four refundable tax credits—adoption, child tax, American opportunity, and earned income—as a 'Federal public benefit' under PRWORA, making non-qualified aliens ineligible. This follows OLC opinions from 2020 and 2025 and Executive Order 14218. For 2025, the adoption credit is up to $5,000 refundable, the CTC up to $2,200 per child with a refundable ACTC of up to $1,700, the AOTC up to $2,500 with 40% refundable, and the EITC fully refundable. The rule would require aliens to be qualified on the filing date and self-certify under penalty of perjury, with willful false statements a felony under section 7206. This could reduce refunds to affected households, impacting their disposable income and consumption.

A BIS Bulletin finds that high public debt in the Americas non-linearly amplifies the sensitivity of sovereign risk premia to fiscal deficits and of inflation expectations to risk premia. EMBI spreads increase almost three times as much in high-debt economies following a 1% of GDP fiscal deficit increase. Government debt-to-GDP ratios rose in 27 of 33 economies over 2015–2025, with around 40% seeing increases of more than 20 percentage points. Jamaica cut its debt from 148% of GDP in 2012 to 68% in 2025, a success story. The non-linear effects hold for both floating and non-floating exchange rate regimes, underscoring the need for disciplined fiscal policy and central bank independence.

In the week of August 9-15, 2026, non-residents were net sellers of Japanese securities to the tune of ¥1.84 trillion, driven by a record net selling of Japanese long-term bonds of ¥1.25 trillion. This compares with net sales of ¥56.7 billion the previous week, a dramatic acceleration. Meanwhile, Japanese residents were net buyers of foreign securities at ¥2.44 trillion, with net purchases of foreign equities and investment fund shares at ¥1.39 trillion and long-term debt at ¥1.14 trillion. The record foreign selling of JGBs could pressure yields upward, affecting the cost of Japan's public debt.

Banks' funding structures significantly shape the interest rate pass-through of ECB policy to euro area lending rates. Banks relying more on money market funding pass through policy changes more strongly and persistently, while those with higher bond shares adjust more slowly and by less. The most muted pass-through occurs among banks combining high bond funding with a high share of long-fixation loans, indicating an asset-liability-management channel. Ignoring these pass-through frictions overstates the real and nominal effects of monetary policy.

Using instrumental variable local projections on monthly aggregate data (2001–2023) and a bank-level panel (July 2007–April 2023) of 266 banks, the study finds that aggregate pass-through to new loans to non-financial corporations is about 40% on impact and 80% after three months for a 10 basis point policy shock. Banks in the top quartile of money market debt show higher and more persistent lending rate responses than those in the bottom quartile, whereas banks in the top quartile of bond issuance show attenuated and slower pass-through. The difference persists for up to two years.

A New Keynesian model calibrated to match these empirical pass-through rates implies that output responds about one percentage point less and inflation about two basis points less to a one-standard-deviation monetary policy shock compared to a perfect pass-through benchmark. The mechanism is that banks with high bond funding and long-fixation loans face a cost channel that dampens their rate adjustments, weakening the transmission of ECB policy to the real economy. This uneven pass-through across banks means that the ECB's rate hikes have heterogeneous effects, with implications for the design of monetary policy and financial stability.