Asian shares inch higher, BOJ battles bond bears

  • BOJ under heavy pressure as it defends yield policy
  • A BOJ capitulation could lift the yen, hurting global bonds
  • More wages ahead, more central bankers

SYDNEY, Jan 16 (Reuters) – Asian shares edged higher on Monday as investors nervously waited to see whether the Bank of Japan (BOJ) would defend its policy of massive stimulus at a key meeting this week, while markets in US made. in lean trading.

There have been rumors that the BOJ may hold an emergency meeting on Monday as it struggles to protect its new yields ahead of a major sell-off. read more

That sent markets into a frenzy, and Japan’s Nikkei (.N225) fell 1.0% to a two-week low.

MSCI’s broad index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) is still up 0.5%, with hopes of China’s swift reopening giving rise to a 4.2% gain last week. China’s blue chip index (.CSI300) also rose 0.6%.

EUROSTOXX 50 futures added 0.6%, while FTSE futures put up 0.1%. S&P 500 futures and Nasdaq futures were flat, following last week’s Wall Street bounce.

Earnings season is gathering steam this week with Goldman Sachs, Morgan Stanley and the first big tech name, Netflix, among those reporting.

World leaders, policy makers and corporate chiefs will attend the World Economic Forum in Davos, and there are a host of central bankers speaking, including no less than nine members of the US Federal Reserve.

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The BOJ’s official two-day meeting ends on Wednesday and speculation will make changes to the yield curve control (YCC) policy given the market has driven 10-year yields above their new ceiling of 0.5%. read more

The BOJ bought nearly 5 billion yen ($39.12 billion) of bonds on Friday in its biggest daily activity on record, but yields still ended the session at 0.51%.

On Monday morning, the bank offered to buy another 1.3 yen of JGBs, but the yield stuck at 0.51%.

“It is likely that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this, but at this point we don’t consider it the most serious situation.”

“Although domestic demand has begun to soften and inflation continues to rise, the economy is not heating up to the point that a sharp rise in interest rates and the potential risk of a large yen appreciation can be tolerated,” they added. “Therefore, we think the economic environment is not very supportive of successive policy changes.”


The BOJ’s uber-easy policy has acted as a kind of anchor for yields around the world, while dragging down the yen. If the policy were to be abandoned, it would put upward pressure on output in all developed markets and you would likely see a rise in the yen.

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The dollar has been the lowest since May at 127.67 yen, has lost 3.2% in the past week, and threatens to break the major support around 126.37.

The euro also lost 1.5% against the yen last week, but was helped by gains in the broader soft dollar, which saw it settle at $1.0826 on Monday, just outside a nine-month peak.

All that saw the US dollar index ease down from June at 101.98.

The dollar has been weighed down by falling US bond yields as the market bets the Federal Reserve may be more aggressive in raising interest rates as inflation clearly turns the corner.

Futures now mean there is no chance the Fed will raise rates by half a point in February, with a quarter-term rate seen at 94%.

The yield on 10-year Treasuries is down at 3.51%, having fallen 6 basis points over the past week, near the December trough, and a major chart target of 3.402%.

Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said that the release of global supply bottlenecks in recent months shows that it is a disinflationary shock, which increases the possibility of a soft landing in the US economy.

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“Lower inflation itself encourages a softer decline in real wages, by allowing the Fed to pause more quickly and encourage better-behaved bond markets, with a positive spillover into financial conditions,” Ruskin said.

“The soft decline also reduces the tail risk of higher US prices, and this reduced risk helps global risk,” added Ruskin.

Lower yields and the dollar benefited gold, which jumped 2.9% last week to its highest since April and was last trading at $1,920 an ounce.

Oil prices rallied last week on hopes that China’s rapid opening will boost demand. Data on travel, traffic and transportation in China showed a sharp recovery in travel ahead of the New Year holidays next week.

China’s data on economic growth, retail sales and industrial production due this week will certainly be negative, but markets may look poised to bounce back quickly now that coronavirus restrictions have been lifted.

Prices eased back on Monday, with Brent up 31 cents at $84.97 a barrel, while US crude fell 27 cents to $79.59.

($1 = 127.8000 yen)

Report by Wayne Cole; Edited by Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.


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