Share:

It might be a day away, but the BoJ still holds sway as markets fret about the BoJ's highly uncomfortable position, which is likely holding global markets hostage.

Global shares are trading mixed after a quiet session for overseas markets because Wall Street was closed for a public holiday.

China's GDP came in a bit higher than expected but was received by the sound of crickets as traders care less about backward-looking data during China's reopening process. Instead, they are now focusing on-the-spot proof in the economic pudding where retail sales laid an egg. However, on the flip side, China's industrial engines are still revving up in conjunction with the grand reopening as industrial production came ahead of expectations. So, a bit of saw off in most folk's books.

Asia markets have become a tad less enthralled after the PBoC failed to lower the MLF rate while reaffirming its pledge to keep policy "targeted and forceful" this year.

And with local FX traders expecting growth to drive the next leg lower in USDCNH, they, too, were less enamoured by the lack of a rate cut. In addition, they were less enthusiastic about Chinese consumers keeping their purse strings taught.

Bank of Japan

Last Thursday and Friday (12th/13th Jan), there was a profound JGB selloff following a local paper Yomiuri Shimbun, which reported that the BoJ would review YCC's side effects at this MPM. The BoJ responded by conducting its most significant single-day YCC purchases, buying JPY 6trn (EUR 43bn) of JGBs over the two days. 

Prolonged daily purchases of this scale seem untenable, increasing the risk of an imminent policy change. And this is not even accounting for the Rinban auctions through which they purchased even more bonds.

Additionally, when the BoJ widened the 10y JGB yield target band on 20th Dec, one of their explicit goals was to "Encourage a smoother formation of the entire yield curve." However, the 10 point of the JGB curve is still in dire need of damage control. Hence this would also suggest the BoJ is likely dissatisfied with its current policy mix. 

The likely outcome of any BoJ tightening is further sales of foreign bonds where EGBs are more exposed than USTs; Treasury/Bund tighteners since over the last 12m have seen Japanese investors liquidate much of their UST holdings in the context of profoundly negative FX  Hedged returns. Japanese market participants made net sales of EUR 122bn of USTs in 2022, compared to EUR 23bn for Bunds/OATs/BTPs/DSLs combined. Therefore, there is room for EGB underperformance.

Share: Feed news

SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.

Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content

Editors’ Picks

EUR/USD rebounds from multi-week lows, trades above 1.0750

EUR/USD rebounds from multi-week lows, trades above 1.0750

EUR/USD came under heavy bearish pressure and declined to its weakest level in three weeks below 1.0750 on Friday after the stronger-than-expected Nonfarm Payrolls data. Week-end flows, however, helped the pair erase its daily losses.

EUR/USD News

GBP/USD remains on track to snap three-week winning streak

GBP/USD remains on track to snap three-week winning streak

GBP/USD recovered toward 1.2550 after coming in within a touching distance of 1.2500 in the second half of the day after Nonfarm Payrolls came in at 199,000 for November. Despite the recent rebound, the pair remains on track to snap a three-week winning streak.

GBP/USD News

Gold retreats below $2,020 as US yields push higher

Gold retreats below $2,020 as US yields push higher

Gold broke below its daily range and declined toward $2,010 with the immediate reaction to the upbeat US November jobs report. Although XAU/USD managed to recover toward $2,020, rising US Treasury bond yields triggered another leg lower.

Gold News

Bitcoin price could retrace to $42,000 if US Nonfarm Payroll comes in at 180,000

Bitcoin price could retrace to $42,000 if US Nonfarm Payroll comes in at 180,000

Bitcoin price just like other assets, is highly impacted by the macro-financial developments. This includes the Nonfarm Payrolls (NFP) report released by the BLS of the United States. 

Read more

The week ahead – Fed, ECB and Bank of England rate decisions

The week ahead – Fed, ECB and Bank of England rate decisions

When the Federal Reserve kept rates unchanged back in November for the second meeting in a row there was still the distinct possibility that the final meeting of 2023 would provide the possibility of one more rate rise to round off the year in line with Fed policymakers dot plot forecasts of 5.6%.

Read more

Majors

Cryptocurrencies

Signatures