Japan officials verbally step in as Yen weakness targets 160 against US Dollar

EU mid-market update: Japan officials verbally step in as yen weakness targets 160 against US Dollar; Iran unrest in world's focus.

Notes/observations

- European markets opened mostly higher, supported by resource stocks and elevated commodity prices, though sentiment remains fragile as political risk remains heightened.

- Diplomatic tensions involving Greenland and Denmark continue following firm rejections of US ownership ambitions, while French PM Lecornu faces no-confidence motions tied to the EU-Mercosur trade deal, though passage appears unlikely.

- European natural gas prices eased modestly in early trading but holding onto weekly gains of over 10% as colder weather boosts heating demand and concerns persist around potential supply disruptions linked to Iran. Accelerated gas-storage withdrawals have pushed inventories below 55%, reinforcing near-term price support.

- Markets are pricing today's potential IEEPA tariff decision like a binary cash event, but even a Supreme Court win only unlocks the reliquidation workflow, meaning a potential ~$150B refund remains trapped behind customs liquidation finality until the ruling is final and CBP operationalizes entry-by-entry reversals. The true market hinge is remedy scope and sequencing - a clear, broad authorization for widespread reliquidation accelerates the path to payments, while a narrow or remanded remedy implies months of post-opinion orders, ACE/ACH frictions, and administrative segmentation before money actually moves.

- Some analysts argue the real strategic lever against Iran is not hitting hardened military targets but crippling port and loading infrastructure at Kharg Island and Bandar Abbas, instantly choking off roughly 1.6 million bpd of export cashflow and import capacity while replacement hardware like ZPMC quay cranes imposes a hard 12-18 month recovery floor. Because financial evasions and shadow-fleet routing cannot move physical barrels without functioning docks - and because pipeline and trucking workarounds are constrained - a sustained port disablement would create a fast, asymmetric fiscal shock that even China is unlikely to absorb once the discount disappears.

- Japanese yen seeing action after Fin Min Katayama and FX Diplomat Mimura attempt early verbal warnings about yen weakening, which had pushed USD/JPY to over 159.45 overnight. Typically the first stage before actual central bank intervention, although they can reiterate warnings for many months.

- The core asymmetry is that markets are likely still underpricing the odds that PM Takaichi uses a snap February election as a disguised regime-change tool to escape coalition constraints and win a standalone LDP majority, thereby unlocking an uncapped fiscal stimulus - effectively turning each ~34-seat path to 233 into roughly JPY 10 trillion of additional spending capacity. If she pulls it off (with ~70% approval cushioning the Ishiba-style failure risk), the main market impact is a JGB supply shock that pushes 10-year yields up and keeps USD/JPY biased higher (160 as the key MoF intervention line), even if the BoJ stays sidelined until spring wages.

- Gold and silver surged to fresh record highs, driven by softer-than-expected US inflation data, rising geopolitical risk, and growing concerns around central-bank independence. Silver decisively broke above $90/oz, with some analysts viewing the move as a structural repricing amid tight physical supply, strong industrial demand from AI, solar and EVs, and long mine-development lead times. Gold continues to benefit from safe-haven demand and expectations of Fed rate cuts by mid-year.

- Accordingly, expectations are building for a resumption of US rate cuts later in the year, despite a likely hold at the January meeting by the Fed. Analysts increasingly expect cuts in March and June as inflation moderates.

- DeepSeek's published Engram module shows a deterministic lookup-and-prefetch scheme that keeps a ~100B-parameter knowledge table off-GPU in host memory with only ~2%-3% throughput loss, collapsing the assumed link between model capability and ever-growing HBM spend just as DRAM pricing is expected to surge. The implication is a tiered memory future where "hot" reasoning stays on HBM while "warm" knowledge moves to DDR5 and "cold" agent history migrates to SSDs, with the mid-Feb 2026 DeepSeek-V4 release as the practical falsification point for whether this architecture is real at scale.

- Asia closed mixed with Nikkei225 outperforming +1.6%. EU indices +0.1-0.5%. US futures -0.1% to -0.2%. Gold +1.0%, DXY -0.1%; Commodity: Brent -0.1%, WTI -0.1%; Crypto: BTC +3.2%, ETH +6.2%.

Asia

- (CN) China Dec Trade Balance: $114.1B v $114.1Be; Exports Y/Y: 6.6% v 3.0%e; Imports Y/Y: 5.7% v 0.8%e.

- New Zealand Nov Building Permits: M/M: +2.8% v -0.7% prior.

- South Korea Dec Unemployment Rate: 4.0% v 2.7%e.

- South Korea Dec Export Price Index M/M: 1.1% v 3.7% prior; Y/Y: 5.5% v 7.0% prior.

- South Korea Dec Import Price Index M/M: 0.7% v 2.4% prior; Y/Y: 0.3% v 1.90% prior.

- Japan sold ¥ in 5-year JGB Bonds; Avg Yield: 1.6390% v 1.4350% prior; Bid-to-cover: 3.08x v 3.17x prior.

Global conflict/tensions

- Pres Trump stated that Iran was on his mind; Had to make a decision on Iran and would act accordingly once the correct death toll; Warned that Iran better behave. Would take very strong action” if anti-government protesters were hanged.

- US could take action regarding Greenland within weeks or months.

Europe

- France Central Bank (BdF) sees Q4 GDP +0.2% q/q.

Americas

- Fed’s Barkin noted that Inflation was moving in the right direction.

Trade

- Pres Trump stated that he believed that China could open its market to US goods.

Energy

- Weekly API Crude Oil Inventories: +5.3M v -2.8M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.29% at 612.24, FTSE +0.26% at 10,164.25, DAX -0.01% at 25,409.22, CAC-40 +0.47% at 8,386.26, IBEX-35 +0.75% at 17,804.65, FTSE MIB +0.54% at 45,769.50, SMI +0.66% at 13,456.40, S&P 500 Futures -0.16%].

Market focal points/key themes: European indices opened generally higher and remained upbeat through the early part of the session; among sectors leading the way higher are health care and utitilies; lagging sectors include financials and technology; focus on US PPI figures coming out later in the day; earnings expected in the upcoming American session include Bank of America, Wells Fargo and Citigroup.

Equities

- Consumer discretionary: Hays [HAS.UK] -3.5% (trading update).

- Energy: BP [BP.UK] -2.0% (trading update; $5B writedown).

- Technology: ASML [ASML.NL] -0.5% (China Customs authorities said to have told customs agents that Nvidia H200 chips not permitted to enter China), Xaar [XAR.UK] +6.5% (trading update).

- Telecom: Pearson [PSON.UK] -6.5% (trading update).

Speakers

- ECB’s De Guindos (Spain) reiterated stance that inflation remained in a good place; Geopolitical risk noticeably raised downside risks to growth

- ECB's Kazaks (Latvia) reiterated ECB was in a good place and was delivering on inflation mandate.

- ECB's Villeroy noted that if France 2026 budget deficit to GDP was higher than 5% that would put the country in a danger zone. Political uncertainty over French budget could reduce GDP by at least 0.2%. US dollar depreciation could weigh on European inflation.

- BOE’s Taylor saw policy at neutral sooner than later; Interest rates should continue on downward path; Saw substantial China trade diversion into UK

- France Foreign Affairs Min: to open consulate office in Greenland on Feb 6th.

- Bank of Korea Official reiterated USD/KRW rates in the upper 1,400 range were not seen inline with economic fundamentals; noted need for policy measures to ease excessively pessimistic market sentiment.

- Japan Top FX Diplomat Mimura stated that was not ruling out any options as it saw concerning one-sided, sudden moves in FX market; would take appropriate action against excessive FX moves. Not just looking at USD/JPY, looking at various pairs.

- Japan Ruling Ishin Party Leader Yoshimura: PM Takaichi to dissolve parliament soon; To give details about snap election, on Mon Jan 19th.

- China said to launch new round of policy to boost employment.

Currencies/fixed income

- USD was steady in quiet trading on Wed. Focus was on another batch of US data later in the session. Fed independence remained at
risk after the Justice Department opened a criminal investigation into Chair Powell amid President Trump's repeated criticism over his cautious stance on cutting interest rates. ECB members continued to voice support for Powell.

- EUR/USD steady at 1.1645 as ECB members continued to tout that rates were in an appropriate place and inflation contained around target.

- USD/JPY hovered around the 159 area as Japanese officials pledged to take appropriate action against excessive FX price movements. Additional verbal intervention by Japan Top FX Diplomat Mimura helped to push the pair below 158.75.

Economic data

- (NL) Netherlands Nov Trade Balance: €10.7B v €12.2B prior; Exports Y/Y: No est v 5.7% prior; Imports Y/Y: 5.5 v 1.2% prior.

- (JP) Japan Dec Preliminary Machine Tool Orders Y/Y: 10.6% v 14.8% prior.

- (FI) Finland Dec CPI M/M: +0.2% v -0.2% prior; Y/Y: +0.2% v -0.1% prior.

- (IN) India Dec Wholesale Prices (WPI) Y/Y: 0.8% v 0.4%e.

- (SE) Sweden Nov Industrial Orders M/M: 11.8% v 4.9% prior; Y/Y:23.0 % v 11.9% prior.

- (SE) Sweden Nov Household Consumption M/M: +1.0% v -0.5% prior; Y/Y: 3.5% v 2.8% prior.

- (RO) Romania Dec CPI M/M: 0.2% v 0.3%e; Y/Y: 9.7% v 9.7%e.

Fixed income issuance

- (FR) France Debt Agency (AFT) opened its book to sell EUR-denominated 20-year bonds via syndicate; guidance seen +8bps toMay 2045 Oat.

- (IE) Ireland Debt Agency (NTMA) opened its book to sell EUR-denominated 10-year IGB bond via syndicate; guidance seen +28bps to mid-swaps.

- (IN) India sold total INR290B vs. INR290B indicated in 3-month, 6-month and 12-month bills.

- (UK) DMO sold £4.5B in 4.75% Oct 2035 Gilts; Avg Yield: 4.456% v 4.613% prior; bid-to-cover: 3.26x v 3.05x prior; Tail: 0.3bps v 0.3bps prior.

- (SE) Sweden sold total SEK8.0B vs. SEK8.0B indicated in 2032 and 2036 Bonds.

Looking ahead

- OPEC Monthly Oil Report.

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 4.00%.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 2031 and 2029 bonds.

- (DE) Germany to sell combined €3.0B in 2042, 2052 and 2056 Bunds.

- 06:00 (IL) Israel Dec Consumer Confidence: No est v 92 prior.

- 06:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Jan 9th: No est v 0.3% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (HU) Hungary Central Bank (MNB) Dec Minutes.

- 08:30 (US) Nov PPI Final Demand M/M: 0.2%e; Y/Y: 2.7%e (**Note: Both Nov & Oct data to be released).

- 08:30 (US) Nov PPI (ex-food/energy) M/M: 0.2%e; Y/Y: 2.7%e.

- 08:30 (US) Nov PPI (ex-food/energy/trade) M/M: 0.2%e: Y/Y: 2.9%e.

- 08:30 (US) Nov Advance Retail Sales M/M: 0.4%e v 0.0% prior; Retail Sales (ex-auto) M/M: 0.4%e v 0.4% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.5% prior; Retail Sales Control Group: 0.4%e v 0.8% prior.

- 08:30 (US) Q3 Current Account Balance: -$239.0Be v -$251.3B prior.

- (PL) Poland Central Bank (NBP) Post Rate Decision Statement.

- 09:50 (US) Fed’s Paulson.

- 10:00 (US) Dec Existing Home Sales: 4.22Me v 4.13M prior.

- 10:00 (US) Oct Business Inventories: 0.1%e v 0.2% prior.

- 10:00 (US) Fed’s Miran.

- 10:30 (UK) BOE’s Ramsden.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (US) Fed’s Kashkari.

- 12:00 (US) Fed’s Bostic.

- 14:00 (US) Fed's Williams gives opening remarks.

- 18:50 (JP) Japan Dec PPI M/M: 0.2%e v 0.3% prior; Y/Y: 2.4%e v 2.7% prior.

- 19:00 (AU) Australia Jan Consumer Inflation Expectation: No est v 4.7% prior.

- 19:01 (UK) Dec RICS House Price Balance: No est v -16.0% prior.

- (KR) Bank of Korea (BOK) Interest Rate Decision: Expected to leave Repo Rate unchanged at 2.50%.

- 21:30 (HK) Hong Kong to sell CNY1.25B in 3-year Bonds.

- 22:00 (ID) Indonesia Nov External Debt: No est v $423.9B prior.

- 23:00 (SG) Singapore to sell 6-mointh bills.