JPY spikes on further BoJ hike speculation – Softer US CPI drives financials higher

Asia market update: JPY spikes on further BOJ hike speculation; Softer US CPI drives financials higher; BOK dovish hold; Mixed AU jobs; Focus on US Dec Retail Sales.

General trend

- Yen rose strongly following Scott Bessent and Japan research simultaneous news releases. Treasury Sec nominee Bessent in prepared remarks ahead of Senate testimony said sanctions must be a part of a 'whole of govt approach’ and must ensure USD remains world's reserve currency, while JCER economists expect a further ~4.7% pay increase at large companies. Yen spiked further (before retracing) on unsourced US financial reporting that the BOJ was indeed ‘seeing a good chance’ of a Jan rate hike next week. Later still, BOJ Gov Ueda again indicated next week’s BOJ decision on Jan 24th will indeed be ‘live’.

- Even before this, Japan showed strength as the only major nation whose interest rates across the curve did not fall sharply following softer US CPI and weaker UK PPI overnight, with the OIS market continuing to beef up the chances of a January rate increase, to 74% (from 70% overnight).

- Asian stocks in general followed US higher, with SK Hynix +5% and Kospi index outperformed +1.4% pre-Bank of Korea rate decision, while in Australia ASX financials +1.7% following US megabanks’ higher after sterling earnings from JPM, Citi, Wells Fargo, Goldman Sachs all saw their share prices soar by as much as ~6% during US trading.

- Kospi kept on gaining despite the unexpected Bank of Korea (BOK) decision to hold (market expected a cut), +1.6%. However, Nikkei did not oblige as much, only +0.3%, with exporters concerned about potential rising rates in Japan, and a higher Yen would follow. Toyota -1.9%.

- BOK Gov Rhee later said that one member had wanted to cut, but added that the rest of the Board also sees a need for further rate cuts in next 3 months with increased downside risks to economic growth. KRW pared gains on Rhee’s forward guidance.

- Mixed AU jobs report (full-time employment contracted] saw Aussie dollar briefly firmer to a one-week high, but soon lost those gains and more, ending the multi-day recovery. Aussie miner Rio Tinto reported it had produced less Iron Ore, but more Copper last year

- Another big net injection by the PBOC today, following yesterday’s second-highest ever. CNY still stable at 7.34 handle this week. Chinese state media even said that the PBOC’s recent injections (via 7-day Reverse Repos) said to already be equivalent to a RRR cut of 0.5%.

- Crude oil maintained its elevated levels at nearly $79/bbl.

- In North America some numbers reported today around Canada’s promised tariff response against the US; C$150B worth of US products. Also Biden Admin said to be considering ways to keep TikTok available in the US, amid TikTok's CEO planning to attend Trump inauguration and Trump himself said to be considering an Exec Order to save TikTok in the US from being shut down.

- US equity FUTs roughly flat during Asian trading.

Looking ahead (Asian time zone)

Note: This will be the final week for US Fed speakers before the communications blackout is imposed ahead of the Jan 29th decision.

- Thu Jan 16th (Thu eve UK Nov GDP, Thu night US Dec Retail Sales).

- Fri Jan 17th NZ Dec Business PMI, CN Dec GDP, Industrial Prod, Retail Sales (Fri night US Dec Building Permits).

Holidays in Asia this week

- Mon Jan 13th Japan.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.2% at 8,230.

- Australia Dec employment change: +56.3K V +15.0KE; unemployment rate: 4.0% V 4.0%E.

- Australia Jan Consumer Inflation Expectation: 4.0% v 4.2% prior.

- Rio Tinto Reports Q4 Pilbara iron ore output 86.5Mt, -1% y/y, mined copper output 179.8K tons; Affirms guidance.

- New Zealand Dec Food Prices M/M: +0.1% v -0.1% prior.

- New Zealand sells total NZ$500M vs. NZ$500M indicated in 2029, 2033 and 2041 bonds.

China/Hong Kong

- Hang Seng opens +0.9% at 19,454; Shanghai Composite opens +0.4% at 3,239.

- China PBOC’s recent injections (via 7-day Reverse Repos) said to be equivalent to a RRR cut of 0.5% - China state media.

- Hong Kong said to consider raising taxes on 'top earners' for a second year - financial press.

- Canalys: Annual shipments of China smartphones at 285M units in 2024, +4% y/y; Q4 smartphone shipments from China at 77.4M, +5% y/y.

- China PBOC might cut the RRR before the Lunar New Year this month (starts Jan 28th), according to analysts - Shanghai Securities News.

- ASML *Dutch govt said to tighten export controls on chip equipment; From Apr 1st 2025, a permit will be needed to export “specific measuring and inspection equipment” - press.

- China State Grid said to target 2025 investments of >CNY650B - Chinese media [overnight update].

- China govt says will take measures to safeguard its interests in response to latest US trade restrictions [overnight update].

- China PBOC sets Yuan reference rate 7.1881 v 7.1883 prior.

- China PBOC Open Market Operation (OMO): Injects CNY341B in 7-day reverse repos; Net injects CNY336B v injects CNY959B prior.

Japan

- Nikkei 225 opens +0.8% at 38,732.

- Japan BoJ said to see 'good chance' of Jan rate hike - financial press report, sources unclear.

- BOJ Gov Ueda said will raise policy rate this year if economic, price conditions continue to improve; reiterates will debate at next week's meeting whether to hike rates.

- Japan Center for Economic Research (JCER) Economists expects ~4.7% pay increase in the ongoing wage negotiations at large companies (vs. ~5.3% y/y) - US financial press.

- One-third of Japanese companies report labor shortage to worsen; Only 4% see shortage to ease - financial press survey.

- Japanese authorities likely to intervene in currency market if Yen falls to ¥165, according to 2/3 of economists in a financial press poll.

- Japan sells ¥1.0T VS. ¥1.0T indicated in 20-year JGB Bonds; AVG yield: 1.9830% V 1.8790% prior; bid-to-cover: 3.79X V 3.38X prior.

- Japan sells ¥3.2T vs. ¥3.2T indicated in 12-Month Bills; Avg Yield: 0.5429% v 0.4796% prior; bid-to-cover: 3.67x v 4.40x prior.

- Nomura analysts bringing forward its call for BOJ rate hike from March to January after BOJ Gov Ueda backed up Dep Gov Himino optimistic view of the economy [overnight update].

Korea

- Kospi opens +1.3% at 2,528.

- Bank of Korea (BoK) leaves 7-day repo rate unchanged at 3.00%; not expected.

- Bank of Korea (BOK) Gov Rhee: Today's rate decision was Not unanimous; One member wanted to cut; Board does see need for further cuts - post rate decision press conference.

- South Korea Trade Min Ahn duk-Geun: Korea considering boosting energy imports from the US - financial press.

- South Korea Corruption Investigation Office: Yoon arrest period is suspended during court review of arrest's legality.

Other Asia

- Indonesia Central Bank (BI): Market reaction is normal, short-term in nature as market digests policy decision.

- Indonesia Central Bank (BI) Gov Warjiyo: Divergence in global economic growth is widening - pre-rate decision press conference [overnight update].

*(ID) Indonesia central bank (BI) cuts BI-rate by 25BPS to 5.75%; not expected [overnight update].

North America

- (US) House Speaker Johnson: 1 bill strategy makes the most sense for the Republican agenda.

- (US) Follow up: Chinese hackers accessed over 400 computers and 3K at the US Treasury Dept; Hack focused on sanctions, intelligence - financial press, citing report.

- (US) Group of investors said to seek $5B to form a new basketball league in the US - financial press.

- (US) Treasury Sec nominee Bessent: Sanctions must be a part of a 'whole of govt approach'; Must ensure USD remains world's reserve currency - prepared testimony ahead of Senate testimony.

- BYTEDANCE.IPO (US) Pres Elect Trump is considering an Executive Order to save TikTok from US ban - comments following on from Trump's earlier post considering EO to save TikTok from US ban.

- (US) Reportedly Canada is preparing a tariff response against C$150B US products should Trump's administration move forward with tariffs against Canada.

- (US) MBA Mortgage Applications w/e Jan 10th: +33.3% v -3.7% prior (5-year high and 1st positive reading in 5 weeks).

- (US) House Speaker Johnson reportedly proposed six-week timeline for passing a budget resolution for reconciliation by February 27; GOP leadership plans to spend March finalizing the reconciliation package, targeting passage before Easter on April 20th - Punchbowl.

- (US) DEC CPI M/M: 0.4% V 0.4%E; Y/Y: 2.9% V 2.9%E (highest since July 2024); Ex Food and Energy) M/M: 0.2% v 0.3%e; Y/Y: 3.2% v 3.3%e.

- (US) Dec Real Avg Hourly Earning Y/Y: 1.0% v 1.3% prior; Weekly Earnings Y/Y: 0.7% v 0.9% prior.

- (US) Jan Empire Manufacturing: -12.6 V +3.0E; Prices Paid: 29.1 v 21.1 prior; New Orders: -8.6 v +4.3 prior "Firms grew more optimistic that conditions would improve in the months ahead".

- (CA) Canada Dec Existing Home Sales M/M: -5.8% v -2.2%e.

- (US) Commerce Dept imposing new export controls on lab equipment to address concerns about biotechnology and AI.

- (US) Fed's Kashkari (non-voter for 2025): Tariffs themselves don't cause inflation, but 'tit-for-tat' retaliation is more complicated.

- (US) DOE CRUDE: -2.0M V -1ME; GASOLINE: +5.9M V +2ME; DISTILLATE: +3.1M V +0.5ME.

- (CA) Canada Energy Min Wilkinson: No Interest in Reducing Energy, Electricity Supply to US Customers - press interview.

- (US) Fed's Williams (voter): Hard to know how Fed bond holdings will affect yields; Current yields reflect economic strength and fiscal uncertainty - Q&A responses.

- (US) Fed Beige Book: economic activity increased slightly to moderately across the twelve Federal Reserve districts in late November and December.

Europe

- (DE) Chinese investors said to be interested in unwanted German car factories - financial press, citing sources familiar with China govt thinking.

- (UK) Dec RICS House Price Balance: 28% v 28%e.

- ECB’s Centeno (Portugal): Interest rates will continue on trajectory ideally towards 2% (inline) - financial press.

- (SE) Sweden Central Bank (Riksbank) Gov Thedeen: If the outlook remains the same, the rate may be cut again; Reiterates likely that interest rate will be cut once more in the first half of this year - Swedbank event.

- (UR) Russia Pres Putin said to reiterate demands ahead of potential talks with US Pres-elect Trump that Ukraine never join NATO whilst also demanding curbs on Ukrainian military capacity - press.

- (IL) Israel Fin Min Smotrich: Gaza ceasefire-for-hostages deal is dangerous for national security.

- OPEC Monthly Oil Report (MOMR).

Levels as of 00:20 ET

- Nikkei 225 +0.2%, ASX 200 +1.4%, Hang Seng +0.4%; Shanghai Composite -0.2%; Kospi +1.4%.

- Equity S&P500 Futures flat; Nasdaq100 flat; Dax -0.1%; FTSE100 +0.1%.

- EUR 1.0259-1.0355; JPY 155.21-156.53; AUD 0.6204-0.6247; NZD 0.5597-0.5661.

- Gold +0.4% at $2,728/oz; Crude Oil +0.3% at $78.94/brl; Copper +0.2% at $4.3332/lb.