Yen flying as market challenges BOJ, stocks cheer inflation’s retreat

  • Expectations for the rate have been subdued following a slowdown in U.S. inflation
  • Asian stock markets rose the most in 7 months
  • JGB yields beat the BOJ pipeline as bets on a policy shift build

SINGAPORE/TOKYO, Jan 13 (Reuters) – Asian shares rose on Friday as investors cheered lower U.S. inflation, while the yen hit a seven-month high and Japanese bond yields fell short of the central bank’s target. as markets balked at Tokyo’s commitment to strike. monetary policy.

MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 0.8% to a seven-month high and headed for a third straight week.

Japan’s Nikkei (.N225) fell 0.4 percent and the yen, which had rallied 2.7 percent against the dollar overnight, continued to gain about 0.2 percent to $128.65. It is up 6% in three weeks, as the Bank of Japan surprised the market by widening the band around its 10-year debt repayment target.

A newspaper report hinting at the possibility of more easing doubled bets on a shift away from ultra-easy policy meant to bring yields closer to zero.

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The yield on 10-year Japanese government bonds broke 0.5% on Friday morning at 0.53%. The BOJ responded by making unplanned purchases of bonds.

“The market is expecting that they will raise the 10-year band again at the next meeting,” said Naka Matsuzawa, chief Japan macro strategist at Nomura, referring to The next meeting of the central bank takes place on January 17-18.

“I think it’s too early for the BOJ to give up,” he added. “There is still ammunition to defend against 0.5% yield.”

The BOJ had described its December stimulus as aimed at changes in the bond market, and has maintained the new target by buying bonds – but it is now under pressure as traders face a change in next week’s meeting.

Rabobank FX strategist Jane Foley said: “No change in policy this month will be a downside for the yen.” “However, we will look to buy the yen lower against the dollar in anticipation of another (policy) move … in the spring.”

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Sources familiar with the bank’s thinking told Reuters the BOJ will raise its inflation forecasts next week and discuss whether further steps are needed.

INFLATION IN RECOVERY

Beyond Japan, market sentiment was dominated by overnight US December inflation data that came in more or less in line with expectations. The annual rate of consumer price inflation decreased from 7.1% in December to 6.5% in November.

Investors responded by lowering expectations for US interest rates. A Federal Reserve hike of 25 basis points instead of 50 next month is now almost universally expected, and futures markets have priced in multiple rate cuts this year.

The dollar fell broadly, US Treasuries rose and assets seen as risky, such as stocks and cryptocurrencies, rose.

The Nasdaq (.IXIC) rose to a one-month high. The US dollar fell 0.9% to a nine-month low of $1.0868 per euro and the risk-sensitive Australian dollar rose to a five-month high of $0.6984.

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Bitcoin rose 5 percent and broke above $19,000. But some analysts have sounded a note of caution as service inflation remains stagnant and as Fed policymakers are only talking about a slowdown in future hikes, not cuts.

Vishnu Varathan, chief economist at Mizuho Bank in Singapore, said: “The market is supported by evidence of a tightening of the non-inflationary wedge as the Fed nears the end of its tightening cycle.”

“But inflation levels suggest that markets may be too optimistic about the ‘pivot’.”

Oil extended overnight gains – also helped by optimism over China’s reopening – and Brent crude futures were mostly steady at $83.82 in Asian morning trade.

South Korea’s central bank raised its policy interest rate by 25 basis points on Friday, as expected, and economists now think it may have reached the end of its hiking cycle.

Editing by Lincoln Feast.

Our Standards: The Thomson Reuters Trust Principles.

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