Article Highlights

  • Chinese markets out on Spring Festival holidays
  • Japan’s headline CPI (y/y) up by 0.3% vs. 0.2% expected, 0.5% previous
  • Japan’s core CPI (y/y) down by 0.2% vs. 0.3% decrease expected, 0.4% decline in November
  • Tokyo core CPI (y/y) slips by 0.3% vs. 0.4% decline expected, 0.6% decrease in December
  • BOJ’s core CPI (y/y) up by 0.1% as expected in December vs. 0.2% previous
  • Australia’s import prices (q/q) inches 0.2% higher vs. 0.4% uptick expected, 1.0% decline previous
  • Australia’s PPI (q/q) up by 0.5% vs. 0.2% expected, 0.3% previous
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The yen fired up the pip streets during the Asian forex trading session, as traders priced in the BOJ’s surprise increase in bond purchases and a strong CPI report from Japan.

Major Events:

BOJ got triggered – The Bank of Japan (BOJ) ended the week with a bang earlier today, when it surprised markets by increasing its bond purchases.

The central bank announced that it would purchase 450B JPY worth of 5-10 year government bonds, about 10% more than its usual shopping habit. Budget for bonds with maturities of 1-3 years are kept at 400B JPY while 3-5 year JGB purchases are also maintained at 420B JPY.

The move came amidst speculations that the BOJ is slacking off on its promise to keep 10-year government bond yields “near zero.” See, 5-10-year Japanese bond yields hit 11-month highs last Wednesday, which prompted market players to expect action from the BOJ.

Instead, the BOJ adopted an “it’s all good in the hood” attitude and made no changes to its pace of purchases. Naturally, USD/JPY (as well as other yen crosses) received downward pressure at the news.

Guess the BOJ is sticking to its plan! Thanks to the BOJ’s reaction, investors are now thinking that the BOJ will step up its bond-buying game in February. 10-year JGB yields dropped by 1.5% to 0.070% after hitting 0.1% yesterday. Meanwhile, 5-year yields fell by 0.5% to -0.10% and 20-year yields slipped by 1.5% to 0.660%.

Japan’s inflation report – Data from the world’s second largest economy saw consumer prices falling at a slower pace than analysts had expected.

Japan’s headline CPI clocked in a 0.3% growth from a year earlier in December, a bit slower than November’s 0.5% growth but faster than the expected 0.2% increase. The core reading, which excludes volatile items such as food and fuel, fell by 0.2%. That’s the slowest decrease in 10 months, yo!

A closer look tells us that prices increased less for food (2.5% from 3.6% in November), clothing and footwear (0.6% from 1.0%), medical care (0.8% from 0.9%), and culture and recreation (0.5% from 0.8%).

Meanwhile, Tokyo’s headline CPI reading, widely considered as a leading indicator, inched 0.1% higher in January despite expectations of a flat reading. However, its core reading saw a 0.3% decline from a year earlier following a 0.6% drop in December.

Last but not the least, the core CPI released by the BOJ came in at 0.1% as expected after showing a 0.2% growth in November.

Overall, the numbers support the notion that the BOJ can afford to taper its asset purchases a bit. Heck, Kuroda and his gang might even try to miss another opportunity to buy bonds if they think they can get away with it (they won’t).

Major Market Movers:

JPY – The biggest mover of the hour is the low-yielding yen, which was rocked by a better-than-expected inflation report and the BOJ’s surprise increase in bond purchases.

USD/JPY rocketed by 61 pips (+0.63%) to 114.99, EUR/JPY popped up by 41 pips (+0.34%) to 122.74, GBP/JPY shot up by 25 pips (+0.29%) to 86.60.

USD/MXN – I don’t always write about the Mexican Peso (MXN) but when I do, it’s because of a wall. See, tensions between Trump and Mexican President Enrique Peña Nieto heated up like a telenovela when Nieto cancelled his meeting with the POTUS. FYI, they were supposed to talk about who was footing the bill for the wall. Trump says Mexico, Nieto says “no way, Jose!”

USD/MXN climbed by another 120 pips (+0.57%) to 21.3550. Ay ay ay!

Watch Out For:

  • 10:00 am GMT: Euro Zone private loans (2.0% expected, 1.9% previous)
  • Economic and Financial Affairs Council (ECOFIN) meetings

See also:

U.S. Session Recap
London Session Recap

Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.

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