Yen and JGBs Sold on New BOJ Nominees While Japanese Stocks Rally to Record Highs

[Ben Graham]

The dollar was initially sold during President Trump’s State of the Union Address. However, against most of the G10 currencies, it remains within the well-worn ranges, which may be reinforced by a busy option expiration schedule, we discuss below. There are two notable exceptions. First, is the Japanese yen, which sent to more than two-week lows following news of two dovish appointments to the BOJ board to replace members whose terms are ending. This reinforces the sense of Prime Minister Takaichi monetary policy desires. Japanese stocks rallied, but JGBs sold off. Second, Australia’s January CPI was firmer than expected, and this pushed expectations a bit higher for another hike as soon as the May central bank meeting. The Australian dollar is the strongest of the G10 currencies today. 

Geopolitical tensions continue to run high. President Trump threatened Iran in his speech. Also, China warned that new investigations could end the US-Chinese tariff truce. Gold and oil are firmer. 

Prices  

G10

• The euro traded quietly between about $1.1765 and $1.1795 yesterday. Since last Friday’s tariff ruling, it has been in a roughly $1.1745-$1.1835 range. It remains in that range today. It rose slightly above $1.18 early today, during the President Trump’s speech, but has come back off. There are options for nearly 3 bln euro struck there that expire today. 

• After reaching almost JPY156.30, a two-week high, in the local session yesterday, the greenback spent the North American session in a narrow range mostly between about JPY155.60 and JPY156.20, and a tight JPY155.60-JPY155.85 range after Europe closed. News that Prime Minister Takaichi nominated two doves to the central bank’s board to replace outgoing members (end of March and end of June) weighted on the yen, which is falling for the fifth session in past six. The dollar rose to almost JPY156.80, arguably helped by option-related demand as about $2.85 bln in options at JPY156 expire today. The next technical target may be around JPY157.55-75. 

• Sterling managed to marginally trade on both sides of Monday’s range yesterday and settled little changed. The session high, slightly above $1.3535, was recorded into the European close. It is trading quietly between about $1.3490 and $1.3535. Options for GBP450 mln at$1.3550 expire today. 

• The US dollar matched the month’s high against the Canadian dollar yesterday, near CAD1.3725. It is in a narrow range (~CAD1.3675-CAD1.3705) today. About $475 mln in options at CAD1.37 expire today. The next technical target is around CAD1.3760. 

• The Australian dollar frayed the 20-day moving average (~$0.7045 today) for the third session in the past four yesterday, but it has not settled below it since mid-January. For the past week and half, it has chopped between $0.7000 and $0.7100 without closing outside that cent range since February 11. The Aussie rose to a new high for the week, slightly above $0.7115 but was greeted by sellers who pushed it down to a little below $0.7080. Options for A$2.5 bln at $0.7100 expire today. 

EM

• Over the past several sessions, a dollar cap has been forged against the Mexican peso slightly above MXN17.30. Options for nearly $1 bln between MXN17.29 and MXN17.30 expire today, reinforcing the cap. After probing it in early turnover, the greenback sulked back to almost MXN17.16. It eased a little further today, to almost MXN17.1475 today but has stabilized. It is holding below MXN17.20. On the other hand, a shelf appears to have been formed in the MXN17.08-10 area. 

• The dollar fell to about CNH6.8725 in early European trading yesterday and consolidated between ~CNH6.8770 and CNH6.8830 for the remainder of the day. Encouraged by the lower fix today, the dollar was pushed a little below CNH6.8620 today. Upon returning from the long holiday yesterday, the PBOC set the dollar’s reference rate 0.02% higher yesterday (CNY6.9414). It was set at CNY6.9321 today, a new low since May 2023. 

• The Indian rupee settled virtually flat today. Some dollar demand related to the settlement of non-deliverable forwards neutralized reports of modest foreign demand for Indian equities. Dollar support is seen in the INR90.60-80 area. 

Other Markets

• Global equities are advancing today. The dovish nominations to the BOJ board helped lift the Nikkei 2.2% to a new record high. All the large bourses in the region rallied. The rally in South Korea and Taiwan was extended by around 2%. They are up 44% and 22% respectively this year. Europe’s Stoxx 600 is up around 0.5%, and US index futures are up 0.1%-0.2%. 

• Benchmark 10-year yields are higher today. While Japanese stocks like the dovish additions to the BOJ, the bond market did not. The 10-year yield rose almost five basis points, while the 30-year yield rose seven basis points and the 40-year yield jumped nine. Most European 10-year yields are slightly firmer, the 10-year Gilt yield is up almost two basis points. So is the yield on the 10-year US Treasury. It is near 4.05%. 

• Gold is firm. While it has held above $5100, it has been unable to sustain a foothold above $5200 and is consolidating in yesterday’s range. Silver, on the other hand, poked above $91 for the first time in nearly three weeks. It has been sold in the European morning but found bid near $89.50. 

• April WTI continues to consolidate, seemingly caught between rising inventories and the threat of a US strike in Iran. It is trading between about $65.45 and $66.60 today. It is trading a little below $66 in late European morning turnover. 

Data

• The US economic calendar remains light for the remainder of the week. The Fed’s Barkin, Schmid, and Musalem speak today. Treasury sells two-year floating rate notes and $70 bln five-year notes. 

• Mexico may report its first back-to-back quarterly current account surpluses since the pandemic distortions in 2020, which itself first such occurrence since 2010. Still, Mexico likely recovered a small deficit for the year of less than 0.75% of GDP. It is smaller than the other large Latam economies (Brazil ~-3-4%, Colombia ~-1.5-3%, Chile ~-2.5%, Argentina ~-1.5%). 

• Australia reported January CPI was steady 3.8% year-over-year. This will keep it atop the G10. The trimmed mean measure was ticked up to 3.4% from 3.3%. The futures market has almost a 90% chance of the next hike at the early May central bank meeting. 

• Last week, Japan reported that the core CPI eased to the 2.0% target for the first time since January 2024. Earlier today, it reported that producer prices of services rose 2.6% year-over-year in January, matching the December pace, which was the slowest since March 2024. Despite yesterday’s press report about Prime Minister Takaichi pressing the BOJ not to lift rates, the swaps market is pricing in almost 58 bp of tightening this year, up about six basis points from a week ago, and the most in two weeks. 

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