As the Federal Reserve Chair attempted to ease market fears about a potential 50 basis point hike in March, the market remained skeptical, with the Fed fund futures rising to above 70% from Tuesday’s close of 62%. The dollar remains stable, though it is consolidating today, ahead of the Bank of Japan’s meeting tomorrow. Yen position adjustment has lifted the currency, which is the best-performing G10 currency, gaining 0.85%.
US 10-year yields are unchanged, while European benchmark yields are slightly higher. The Stoxx 600 in Europe is down 0.6%, while US index futures are trading lower. With the greenback and US rates consolidating, gold is finding a reprieve after a fall from around $1858 on Monday to just below $1810 yesterday. WTI is hovering around $76.10.
China reported weaker-than-expected consumer and producer prices in February. CPI slowed to 1% from 2.1% in January, with food prices falling from 6.2% to 2.6% YoY. Core inflation, excluding food and energy, also slowed to 0.6% from 1%. The National People’s Congress forecasts a CPI rise of 3% this year, with the market predicting 2.4%. Producer prices fell 1.4% YoY, a larger decline than January’s -0.8%.
Despite fiscal and monetary stimulus, Japan’s economy continues to struggle, constraining policy options for the central bank’s new leadership. Growth in Q4 was revised from 0.2% QoQ to flat due to weaker private consumption. Japanese investors turned global bond sellers last week for the first time since the end of January. In the first nine weeks of 2023, they have bought ¥5.35tn ($39.6bn) foreign bonds, compared to selling ¥1.66tn foreign bonds in the first nine weeks of 2022.
The US dollar has pulled back from a three-month high against the yen, settling at around JPY136.10 today. Yen volatility spiked overnight, rising to over 41% from around 11.25% late yesterday ahead of the BOJ meeting and the US employment data release. The Australian dollar has also consolidated losses and remains inside yesterday’s range. The dollar is confined to a narrow range inside yesterday’s price action against the Chinese yuan.
In conclusion, with the US dollar and rates consolidating and gold finding reprieve, the yen has surged ahead of the BOJ meeting tomorrow. Despite the weaker-than-expected GDP, Japan’s economy continues to struggle, constraining policy options for the central bank’s new leadership. The market will be looking at the US employment data release for clues on the Fed’s next moves. Meanwhile, the Chinese CPI and producer prices were weaker than expected, and Japanese investors turned sellers of global bonds last week for the first time since January’s end.
