Overnight, Asia-Pacific equities were mixed, with Japan’s Nikkei 225 catching a bid, up 0.2%, whilst China’s CSI 300 slipped 0.34%, and South Korea’s Kospi fell 0.6%. Sentiment was clearly echoing a cautious tone amid geopolitical concerns that kept investors on the defensive, ultimately bolstering safe havens.
On that note, US Treasury yields bull-steepened, and the benchmark 10-year yield dipped a toe under 4.00%. As you would expect, Spot Gold ended the day on the front foot, up 0.4% to US$5,185. However, Oil prices continue to consolidate, caught between a rock and a hard place: geopolitical risks are keeping a floor under prices, while crude stockpiles surpass expectations and form a headwind.
GBP Under Pressure; Japanese Inflation Cools to 1.8%
In the FX space, the GBP underperformed against G10 peers due to a combination of three factors. First, the by-election defeat did PM Keir Starmer no favours as the Greens seized a Labour stronghold; second, UK consumer confidence fell to -19 in February; third, expectations of a rate cut by the BoE increased. Money markets are pricing in an 82% chance of a rate cut next month (up from 77% a week ago).
For the JPY, although we are pretty much unchanged in the USD/JPY this morning, it is worth noting that the February Tokyo core CPI eased to 1.8%. This was slightly above the 1.7% median estimate but below the 2.0% reading in January and, of course, south of the BoJ’s 2.0% target.
Japan is caught in a policy bind. The BoJ is leaning hawkish: Board member Hajime Takata warned this week of longer-term inflation overshoot risks driven by rising wages and second-round effects, arguing that the moderation in headline CPI reflects temporary policy subsidies rather than a genuine easing of price pressures. Governor Ueda reinforced that stance, telling the Yomiuri Shimbun that both the March and April meetings remain live for a move to 1.0%.
The pushback is coming from the political side. Japanese PM Sanae Takaichi has made no secret of her discomfort with further hikes and has nominated dovish Board members to match. Money market expectations show April’s meeting is now a coin toss, but the real question is how much political pressure the BoJ is willing to absorb.
