Global Markets – The yen is flying as the Bank of Japan challenges the market, and stocks are cheering on falling inflation

Written by Tom Westbrook and Kevin Buckland

SINGAPORE / TOKYO, January 13 (Reuters)Asian stocks rose on Friday as investors cheered slowing US inflation, while the yen hit a seven-month high and Japanese bond yields broke above the central bank’s target as markets defied Tokyo’s commitment to loose monetary policy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS It rose 0.8%, hitting a new seven-month high and heading for a third straight week of gains.

Japanese Nikkei index .N225 The yen fell 0.4 percent, and the yen, which rose 2.7 percent against the dollar overnight, continued to rise, rising about 0.2 percent more to 128.65 per dollar. It has risen 6% in just over three weeks since the Bank of Japan surprised markets by widening the range around its 10-year yield target.

Marking the possibility of more flexibility has doubled the stakes on the coming shift away from an ultra-easy policy that seeks to stabilize yields near zero.

The yield on 10-year Japanese government bonds JP10YTN = JBTCviolated Its new 0.5% ceiling fell on Friday morning at 0.53%. The Bank of Japan has been making unscheduled bond purchases in response. JP/

“The market expects at the next meeting that they will increase the 10-year range again,” said Naka Matsuzawa, chief macro strategist for Japan at Nomura, referring to the upcoming meeting of the central bank that runs from January 17-18.

“I think it is too early for the Bank of Japan to give up,” he added. “It still has ammunition to defend the 0.5% yield cap.”

The Bank of Japan described its move in December as aimed at addressing distortions in the bond market, and defended the new target of bond buying – but this is under enormous pressure now as traders watch for a turnaround at the coming weeks meeting.

“Any change in policy this month would not be a setback for the yen,” said Jane Foley, strategist at Rabobank Forex. “However, we look to buy the yen against the dollar on dips in anticipation of another (policy) event…in the spring.”

It is likely to be the Bank of Japan Raise inflation expectations Next week and discuss whether further steps are needed, sources familiar with the bank’s thinking told Reuters.

Bloating bloating

Outside Japan, it dominated market sentiment overnight US inflation data for December Which fell somewhat on consensus expectations. The annual pace of rise in core consumer prices slowed to 6.5% in December from 7.1% in November.

Investors responded by lowering expectations for US interest rates. The Fed is now almost universally expected to raise 25 basis points instead of 50 next month, and futures markets have priced in several rate cuts this year.

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

Nasdaq nineteenth It reached its highest level in one month. The US dollar fell 0.9% to a nine-month low of $1.0868 per euro Euro = EBS and the risk-sensitive Australian dollar Australian dollar = D3 to a nearly five-month high of $0.6984.

bitcoin BTC = BTSP It rose 5% to break above $19,000. But some analysts noted a caveat because service inflation remains flat and because federal policymakers are only talking about Slower On the ups in the near future, not a focus for downs.

“The market’s relief rests on strong evidence of inflation squared as the Fed nears the end of its tightening cycle,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“However, inflation levels suggest that markets may be overly optimistic about the ‘pivot’.”

Oil extended its gains overnight – also helped by optimism about China’s reopening – and Brent crude futures. LCOc1 It was broadly flat at $83.82 in Asian morning trade. or

Central Bank of South Korea Starch His policy rate fell by 25 basis points on Friday, as expected, and economists now think he may have reached the end of the rally cycle.

Global foreign exchange rates since the beginning of the year

global asset performance

Asian stock markets

(Edited by Lincoln Feast.)

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The views and opinions expressed herein are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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