Headlines

* Yen tanks as BoJ defies market bets for policy tweaks

* UK CPI eases but hits estimate, points to 50bp February hike

* Goldman Sachs lifts China economic growth forecast to 5.5% from 5.2%

* Bitcoin has now recovered all its losses since FTX collapsed

FX: USD is modestly higher this morning after an inside day yesterday. The pandemic spike high sits at 102.99 as initial resistance. Above here is the January 2017 high at 103.82. US retail sales are expected to be soft and highlight squeezed household incomes. Treasury yields continue to trade in relatively narrow ranges. The 10-year yield is oscillating around 3.5%.

USD/JPY has spiked higher with the yen slumping over 2.4% at one point. This comes after the BoJ kept the YCC policy intact. Major resistance is 132.70 and short-term is the 21-day SMA at 131.59. EUR closed near its lows at 1.0787. An ECB sources story reported that some members are pondering a slower pace of rate hikes after the next meeting. First support is 1.0736/46. GBP got a lift from resilient jobs data and wages. Inline CPI data this morning has pushed the major to one-month highs above 1.23. AUD is moving north this morning and building on yesterday’s gains. This week’s high is at 0.7019. USD/CAD continues to trade in a range after inflation data. Resistance is 1.3458 and support around 1.3350.

Stocks: US equities ended in a mixed bag. The benchmark S&P 500 dipped 0.2%. The Dow declined 1.14%. The tech-heavy Nasdaq was the only  major index to buck the trend, rising 0.14%. Morgan Stanley was one of the S&P 500’s top performers. It jumped 5.9% after higher net revenues at its wealth management division overshadowed a 40% y/y fall in net income. On the flip side, rival Goldman Sachs was one of the major average’s biggest fallers. It dropped 6.4% after its profits sank by two-thirds in Q4.

Asian stocks have dipped with the broad MSCI index easing 0.2%. The Nikkei 225 surged as much as 2.5% before giving up some of its gains. That would have been its biggest gain since mid-November, bucking the downtrend seen elsewhere.

US futures are mildly in the green. Futures in Europe are pointing to a softer open (-0.2%). The cash market closed up 0.4% yesterday.

Gold is falling for a third day after making multi-month highs. Support is at $1896. That is a major Fib level (61.8%) of the drop in 2022.

Event Breakdown– Bank of Japan keep ultra-easy policy

Consensus was correct! The BoJ was expected to leave its YCC policy unchanged. This was in sharp contrast to the speculation that had shot up about another tweak to its YCC band. Policymakers had shocked markets by adjusting the cap for only the third time in seven years in December. With the market pushing yields beyond that cap in recent days, bond vigilantes were hit hard as that trade has reversed sharply this morning.

The economic forecasts did not justify another policy change. But the BoJ may have its hands full in the coming weeks as speculators adjust their expectations. The new Governor is being announced in the coming weeks and takes the helm in early April. Governor Kuroda has laid the groundwork in some ways by widening the band last month. The pressure will increase for more changes going forward. The yen may have its day with funds loading up on long positions at more attractive levels after this disappointment.

Chart of the Day – GBP/USD upward momentum

GBP has proved relatively resilient in recent weeks, in the mid-pack of G10 performance. It has taken a back seat in reality, with less headlines proving more soothing after the ructions in UK markets last autumn. Important data has been released this week with an upside surprise in wage growth yesterday. This was followed by still-elevated CPI data today with the headline at 10.5%. This is way beyond the BoE’s target of 2% and points to a 50bp hike at its meeting in the first week of February.

The solid rebound in GBP/USD from the sub-1.19 levels last week remain positive. If buyers can push above 1.2290/00, then the December top at 1.2446 will come into view. Support resides at the 50-day SMA at 1.2145. The 200-day SMA is at 1.1981.