Asian Equities Edge Higher As Yen Fragility Revives Intervention Fears

Economic

Stocks

Summary:

Asian stocks inched higher, led by Japan, as election speculation fueled stimulus expectations while a weakening yen reignited intervention concerns....

Japan Leads Regional Gains Amid Political Speculation

Asian equity markets advanced modestly on Wednesday, supported primarily by Japanese shares. Investors positioned for the possibility of a snap election in Japan, which local media reported could be called for February 8. The prospect of renewed fiscal stimulus lifted sentiment toward Japanese equities, pushing the Nikkei more than 1% higher to a record level. At the same time, Japanese government bonds fell, reflecting expectations of looser fiscal policy and heavier issuance. This so-called “Takaichi trade” has gained momentum as markets reassess Japan’s fiscal outlook, though some strategists caution that legislative constraints in the upper house may limit how far policy easing can realistically go.

The Japanese yen slid to 159.415 per dollar, its weakest level since July 2024, sharpening market focus on the risk of official intervention. Currency traders have increasingly treated the 161 level as a psychological threshold, beyond which authorities may feel compelled to act to curb volatility. Strategists noted that a decisive break higher could shift expectations for a Bank of Japan rate hike forward to April, altering the balance of currency dynamics. For now, yen moves are being shaped by anticipation and positioning rather than confirmed policy decisions, keeping volatility elevated.

Broader Asia And Global Equity Signals

Beyond Japan, MSCI’s broad Asia-Pacific index rose 0.2%, hovering just below a record high reached earlier in the week. Chinese equities added 0.7% in early trading, staying close to a 10-year peak, while European stock futures pointed to a muted open. U.S. equities closed lower overnight, led by declines in financial shares after comments from JPMorgan executives revived concerns over proposed caps on credit card interest rates. These cross-market moves suggest selective risk-taking rather than a uniform shift in sentiment.

U.S. inflation data released on Tuesday showed moderate underlying price pressures, reinforcing the view that the pass-through from import tariffs has eased. While the data kept the option of rate cuts later this year in play, markets continue to expect the Federal Reserve to hold rates steady in the near term. Traders are pricing at least two cuts this year, with the first move unlikely until after Fed Chair Jerome Powell’s term ends in May. Analysts noted that inflation is not cooling fast enough to justify imminent easing, which has allowed the dollar to retain support.

Fed Independence And Currency Market Volatility

Concerns over Federal Reserve independence continued to influence currency markets. Earlier in the week, the dollar had weakened after the U.S. Justice Department threatened to indict Powell in connection with a building renovation project. That pressure eased after Powell pushed back and global central bank officials issued a coordinated statement backing him. Market participants largely interpreted the episode as political rather than a fundamental institutional risk, reinforcing the perception that existing safeguards around the Fed remain intact. The dollar index edged higher to 99.243, recovering from earlier losses as those fears subsided.

Geopolitical tensions added another layer of complexity. President Donald Trump urged Iranians to continue protesting, prompting Tehran to accuse Washington of encouraging destabilization. These developments lifted oil prices and propelled safe-haven assets higher. Gold rose 0.6% to $4,613.93 per ounce, while silver jumped more than 2% to a fresh record. The surge in precious metals reflects heightened risk sensitivity rather than changes in physical supply or demand.

Overall, Asian markets are navigating a fragile balance between stimulus optimism, currency instability, and global political uncertainty. Equity gains remain cautious, underpinned by expectations rather than hard policy shifts, while the yen’s weakness and persistent questions around central bank independence continue to shape cross-asset behavior.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Justin

Forex

Political

The South Korean won extended its decline toward its weakest level since the global financial crisis, intensifying pressure on authorities to defend the currency as local investors shift funds overseas.

The currency slipped as much as 0.2% on Wednesday to 1,478.25 won per dollar, on track for a ten-day losing streak and nearing its lowest level since March 2009.

Dollar demand in Korea has remained strong, fueled by local investors pouring into US equities and importers seeking the greenback for payments. Korean retail investors bought about $2.2 billion of US stocks through January 13, according to Korea Securities Depository data. Additional pressure on the won has come from foreign funds accelerating their selloff of Korean equities.

Despite authorities' broad-based efforts to support the won late last year, the currency has also faced renewed pressure from external factors. Strong US economic data has boosted the dollar, while the yen has weakened amid early election headlines in Japan. Rising oil price concerns, driven by escalating tensions in the Middle East, have added another layer of strain.

In recent weeks, authorities intensified efforts to prop up the won with verbal interventions and by waiving the foreign-exchange stability levy for banks. Yet these measures have done little to halt the currency's slide, and markets are now focused on what further steps policymakers might take to counter a decline that risks fueling imported inflation and eroding consumer demand.

The won has fallen over 2.6% against the dollar this year, making it Asia's worst-performing currency and one of the weakest globally.

Source: Bloomberg Europe

Risk Warnings and Disclaimers

Add to Favorites

Winkelmann

Political

Economic

Japan declined on Wednesday to comment on the Bank of Japan's absence from a statement by other central banks supporting U.S. Federal Reserve chair Jerome Powell, following the Trump administration's threat of criminal indictment.

"The matter concerns the BOJ's own judgment, so the government will refrain from commenting," said Japan's top government spokesman, Chief Cabinet Secretary Minoru Kihara, in a regular press conference.

The BOJ was not among the major central banks that issued the joint statement backing Powell.

The rare joint statement was signed by the heads of the European Central Bank, the Bank of England, the Bank of Canada, as well as the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France.

Asked about the importance of independence of central banks, Kihara said the government believes that the ultimate responsibility for macroeconomic policy lies with the government.

"As stipulated by law that monetary policy is part of overall economic policy, the BOJ is required to maintain close coordination and sufficient communication with the government," he said. "That said, the specific methods of monetary policy should be entrusted to the BOJ," he added.

Source: Investing

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

James Riley

Remarks of Officials

Economic

Central Bank

Political

New Zealand's Foreign Affairs Minister, Winston Peters, has publicly rebuked the governor of the country's central bank for getting involved in U.S. domestic politics. The criticism came after Reserve Bank of New Zealand (RBNZ) Governor Anna Breman co-signed a statement with other global central bankers in support of U.S. Federal Reserve Chair Jerome Powell.

A Public Rebuke Over US Politics

In a direct statement on the social media platform X, Peters warned the RBNZ governor to focus on her domestic mandate.

"The RBNZ has no role, nor should it involve itself, in US domestic politics," Peters wrote. "We remind the governor to stay in her New Zealand lane and stick to domestic monetary policy."

He added that the Ministry of Foreign Affairs and Trade would have given the same advice if consulted, which it was not. Peters did, however, acknowledge that the RBNZ operates independently from the government on matters of monetary policy.

The RBNZ and Finance Minister Nicola Willis both declined to comment on Peters's statement.

Global Bankers Rally in Defense of Independence

The controversy highlights the delicate position of smaller, export-reliant nations like New Zealand in the current global political climate. Governments are increasingly cautious that even symbolic acts of international cooperation could be interpreted as political alignment, potentially inviting trade pressure or tariffs.

Governor Breman, who began her five-year term on December 1, joined a prominent group of central bankers defending Powell. Other signatories included European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey, and Reserve Bank of Australia Governor Michele Bullock.

The joint statement was a direct response to the U.S. Justice Department serving grand jury subpoenas to the Federal Reserve, which Powell described as a dramatic escalation in attacks on the institution's independence.

"The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve," the central bankers declared. "It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability."

Breman is New Zealand's first female central bank governor and the first foreigner to hold the position since its inaugural head, Leslie Lefeaux, in 1934.

Economists Weigh In on the Fallout

Analysts noted the significance of the joint statement while also acknowledging the potential risks.

Su-Lin Ong, chief economist for Australia & New Zealand at Royal Bank of Canada, called it a "powerful gesture" that "underscores the importance of independent central banks." She added that smart governments understand the role central bank independence plays in a nation's long-term prosperity.

However, the risk of backlash remains. Jonathan Kearns, a former department head at the Reserve Bank of Australia and now chief economist at Challenger Ltd., said that while the statement was carefully worded and hard to disagree with, "you can't rule out the US seeking to retaliate."

Luci Ellis, former assistant governor at the RBA and now chief economist at Westpac Banking Corp., suggested that the absence of signatories from countries like Japan, Mexico, and India was likely due to logistical issues like internal governance and translation needs, rather than a reluctance to show support.

Ellis explained that the global central banking community is highly interconnected through forums like the Bank for International Settlements and the International Monetary Fund. These relationships build trust and solidarity, making it natural for governors to support a colleague under pressure.

Still, she warned of the long-term consequences of the political pressure on the Fed. "This week's events suggest there is a limit to Trump's ability to coerce the central bank," Ellis wrote, "but it also poisons the well for Powell's successor."

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Forex

Economic

Dollar Rebound Anchored By Inflation Data

The U.S. dollar regained ground in early Asian trading, with the dollar index rising 0.3% to 99.18, close to a one-month high. The recovery followed U.S. consumer price data that aligned broadly with forecasts, easing fears of an upside inflation surprise. December CPI rose 0.3% from the previous month, reflecting higher rents and food prices as distortions from last year’s government shutdown unwound. This outcome reinforced expectations that the Federal Reserve will remain on hold at its upcoming policy meeting, supporting the dollar through a direct expectations channel rather than speculative positioning.

Market sentiment was further stabilized by a coordinated show of support for Federal Reserve Chair Jerome Powell from global central bank leaders and senior Wall Street executives. Analysts emphasized that preserving central bank independence is critical for maintaining inflation control and financial stability. According to ANZ’s Brian Martin, interference risks higher inflation, increased government funding costs, and greater economic volatility. These statements influence markets through correlation, strengthening confidence in the policy framework even though they do not alter interest rates directly.

Rate Expectations Firm As Policy Pause Looks Likely

Interest rate markets continue to price a high probability that the Federal Reserve will leave rates unchanged later this month. Fed funds futures imply a 95.6% chance of a hold at the January 28 conclusion of the next policy meeting, unchanged from the prior session. Capital Economics noted that indirect political pressure on the Fed is unlikely to unsettle U.S. markets as long as inflation remains under control. This assessment reflects a cause-and-effect mechanism tied to inflation outcomes rather than political rhetoric alone.

Currency market volatility remained subdued ahead of a potential U.S. Supreme Court ruling on the legality of emergency tariffs imposed by President Donald Trump. Analysts at ING observed that markets appear largely indifferent to the outcome, suggesting that traders view the issue as unlikely to materially disrupt current financial conditions. This calm response highlights how markets can discount legal uncertainty when broader macro fundamentals are stable.

Yen Weakness And Japanese Political Speculation

Against the yen, the dollar was little changed at 159.025, after the Japanese currency earlier fell to its weakest levels since January 2024. The yen’s decline was linked to speculation that Prime Minister Sanae Takaichi may call snap parliamentary elections on February 8, following reports in the Yomiuri newspaper. The prospect of elections has fueled expectations of policy continuity or expansion, weakening the yen through anticipatory positioning rather than confirmed policy changes.

Elsewhere, the dollar was steady against the offshore Chinese yuan at 6.9708 ahead of China’s December trade data. The Australian and New Zealand dollars edged modestly higher, while the euro and British pound were little changed. In digital assets, Bitcoin rose 1.8% to $95,751.99, its highest level in two months, while ether climbed 4.0% to $3,334.46. These gains reflect correlation with broader risk sentiment rather than a direct response to U.S. inflation data.

Overall, the dollar’s rebound underscores how steady inflation readings and strong institutional backing for the Federal Reserve can outweigh political noise. With rate expectations firmly anchored and volatility contained, currency markets remain focused on macro fundamentals rather than headline-driven uncertainty.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Political

Iran Developments And Energy Market Reaction

U.S. President Donald Trump said he had canceled all meetings with Iranian officials and reiterated support for protesters driving one of the largest anti-government movements Iran has seen in years. His remarks signaled that diplomatic engagement aimed at easing the violent crackdown may be paused, increasing uncertainty around Washington’s next steps. Oil markets reacted swiftly, with both West Texas Intermediate and Brent crude jumping more than 2.5% during U.S. trading hours. The price surge reflects a direct sensitivity to geopolitical risk, as Iran is a major oil producer with influence over the Strait of Hormuz, a critical chokepoint for global energy flows. Even without confirmed supply disruptions, heightened risk perception has been sufficient to lift prices.

U.S. stocks dipped on Tuesday, retreating from recent highs, despite data showing core consumer inflation in December rose less than expected. Core CPI increased 0.2% month on month and 2.6% year on year, both readings coming in 0.1 percentage points below forecasts, while headline inflation matched expectations. This disconnect underscores how equity performance is currently shaped less by incremental improvements in inflation and more by broader political and institutional concerns. As Morgan Stanley Wealth Management’s Ellen Zentner noted, inflation is no longer accelerating but remains above target, limiting the extent to which softer data alone can support risk appetite.

Fed Independence Back In Focus

Investor unease was amplified by Trump’s renewed attacks on Federal Reserve Chair Jerome Powell, which included personal insults and suggestions that Powell would soon be removed. These remarks coincided with a rare show of support from global central bankers, who issued a joint statement defending the Fed chair. JPMorgan Chase CEO Jamie Dimon warned that undermining central bank independence could backfire by raising inflation expectations and pushing interest rates higher over time. The market response reflects correlation rather than immediate policy transmission, as rhetoric alone does not change rates, but it does affect confidence in the institutional framework guiding monetary policy.

Major U.S. indexes closed lower, with financials offering a mixed picture. JPMorgan shares dipped even after the bank exceeded earnings expectations, suggesting that broader market sentiment outweighed company-specific fundamentals. In Europe, the Stoxx 600 edged down 0.08%, while shares of Danish renewables firm Orsted jumped 5.3% following a favorable U.S. court ruling on its wind project. These divergent moves highlight selective risk-taking rather than a uniform retreat from equities.

Geopolitics Beyond Iran

Political tensions extended beyond the Middle East. Greenland’s Prime Minister Jens-Frederik Nielsen said the territory would choose Denmark over the United States if forced to decide, reinforcing uncertainty around U.S. foreign policy ambitions in strategic regions. Such statements do not directly affect markets through measurable channels, but they contribute to a broader climate of geopolitical unpredictability that weighs on investor sentiment.

In the technology sector, attention remained on Apple and Google’s newly announced multiyear partnership on AI features. While the immediate market impact was muted, the collaboration underscores a longer-term strategic alignment that could reshape competitive dynamics in artificial intelligence. Investor focus here remains forward-looking, tied to growth potential rather than near-term earnings.

Overall, markets are navigating a complex mix of softer inflation data, rising geopolitical risk, and institutional uncertainty. Oil prices have responded most directly to the Iran situation through a clear risk premium, while equities have shown greater sensitivity to concerns about policy credibility and political escalation. The result is a cautious recalibration rather than a wholesale shift in market direction.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Samantha Luan

Forex

Economic

Key Points:

· USD/JPY targets 160 as Japan's snap election risk and fiscal stimulus fears weaken the yen amid soaring JGB yields.

· Rising 10-year JGB yields near 2.18% reflect growing concerns over Japan's debt outlook and fiscal policy direction.

· Despite bullish technicals, expectations of BoJ rate hikes reinforce a bearish medium-term outlook for USD/JPY.

USD/JPY eyes 160 for the first time since the July 2024 yen carry trade unwind as political uncertainty and concerns over monetary and fiscal policy weaken the yen.

The USD/JPY pair gained momentum in the first half of the week despite rising beyond the 157 level, a previous yen intervention threat zone. Japan's finance minister previously warned of yen intervention in the forex markets in the 157-158 range.

This week, 10-year Japanese Government Bond (JGB) yields surged to 2.178%. The weaker yen and soaring yields reflected market sentiment toward Prime Minister Sanae Takaichi's plans for a snap election. Fading bets on a March Fed rate cut have added to USD/JPY momentum.

10-Year JGB Yields – 140125 – Daily Chart

Below, I'll discuss the macro backdrop, the near-term price catalysts, and technical levels traders should closely watch.

Snap Election and Fiscal Policy Concerns Sink the Yen

News outlets reported that Japan's Prime Minister Takaichi may call for a snap election in February over the weekend, her first time facing national voters. Speculation about a snap election intensified as Takaichi's approval rating jumped to 78.1% in January, according to a JNN public opinion survey.

Meanwhile, the Liberal Democratic Party's approval rating remains below 30%, fueling uncertainty over how voters will side in a national election. A strong election win would enable Takaichi to push through fiscal stimulus plans, weighing on demand for the yen. Takaichi's fiscal stimulus plans and Japan's debt-to-GDP ratio have led to a surge in risk premiums for holding JGBs, sending yields to decade highs.

Robin Brooks, Senior Fellow at the Brookings Institution, commented:

"Japan is trapped in a very bad place and is the G10 country that's closest to a full-blown debt crisis. Japan's only choice is to accept higher interest rates and a debt crisis or – if it caps yields – a depreciating yen, which is nearing its 2024 lows…"

Notably, USD/JPY has surged 8.25% since Takaichi's election win to become the LDP leader in early October. USD/JPY trends underscored market concerns about her stance on fiscal stimulus and monetary policy.

USDJPY – Daily Chart – 140126 – Takaichi Effect

The political uncertainty supports a cautiously bullish short-term price outlook for USD/JPY. However, potential yen interventions and the prospect of Bank of Japan rate hikes affirm the bearish medium-term projection.

Crucially, the weaker yen would increase import prices, eroding households' purchasing power. These scenarios may force the BoJ to signal further policy tightening to strengthen the yen.

US Producer Prices and Retail Sales to Drive Dollar Demand

Later on Wednesday, US retail sales and producer prices are likely to influence market bets on a March Fed rate cut.

Economists forecast retail sales to rise 3.0% year-on-year (YoY) in November, down from 3.5% in October. Weaker consumer spending would signal a softer demand-driven outlook, supporting a more dovish Fed rate path.

Meanwhile, economists expect producer prices to increase 2.7% YoY in November, mirroring October's rise. Softer-than-expected producer prices would raise expectations of a March Fed rate cut, weighing on demand for the US Dollar. Increased bets on a March cut would support the bearish medium-term outlook for USD/JPY.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 48.5% on January 6 to 25.7% on January 13. Stronger-than-expected US labor market and Services PMI data cooled expectations of a March cut.

Today's US economic data will be key for the near-term USD/JPY price outlook. Stronger US data would signal a more hawkish Fed policy stance, strengthening the US dollar, and challenging the bearish medium-term outlook.

Nevertheless, expectations of multiple BoJ rate hikes and a new Fed Chair potentially favoring lower interest rates remain key considerations. These factors reinforce the bearish medium-term outlook for USD/JPY.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should consider technicals and closely monitor the fundamentals.

Viewing the daily chart, USD/JPY trades well above its 50-day and 200-day Exponential Moving Averages (EMAs), indicating bullish momentum. While technicals remain bullish, bearish fundamentals are evolving, countering the technicals.

A drop below 157 would bring the 50-day EMA and the 155 support level into play. A sustained fall below the 50-day EMA would signal a bearish near-term trend reversal, exposing the 200-day EMA. If breached, 150 would be the next key support level.

Crucially, a sustained fall below the 50-day and 200-day EMAs would reinforce the bearish medium-term price outlook.

USDJPY – Daily Chart – 140126 – EMAs

Position and Upside Risk

In my view, expectations for BoJ rate hikes, potential warnings of yen intervention, and bets on Fed rate cuts support a negative price outlook. However, the BoJ neutral interest rate and upcoming US data will be pivotal, given the focus on US-Japan rate differentials.

A hawkish BoJ neutral interest rate level (potentially 1.5%-2.5%) would signal multiple BoJ rate hikes and a narrower US-Japan interest rate differential. A narrower-than-expected rate differential may trigger a yen carry unwind, sending USD/JPY toward 140 over the longer term.

However, upside risks to the bearish outlook include:

· Dovish BoJ chatter and a dovish neutral interest rate (potentially 1%-1.25%).

· Strong US economic data.

· Hawkish Fed chatter.

These events would send USD/JPY higher. However, the threat of yen interventions is likely to cap the upside at the 160 level, based on the latest communication.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Politics, Neutral Rate, and US Data in the Spotlight

In summary, the USD/JPY trends will hinge on Prime Minister Takaichi's election and policy goals, the BoJ's neutral rate, and the Fed rate path.

While a comfortable Takaichi election win would be USD/JPY bullish, a hawkish neutral rate (1.5%-2.5%) would indicate an aggressive BoJ rate path, delivering yen strength. Additionally, dovish Fed chatter would raise expectations of narrower rate differentials, reaffirming the bearish outlook for USD/JPY.

Notably, a sharply stronger yen could trigger the unwinding of yen carry trades, which would likely send USD/JPY toward 140 over the longer 6-12 month timeline.