Ahead Today
G3: US Initial Jobless Claims
Asia: Bank of Korea, Singapore industrial production
Market Highlights
The Japanese Yen underperformed, the Dollar weakened while US yields declined, with an uncharacteristically uneventful State of the Union by Donald Trump perhaps ultimately pointing to constrains on his tariff actions in a mid-term elections year. Meanwhile, the nomination of two dovish and potentially reflationist Bank of Japan Board of Governors raised concerns about possibility of a bigger pushback by Prime Minster Takaichi on BOJ rate hikes. We have the Bank of Korea policy decision today, and while we continue to think BOK remains on hold through 2026, the guidance and Board decision may continue to reduce the BOK’s dovish tilt with an upgrade to BOK’s growth forecasts.
In particular, there was surprisingly little in Trump’s State of the Union address on tariffs, with most of the topics centering around building a stronger America and his efforts to bring prices down, and for instance getting tech companies to pay for their data center costs. Overall this could indicate Trump’s constraints in implementing further tariff increases in 2026, in a mid-term election year and where tariffs are potentially pulling down the poll numbers. With the focus perhaps tilting more towards lowering inflation for consumers, our global team continues to see the Fed delivering more cuts than currently priced by markets.
Meanwhile, Japan’s government nominated two dovish candidates to the Bank of Japan Board, leading to renewed JPY selling. In particular, Professor Emeritus Toichiro Asada of Chuo University and Professor Ayano Sato of Aoyama Gakuin University have been nominated as successors to BOJ Board members Akira Noguchi (whose term ends on 31 March) and Junko Nakagawa (whose term ends on 29 June). In particular, Asada has quite an extensive record historically arguing for aggressive fiscal-monetary mobilization to escape deflation, scepticism of contractionary fiscal measures (particularly consumption tax hikes) in weak demand conditions, and also his academic work analyses “MMT-style” coordinated policy as stabilising under some conditions. Meanwhile, Ayano Sato’s accessible public record contains fewer direct standalone statements about BOJ, but her own publicly posted materials show a consistent preference for maintaining/encouring “high-pressure” macro conditions, while prioritizing nominal growth.
Overall, the path forward for JPY FX and rates will depend on potential further clarity both on BOJ rates and also the commitment to fiscal prudence. Our global team’s view is that a April rate hike is still our base case, and we think that PM Takaichi will continue to commit to fiscal prudence including lowering the public debt to GDP ratios over time. What’s interesting is that Asia currencies have started to show some initial signs of decoupling against JPY, when previously a weak JPY has been a key constraint to Asia FX at least over the past 9 months or so. On that front, the strengthening electronics export cycle, coupled with local dynamics including the policy rate and fiscal trajectory will be key to see if this continues moving forward.
Today, we have the Bank of Korea policy decision. We expect BOK to remain on hold at 2.50%, but the guidance may continue to tilt less dovish and ahead of Governor Rhee Chang Yong’s term ending in April. In particular, the BOK will likely raise its growth forecasts to 2% from 1.8% previously, while markets will also watch closely for whether there is a further shift in tone around the commitments to further rate cuts. For context in the January meeting, the BOK removed language about assessing “whether and when” to ease further in the statement. Meanwhile markets will also watch closely for any possible further shifts in the number of BOK board members seeing scope for further easing over the next three months. In the January meeting, only 1 out of 6 members saw scope for further reduction in rates.
