Ahead Today
G3: US University of Michigan sentiment survey, Germany industrial production, Japan leading index
Asia: Vietnam CPI, trade, and industrial production, Indonesia foreign reserves, RBI policy rate decision, Thailand international reserves
Market Highlights
The yen continues to soften, with USDJPY retracing back toward the 160.00 handle after falling sharply to the 152.00 level recently. Political dynamics are adding to the downward pressure: ahead of the 8 February election, local media report suggests Prime Minister Takaichi’s ruling coalition could potentially secure a majority in the 465-seat lower house. Her strong approval ratings since assuming office in October further reinforce this narrative. A solid mandate would likely give the administration greater latitude on fiscal policy, bolstering market expectations for increased government spending. JGB 10-year yield has held at elevated levels, though the latest 30-year bond auction showed an improvement in demand, helping to stabilize the longer end of the curve.
The US dollar index (DXY) extended gains despite a softer US macro data pulse, with both the euro and yen weakening. The latest JOLTS report showed job openings slipping to 6.542mn from 6.928mn, undershooting consensus expectations of 7.25mn. Layoffs rate remained steady at 1.1%, though, highlighting a low-hiring, low-firing environment. Initial jobless claims ticked up to 231k for the week ending 31 January, though levels remain historically low. Nonetheless, signs of easing labour market momentum may have contributed to the broader selloff in equities, where concerns over stretched AI related valuations had already triggered risk aversion. Crypto markets extended their retreat as well, adding to the risk off tone.
Regional FX
Asian currencies broadly weakened against the USD in yesterday’s session, led by the Thai baht, which fell 0.5% amid softer gold prices and renewed political uncertainty ahead of the 8 February election. In contrast, the Philippine peso outperformed, rising 0.4% as BSP signalled that its policy easing cycle may soon end.
In the region, we expect the RBI to keep rates on hold at 5.25% this month. The recent trade agreement likely further reduces the probability of near-term rate cuts.
In Indonesia, Moody’s lowered the sovereign outlook to negative, flagging increased risks of a credit rating downgrade. This will likely weigh on rupiah sentiment. Meanwhile, President Prabowo has appointed former BI board member Juda Agung as deputy finance minister. On the macro front, Indonesia’s GDP rose 5.39%yoy in Q4, above consensus expectations, bringing full year 2025 growth to 5.1%.
In Thailand, voters head to the polls on 8 February. The opposition People’s Party, led by Natthaphong, is campaigning on structural reforms to boost productivity and competitiveness. Meanwhile, Prime Minister Anutin’s Bhumjaithai Party and the Pheu Thai Party have leaned into populist, consumption driven pledges. Bhumjaithai has proposed subsidies covering 50% of consumer purchases, while Pheu Thai has raised the bid to 70%. With no single party likely to secure a majority, another coalition government appears inevitable. Policy space remains limited, though, at a time when the economy is still weak and in deflation - headline CPI fell 0.7%yoy in January. We expect one final 25bp rate cut from the BOT, likely this month.