Marketmind: Japan hesitates
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[January 18, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan.
Judging by Wednesday's reaction, world markets reckon Japan will
eventually abandon its ultra-loose monetary policy despite a stubborn
doubling down this week - and overseas ructions may be less than feared.
After weeks of speculation, the Bank of Japan left its rock-bottom
interest rates unchanged on Wednesday and kept its government bond yield
cap at 0.5%, defying expectations it would phase out the stimulus
programme as inflation builds.
But after some wild gyrations on the initial announcement, the market
reaction was rather muted on balance.
The yen lunged lower to begin with, but then quickly rebounded.
Dollar/yen settled back below 130 - roughly where it closed last
Thursday - and remains down 1.2% for the year so far and down almost 15%
since October.
Japan's Nikkei ended 2.5% higher, but it closed before the yen rebound
in European hours.
Japan's 10-year government bond yield crept back towards the 0.5% cap
after an initial drop - indicating how the BOJ will likely have to
continue buying hundreds of billions of dollars of bonds to retain the
cap and how that is seen as unsustainable over time.
Investors now train their eyes on the exit of BOJ governor Haruhiko
Kuroda in April as the point for a comprehensive shift.
Overseas fallout was even more subdued, with European stocks and Wall St
futures little changed and U.S. Treasury yields hovering around 3.50%,
where they've been for the past week.
Pressure on the dollar continues more broadly as attention turns back to
the health of the U.S. economy, Federal Reserve speculation and the
unfolding earnings season.
The release of December U.S. producer price, retail sales and industrial
production numbers later on Wednesday now takes centre stage. A host of
Fed speakers are also on the slate.
In corporate earnings, diverging fortunes within the investment banking
world dominated on Tuesday.
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A security officer is seen at the
headquarters of Bank of Japan in Tokyo, Japan, January 18, 2023.
REUTERS/Issei Kato
Wall Street titans split as Morgan Stanley's stock surged on higher
wealth management revenue while Goldman Sachs skidded lower as
results revealed higher costs and an increase in rainy day funds.
Elsewhere, Microsoft plans to cut thousands of jobs with some roles
expected to be eliminated in human resources and engineering
divisions, according to media reports.
Walt Disney defended its decision to deny Nelson Peltz a board seat,
saying the activist investor "lacked the skills and experience" to
help the media and entertainment giant.
Key developments that may provide direction to U.S. markets later on
Wednesday:
* U.S. Dec producer price inflation, retail sales, industrial
production, Jan NAHB housing market indicator, Nov business/retail
inventories, Nov Treasury data on overseas holdings. Fed releases
Beige Book on economic conditions. U.S. Treasury auctions 20-year
bonds
* Bank of Japan policy decision. World Economic Forum in Davos,
Switzerland.
* Kansas City Federal Reserve President Esther George, Atlanta Fed
President Raphael Bostic, St Louis Fed chief James Bullard, Dallas
Fed chief Lorrie Logan, Philadelphia Fed chief Patrick Harker all
speak
* U.S. corporate earnings: Alcoa, Charles Schwab, Discover, Kinder
Morgan, Prologis, PNC, JB Hunt
(By Mike Dolan, editing by Raissa Kasolowsky mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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