STIR: BoJ-Dated OIS Pricing Softens Over Past Two Weeks
BoJ-dated OIS pricing has softened over the past two weeks, including today's reaction to weaker-than-expected Tokyo CPI across all measures.
- Japan's Feb Tokyo CPI print came in below expectations. The headline printed at 2.9% y/y, against a 3.2% forecast and prior outcome of 3.4%. Ex fresh food was 2.2%y/y (forecast of 2.3% and 2.5% prior). The ex-fresh food, energy measure was 1.9%y/y, unchanged from Jan, but under the 2.0% forecast.
- BoJ Deputy Governor Shinichi Uchida reiterated in Parliament today that the BoJ will raise interest rates and adjust the degree of monetary easing if its price outlook materialises. He emphasised that the central bank's policy aims at price stability, not at accommodating government financing needs (per BBG).
- The move over the past two weeks leaves pricing little changed compared to late January levels.
- Markets currently assign a 0% probability to a 25bp hike in March, a cumulative 47% chance by June, and fully price in a 25bp increase by October— two ago a hike was fully priced by September.
Figure 1: BoJ-Dated OIS – Today Vs. Friday 14 February
Source: MNI – Market News / Bloomberg
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FOREX: A$ Holding Post CPI Losses, But Recent Lows Intact, NZD & JPY Lower
Outside of A$ weakness (and spill over NZD weakness), G10 FX moves are relatively muted so far in Wednesday trade. The USD BBDXY index was last little changed at 1301.35/40.
- AUD/USD sits at 0.6230/35, just up from session lows (0.6227). The Q4 CPI print was softer than expected, raising the odds of a Feb cut to around 90% (we were around 76% pre Data). Westpac is now calling for a Feb cut, joining ANZ and CBA in forecasting the start of the RBA easing cycle then.
- AU-US yield differentials are lower, but haven't seen a dramatic move. The 2yr AU-US swap differential is -41bps, we were -34bps at the start of the session. This is above recent lows for the spread. This policy differential (priced by the market) in 1 yr's time is little changed at -32.5bps.
- Downside focus for AUD/USD is likely to rest on Jan 21 lows at 0.6209.
- NZD/USD is lower, last under 0.5660, off close to 0.20%. Earlier the RBNZ's Conway stated that further easing from the central bank is likely (as they signalled late last year). The AUD/NZD cross is lower, back near 1.1010/15, close to late Dec lows.
- USD/JPY is a touch higher, last near 155.75/80, but remains within recent ranges. Monday highs were just short of 156.00. The BoJ Dec Mins were released earlier, with "Many members pointed out that economic activity and prices had been developing in line with the Bank's outlook at the meeting." This obviously came before the central bank raised rates at the Jan policy meeting.
- In the cross asset space, US equity futures are down a touch, while regional equity markets are higher, although few are open given the LNY break in Asia. US yields are down a touch.
- Outside of Japan consumer confidence later, there is little in the way of data in Asia Pac markets, with focus on headline around tariff risks. We have many markets including China shut for LNY, while the FOMC is also later in US time on Wednesday.
AUSTRALIA DATA: Australia Dec CPI +2.5% Y/Y; Q4 +0.2% Q/Q
- The Consumer Price Index (CPI) rose 0.2% in Q4.
- Monthly CPI indicator rose 2.5% in the 12 months to December, up from the 2.3% rise in November.
The top contributors to the annual movement were Food and non-alcoholic beverages (+2.7%), Alcohol and tobacco (+5.8%), and Housing (+1.5%). Partly offsetting the rise in the monthly CPI indicator was an annual fall for Electricity (-17.9%).
AUSTRALIA DATA: Sharp Moderation In December Trimmed Mean
December headline CPI inflation rose 0.2% m/m (seasonally adjusted) to be up 2.5% y/y after 2.3% y/y. The trimmed mean moderated 0.5pp to 2.7% y/y, the lowest in three years. The other measure of underlying inflation, CPI ex volatile items & holiday travel, rose 0.2% m/m to be up 2.7% y/y down from 2.8%. Lower rental, new dwelling, clothing and insurance inflation all helped to drive underlying inflation lower.
- Services inflation moderated to 3.7% y/y from 4.2%, the lowest since December 2023, and non-tradeables rose 3.0% y/y, the lowest in over three years. The RBA prefers the quarterly CPI data but is likely to be reassured by the moderation in domestically-driven inflation seen at the end of 2024 but 3-month momentum is again picking up in both series and so will likely continue to be monitored closely.
- There was a pickup in goods and tradeables inflation in December with both up 1.4% y/y after being below 1% in November.
Australia CPI y/y%
