ASIA FX: CNH Supported By Steady CNY Fixing, KRW Slumps Nearly 1%

JGB futures are little changed, +2 compared to settlement levels.

• In December 2024, the BoJ Board expressed caution about raising interest rates, yet proceeded with the rate hike a month later, the month's meeting minutes showed. A majority of BoJ members voted to maintain the uncollateralized overnight call rate at 0.25% while continuing government bond purchases of 4.9 trillion yen monthly.
• Demand to borrow Japanese bonds surged amid speculation of investors closing out bearish positions. The benchmark repurchase-agreement rate dropped to its lowest since August, signalling stronger demand to borrow bonds. The BoJ's bond lending surged to a 10-month high, with ¥8.6 trillion loaned out so far this week, to ease bond shortages. (per BBG)
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session ahead of today’s FOMC meeting.
• The cash JGB curve hast twist-flattened, pivoting at the 5-year, with yields 1bp higher to 5bps lower. The benchmark 10-year yield is 1.1bp lower at 1.191% versus the cycle high of 1.262%.
• The swaps curve has bull-flattened, with rates flat to 5bps lower. Swap spreads are mostly tighter.
• Tomorrow, the local calendar will see International Investment Flow data alongside BoJ Rinban Operations covering 5-10-year, 25-year+ and Inflation Linked JGBs.

The USD has lost some ground as Wednesday Asia Pac trade unfolds. The BBDXY index was last back under 1300, off a little over 0.10%. Aggregate G10 moves have remained fairly well contained so far. A lot of Asia markets are closed today, including China/HK and Singapore, which has curtailed liquidity, whilst the FOMC is due later in the Wednesday US session. 

• The A$ has seen the largest swings, thanks to the Q4 CPI miss (for both headline and trimmed mean). AUD/USD got to lows of 0.6227, but sits slightly higher in latest dealings near 0.6240 (off around 0.25%). Market pricing for the Feb RBA meeting is close to 95% priced (Westpac joined two other local banks in forecasting a rate move in Feb). April is more than 100% priced. AU-US yield differentials are lower, but haven't seen a sharp move so far today.
• NZD/USD fell in sympathy with AUD, but also sits up from session lows, last near 0.5660/65. 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 back in the 1.1015/20 region, post CPI lows were at 1.1007, levels last seen in Dec 2024.
• Regional equity markets, which are open, are higher, while US futures are also a touch firmer, but have been largely range bound. US yields sit slightly lower, with losses around 1bps or slightly more.
• USD/JPY is a touch lower, last near 155.30 but remains within recent ranges. Monday highs were just short of 156.00 and today we got to 155.79 in earlier dealings. 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.
• Looking ahead, we have the Fed decision as the main focus point. No change is expected but the tone will be watched in terms of the outlook. Before the Fed, the BoC is expected to cut rates by 25bps. 

Crude has held onto most of Tuesday’s gains and traded in a narrow range during the APAC session with much of the region closed for holidays. WTI is down 0.2% to $73.64/bbl following a low of $73.56, while Brent is 0.2% lower at $77.33/bbl after reaching $77.27. Benchmarks are holding above their 50-day EMAs. Markets remain alert to US tariff news. The USD index is down 0.1% ahead of the Fed decision later today.

• Bloomberg reported that US inventories rose 2.86mn barrels last week, according to people familiar with the API data. There has been a sharp increase of flows from Canada to beat the February 1 introduction of tariffs. Gasoline stocks rose 1.89mn while distillate fell 3.75mn. Official EIA data is released later today and a stock build would be the first since mid-November.
• Oil is the most important Canadian export to the US and over half of US crude imports come from Canada. President Trump has threatened 25% tariffs from Saturday, which would likely increase domestic fuel prices.
• Bloomberg observes that WTI futures prices are signalling market tightness with the prompt spread 85c/barrel in backwardation.
• The Fed is expected to leave rates unchanged today (see MNI Fed Preview). The BoC is forecast to cut rates 25bp to 3%. December US trade and inventories, estimated Q4 Spanish GDP and December euro area M3 also print.