SOUTH KOREA: Country Wrap: Korean Employment Data Strong.
- South Korea’s acting President called on Korean institutions to “closely monitor and respond to major country’s policies and financial markets trends,” in a bid to prepare the economy for the implementation of US tariffs. (source: BBG).
- Export and Import Prices both Decline in January, with December numbers revised downside also. Export prices in January were +8.5% YoY, down from the revised +10.5% in December. The month-on-month result was weaker also at +1.2% for January, versus a revised +2.3% in December. Import prices also were weak in January at +6.6% YoY versus a revised +6.8% for December with the month-on-month figure flat on prior month at +2.3%. (source: MNI – Market News).
- South Korea’s unemployment rate for January came in much lower than forecast. Following December’s rate at +3.7%, the market had expected an improving trend and forecast January’s result to be +3.2%. January saw more than 130,000 jobs created and the unemployment rate falling to 2.9% with manufacturing improving from -2.2% in December to -1.2% in January, business/personal services up to 2.8%, from 1.4%. This a significant turnaround from December when data showed a 52,000 net contraction in jobs for the first contraction in almost four years. (source: MNI – Market News).
- The KOSPI has had two areas of positivity to drive it this week with discussions on an additional budget by the government and the potential pause in tariffs. The KOSPI is up +0.50% today and on track to gain almost 3% for the week.
- KRW: an all round good week for the won, gaining +0.29% today and up +0.76% for the week.
- Korean bonds have had a very strong end to the week with bond yields lower across the curve by 1-3 bps. Despite today’s move, the KTB 10YR finished the week at 2.86% +3bps for the week.
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JPY: Yen Up With January Hike Odds As Ueda Speaks In Tokyo
USD/JPY is moving lower, the pair last near 157.50/55, close to session lows. We are up around 0.30% in yen terms, comfortably the best G10 performer in what has been a muted session ahead of the US CPI print later.
- USD/JPY's down move has been aided by remarks by BoJ Governor Ueda in Tokyo (per BBG/Rtrs). Ueda stating that a rate hike decision will be made next week at the policy meeting. The Governor noting US economic developments and wage trends will be key watch points. He added that the recent branch managers meeting expressed positive trends around wage trends. See this BBG link.
- The comments largely echoed those made by Deputy Governor Himino yesterday, but no push back from Ueda on rate hike has likely encouraged markets to believe next week's meeting is a live one. Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025. The Jan meeting odds have risen since Himino spoke yesterday.
- For USD/JPY levels, lows earlier this week were at 156.92, while the 20-day EMA is around 156.71.
JGBS: Cash Bonds Cheaper, BoJ Ueda Adds To Weight To Hike Discussions
After a choppy Tokyo session, JGB futures are little changed, +1 compared to settlement levels.
- Japan likely to miss primary budget surplus target for FY2025, sources say "Japan is likely to miss achieving its goal of running a primary budget surplus by the next fiscal year, according to three sources with knowledge of fresh fiscal estimates, as the minority government faces increasing pressure for more spending.” RTRS
- Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is 0.4bp higher at 1.250% after making a fresh cycle high of 1.253% today.
- The swaps curve has bear-steepened, with rates flat to 4bps higher.
- “BOJ Governor Ueda: Will raise rates and adjust the degree of monetary support if improvement in economy and price conditions continues” - RTRS
- BOJ-dated OIS pricing has shifted notably since BOJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.
- Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025.
- Tomorrow, the local calendar will see PPI data alongside 20-year supply.
ASIA STOCKS: Asian Equities Mixed, Ahead Of US CPI Tonight
Asian markets traded mixed as investors awaited key US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific Index was little changed, with modest gains in Japan, South Korea, and Hong Kong, while Chinese equities were mixed. The PBOC injected significant short-term liquidity to ease a cash squeeze ahead of the Lunar New Year, highlighting its easing stance. Indian stocks extended gains, driven by energy and utility sectors, while foreign outflows from Indian equities continued in January. South Korea's unemployment rose to its highest level since mid-2021 amid political uncertainty. Meanwhile, oil prices steadied after recent declines, and the dollar consolidated after the previous session's losses. Overall, sentiment remained cautious ahead of the U.S. CPI report, which could shape global monetary policy expectations.
