EM ASIA CREDIT: Muthoot Finance (MUTHIN): New USD mandate

The yen strengthened with the release of the BoJ’s December meeting summary of opinions, which suggested that there are likely to be further rate hikes but it is not on a preset course. It noted that negative real rates are putting downward pressure on the yen. USDJPY fell to 156.06 on the release and is currently around 156.30. It was trading around 156.50 before the BoJ publication. The BBDXY USD index is down 0.1%. 

• Today’s USDJPY low held above initial support at 155.29, 18 December low. Any declines are seen as corrective with the trend structure bullish.
• The yen underperformed the rest of the G10 on Friday with USDJPY up 0.5% to 156.58 after it stabilized through the middle part of the week. The pair reached a high of 157.78 on 19 December, holding below the bull trigger at 157.89, on concern of increased Japanese fiscal stimulus given its already elevated debt ratio.
• There appears to be concern on the BoJ board that delaying rate hikes could sustain price pressures. The December opinions showed growing confidence that rate hikes are appropriate to achieve the price target. Economic impacts of tightening will be monitored closely.
• AUDJPY is off the intraday low of 104.80 to be down 0.2% to 104.96 so far today.
• EURJPY fell to 183.81 with the BoJ news but is now -0.1% to 184.10. Initial support is at 182.28 with resistance at 184.92. The pair is in a primary uptrend.

Oil prices have started a holiday-impacted week higher after falling sharply last Friday. Commodities generally were strong at the end of the week but crude diverged decreasing close to 2.5% due to thin volumes and ongoing talks towards a Ukraine peace deal. It has found support on Monday from China’s pledges to boost growth and strikes on Russian energy but doesn’t seem concerned about peace talks. It is the world’s largest oil importer and so an increase in its energy demand is important. 

• WTI fell 2.4% to $56.93 on Friday but is currently trading around $57.19/bbl, while Brent was down 2.3% to $60.80/bbl and has started this week at $61.15/bbl. Both benchmarks held above initial support levels.
• China’s Ministry of Finance said yesterday that it would extend the breadth of government spending.
• Presidents Trump and Zelenskyy met in Florida on the weekend and the former sounded optimistic on progress for a peace deal. He had spoken to Putin on the phone earlier. Zelenskyy said that 90% of a framework has been agreed. Security guarantees have apparently been reached. There will be further negotiations.
• An agreement that allows an easing of sanctions on Russian fuel would likely drive oil prices lower given current excess supply.
• Fighting has continued despite peace negotiations. Ukraine announced that it struck Russia’s Syzran oil refinery in Samara which followed an attack on the Lukoil refinery/pipeline in Volgograd. Ukrainian hits on Russian fuel infrastructure have put a floor under oil prices and driven distillate prices higher.
• Ukrainian attacks have created shortages in Russia driving export bans. Officials announced an extension of the current gasoline export ban to end-February, according to Bloomberg.
• Conflict in other oil exporters broadened to include Nigeria last week while the US blockade of Venezuela continues.

In Tokyo morning trade, JGB futures are little changed, +2 compared to settlement levels.

• The BOJ’s December meeting opinions showed growing confidence that rate hikes are appropriate to achieve the price target, with several members noting real rates remain negative, the yen is weak because policy is too accommodative, and delaying action could sustain price pressures.
• While the neutral rate is seen as hard to pin down and still some distance away, members favoured a flexible, meeting-by-meeting approach, with some suggesting hikes every few months, while stressing the need to closely monitor economic impacts as the likelihood of meeting the outlook continues to rise.
• Cash US tsys are flat to slightly richer, with a flattening bias, in today's Asia-Pac session.
• Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.4bp higher at 2.045% versus the cycle high of 2.104%.
• Swap rates are showing no net change.