Markets await BoJ meeting and more shocks

Headlines

* Asian stocks, yen retreat as Chinas economic growth fell to near-historic lows

* New BoJ Governor nominee set to be presented on February 10

* UK unemployment in line at 3.7%, average weekly earnings 6.4% versus 6.1%

* Overbought gold price dips from nine-month high at $1929

The Bank of Japan's monetary policy meeting (MPM) is a regular session held by the bank's Policy Board, in which the official interest rates and other monetary policies for the country are chosen in response to the latest economic developments.

FX: USD was higher against most major FX, except the NZD, amid thin holiday liquidity. After sliding to another fresh cycle low at 101.77, buyer stepped in. A Major long-term support level (61.8% of the 2022 rally) sits at 102.32.

EUR remains above 1.08 after trading to an intraday low of 1.0802. GBP traded either side of 1.22. A UK PM spokesperson tempered expectations around Northern Ireland talks. She noted there are still significant gaps between the sides. USD/JPY initially strengthened but later faded most of the advances on likely positioning ahead of the BoJ meeting. AUD popped higher to 0.7019 before closing at 0.6955. USD/CAD is rising for a third straight day within a range around 1.34.

Stocks: US equities were closed for the MLK holiday and will reopen today.

Asian stocks have traded mixed with no firm direction in the absence of direction form Wall Street. The HSI was lacklustre despite encouraging Chinese data. Retail sales, industrial production and GDP all topped estimates. But the 3% growth for 2022 was much lower than the “abandoned” target of near 5.5%.

US futures are red with risk appetite modestly subdued. Futures in Europe are pointing to a softer open (-0.2%). The cash market closed up 0.2% yesterday.

Gold pushed to a new high at $1929 before closing at $1916. Support is at $1896. That is a major Fib level (61.8%) of last years decline.

Day Ahead– Bank of Japan meeting in focus

There is much speculation that the BoJ will adjust its YCC policy again at its meeting overnight Tuesday. This comes after its shock adjustment in December which put markets on guard for more policy tightening. Governor Kuroda sits at his penultimate meeting before he heads off on April 8. Will he want to end this historic policy which would be a blow to his legacy and a huge shock？

Consensus sees the bank leaving policy measures unchanged. Inflation forecasts are likely to be revised higher with CPI surging. But this is due to supply factors whereas the BoJ wants demand, supported by wage growth, to be the main driver. GDP growth projections are set to be cut. With the rest of the world hiking rates, it is only a matter of time before the BoJ normalises. Its window of opportunity is also closing as Japan has never tightened when the US is easing.

Chart of the Day – Gold succumbs to some profit-taking

Gold prices made more new cycle highs yesterday. The precious metal is up around 19% from its autumn lows near $1614. Silver and copper have also been on a tear. Receding inflationary pressures and a falling dollar have boosted gold bugs. This comes after higher rates hurt prices last year. They make non-yielding gold less desirable. The stronger dollar, the highest in 20 years in September, also made dollar-priced gold costlier for many buyers.

But the RSI is overbought and some profit taking seems inevitable. Support is seen at $1896 and then $1879. The dollar is key and whether it can find a base. The BoJ meeting may trigger a move in USD/JPY.