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On October 4th, Naoya Hasegawa, head of bond strategy at Okada Securities, stated that the likelihood of a Bank of Japan (BoJ) rate hike later this month has diminished. The market will initially react to the results of the Liberal Democratic Party (LDP) presidential election by buying medium-term bonds and selling ultra-long bonds, leading to a steepening of the yield curve. Previously, the market expected a BoJ rate hike to 0.75% in October to be over 60%, but this probability is expected to fall below 50% next week. The recent rise in market expectations for a BoJ rate hike stems from expectations of Shinjiro Koizumis election and hawkish signals from BoJ board member Asahi Noguchi.On October 4th, Yuka Hayashi, Vice President of the Asia Group, stated that Sanae Takaichi is a highly experienced politician. Her experience working in the United States and her long-time observation of US-Japan relations are her strengths. She expressed confidence in building a strong personal relationship with President Trump because her policies, emphasizing "Japan First," resonate with his "America First" approach. She believes the two sides share common ground in this regard. This is a very challenging time for the LDP, so I believe she will likely focus on party unity and be very careful to avoid taking an overly conservative and hardline stance on foreign policy.On October 4th, at the recently concluded EU leaders summit, the proposal to establish an EU "drone wall" became a key focus. European Commission President Ursula von der Leyen stated after the meeting that the plan would continue to move forward. However, significant disagreements have arisen among EU countries regarding the proposal, with the "drone wall" evolving beyond a simple technical project into a political battle over the direction of European defense. According to currently disclosed information, the envisioned "drone wall" is a networked, three-dimensional defense system. The proposal was first proposed on September 10th of this year, when European Commission President Ursula von der Leyen delivered her "State of the Union" address to the European Parliament, mentioning the need to establish a monitoring mechanism for the EUs eastern flank, develop real-time space surveillance capabilities, and adopt the Baltic states initiative to build a "drone wall." The main source of disagreement is the allocation of the EU budget. According to the current design, two-thirds of the funding for the "drone wall" project is required to go to Eastern European countries, sparking dissatisfaction among Western and Southern European countries such as Germany, France, and Italy. Furthermore, Eastern European "New Europe" countries have long harbored resentment towards the dominance of "Old Europe" countries such as France and Germany in defense affairs.On October 4, Sanae Takaichi won the Liberal Democratic Party presidential election and is expected to become Japans first female prime minister.Musk: Tesla FSD V14 version has been postponed to Monday due to a malfunction.

Before the PBoC's monetary policy announcement, AUD/JPY recovers strongly from 92.00

Alina Haynes

Feb 20, 2023 11:14

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Despite a difficult start to the Tokyo session at 92.10, the AUD/JPY pair has gained momentum. The risk barometer has recovered to approximately 92.30 and is expected to continue its upward trend in the near future. Ambassador Linda Thomas-Greenfield, the US representative to the United Nations, declared on Sunday that China would cross a "red line" if it sent lethal military help to Russia in response to its invasion of Ukraine.

 

According to Reuters, recent news from public broadcaster NHK that Japan's Coast Guard said North Korea fired three projectiles that may have been ballistic missiles has compounded the already negative market sentiment.

 

When the United States conducted bilateral air exercises with South Korea and Japan in response to the North's ICBM launch on Sunday, Kim Yo Jong, the sister of North Korean leader Kim, warned against the escalating deployment of U.S. strategic weapons on the Korean peninsula.

 

Investors await the People's Bank of China's interest rate announcement for additional guidance (PBoC). Eight out of 10 economists, according to a Reuters poll published on February 17, believe that the PBoC would retain the Loan Prime Rate (LPR) at 3.65%. After the abolition of currency restrictions, China is required to maintain an expansionary monetary policy to stimulate economic growth.

 

Bloomberg stated that Goldman Sachs predicts the MSCI China Index could reach 85 by the end of 2023, a nearly 24% increase from current levels, as the nation's economic opening generates windfall advantages for corporations.

 

Notably, Australia is a major trading partner of China, and the increased economic activity in China will benefit the Australian Dollar.

 

On Tuesday, preliminary Jibun Bank PMI (Feb) data will be released, which will have a substantial impact on the Japanese Yen. The Manufacturing PMI is expected to remain constant at 48.9, whilst the Services PMI is expected to increase from 51.1 to 51.5.

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