On Tuesday, January 17th, 2023, stock markets around the world saw an extension of the new year rally, driven by optimism over the global economy, inflation coming under control, and China’s reopening. However, there were concerns that the Bank of Japan (BoJ) might temper its super-sized stimulus policy at a pivotal meeting this week.
As the two-day BoJ meeting came to a close, speculation was rampant that the bank would make changes to its yield curve control policy, as the market had pushed 10-year yields above its new ceiling of 0.5%. The BoJ had purchased nearly 5 trillion yen ($39.12 billion) of bonds last Friday in its largest daily operation on record, yet 10-year yields still ended the session at 0.51%.
The BoJ’s ultra-easy policy has acted as a sort of anchor for yields globally, while also dragging down the Japanese Yen. If the BoJ were to abandon this policy, it would put upward pressure on yields across developed markets and most likely see the Yen surge further.
The U.S. Dollar was also impacted by the falling U.S. bond yields, as market participants bet that the Federal Reserve would be less aggressive in raising rates, given that inflation has clearly turned the corner. As a result, the USD/JPY fell to a more than seven-month low on Monday.
Commodities, which had rallied last week, dipped on Monday. The drop in yields and the Dollar benefited gold, which jumped 2.9% last week, but slipped 0.2% to $1,916/oz overnight. Crude oil prices also slid but held near the year’s highs as a rise in Covid cases clouded the prospects for a surge in demand as China reopens its economy.
Cryptocurrencies have seen a strong rally since the start of 2023, as speculators increasingly anticipate that the Federal Reserve will ease up on its aggressive rate hikes to tame inflation. The higher rates are, the more attractive it is for investors to park their money in an interest-bearing savings account rather than putting it into risky assets. Bitcoin broke through the $21,000 mark early yesterday from a low of $16,000 at the start of the year. Ethereum also saw a 20% increase in a week to $1,564, hitting a two-month high over the weekend.
With over 35 years of experience in the commodity industry, Daniel is a seasoned professional in trading, entrepreneurship, business and finance. He launched his career in 1985 and has held prestigious roles such as gold dealer and futures trader at Standard Chartered Bank. He is also the founder of Traders Academy International. Follow his page for valuable insights, information, and to achieve success in your trading pursuits.