Week Ahead – U.S. Inflation and BoJ Governor Nomination in Focus
XM Group | Feb 10, 2023 07:50AM ET
Yen jumps on BoJ bets
The moment of truth for the yen is finally here. Media reports suggest the new Bank of Japan Governor will be nominated on Tuesday, with the latest articles tipping Kazuo Ueda as the most likely choice.
Previous reports suggested Masayoshi Amamiya was the frontrunner - one of the architects of the central bank’s unorthodox tactics - but it seems he refused the position. The yen strengthened on the leaks that it will be Ueda instead, in what seemed like a relief move.
Even though Ueda’s policy views are not clear yet, traders are betting he is unlikely to be as cautious as Amamiya on tightening policy. He is not a current member of the Bank of Japan and was not involved in the extreme stimulus policies of the last decade, so the thinking is that he could be more open to raising interest rates.
As for the pound, the outlook seems cloudy. The UK economy faces serious recession risks according to business surveys, while the Bank of England is sending mixed signals about rates. Meanwhile, US stock markets might be gearing up for another selloff as valuations have become unrealistic and earnings are contracting, leaving sterling vulnerable given its classic correlation with risky assets.
Finally in Australia, the employment report for January will be released Thursday. The Australian dollar is still the best performing major currency so far this year, riding the hype of China’s reopening. However, it is difficult to trust this rebound. Similar to sterling, the aussie is highly correlated with global risk sentiment, leaving it exposed in case the market mood deteriorates.
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