MNI US OPEN: BOJ Steps In To Stem Yield Rise

EXECUTIVE SUMMARY:

• BOJ TO LAUNCH UNLIMITED 10Y JGB PURCHASE OPERATION AS YIELDS RISE
• U.S. CPI SEEN MODERATING M/M IN JANUARY
• RIKSBANK HOLDS, SEES QE STOCK STEADY IN 2022
• ECB TO LET BANK CAPITAL RELIEF EXPIRE

Fig. 1: BOJ Steps In As 10Y JGB Yield Nears 0.25%

Source: BBG, MNI

NEWS:

BANK OF JAPAN (BBG): The Bank of Japan offered to buy an unlimited amount of bonds at a fixed rate, pushing back against weeks of trader speculation about policy normalization. The central bank will buy 10-year bonds at 0.25% on Feb. 14, according to a statement on its website. This is the first such operation since July 2018 as yields creep closer to its tolerated level under its yield curve control policy. Policy normalization bets have gathered pace in recent months as soaring inflation spurs global central banks to unwind pandemic-era stimulus and raise rates. The BOJ has remained an outlier, with Governor Haruhiko Kuroda repeatedly stating the need to keep easing.

BANK OF JAPAN (MNI INTERVIEW): Any rise in Japanese inflation above 2% will prove unsustainable and should not prompt the Bank of Japan to reduce monetary easing, a former BOJ chief economist told MNI. For full article contact sales@marketnews.com

MNI US INFLATION PREVIEW: U.S. CPI for January is released on Thu at 0830ET/1330GMT.

• Consensus is for a modest moderation after a strong December, with the median seeing core CPI at +0.5% M/M (average 0.45%) after 0.55% M/M.
• Core inflation was previously led by surging core goods (+1.9% M/M) as core services plateaued, with both categories expected to ease this month and the latter potentially slowed by first round effects from Omicron.
• With markets increasingly pricing in more hikes, the largest reaction could come from a downside surprise.
• See the full report here including previews from 12 sell-side analysts.

SWEDEN RIKSBANK (MNI BRIEF): The Riskbank left policy unchanged at its February meeting, but brought forward the projected timing of the first hike to H2 2024. There had previously been divisions on the Executive Board over the case for early non-reinvestment of maturing assets acquired through quantitative easing but the board forecast that asset holdings would "remain approximately unchanged in 2022', a restatement of its existing position. The detailed rate forecast showed the policy rate starting to edge up, to 0.06%, at the start of 2024 and then to climb steadily to 0.31% by the end of the forecast period three years out. That profile was steeper than the previous one, from November, which had the policy rate at 0.19% at the end of the forecast,. Some analysts had expected the projected timing of the first hike to be brought forward into 2023 but the changes the Riksbank has made are modest and do not represent any big overhaul of the policy approach of leaving the existing stimulus in place this calendar year.

ECB/ EUROZONE BANKS: Banks will be required to hold larger capital reserves going forward, ECB banking supervisors said Thursday, with most Euro area banks already operating at capital levels above those required. Capital requirements and guidance are increased from 14.9% in 2021 to 15.1% of risk-weighted assets in 2022. Capital requirements and guidance in CET1 increase from 10.5% in 2021 to 10.6% of risk-weighted assets in 2022.

ECB / EUROZONE BANKS: Pillar 2 capital relief for banks will end in December this year, with leverage relief set to end in March, the ECB said Thursday -- a strong signal that the central bank's regulators at least judge the Covid-19 pandemic’s crisis phase is over. “The capital space that we created for banks at the onset of the pandemic helped them to continue lending to households and businesses,” ECB Supervisory Board chair Andrea Enria said. “Today we are providing clarity on the path back to normality. We are confirming the initially envisaged timeline for a return to normal supervision of banks’ capital adequacy and leverage.”

RBA (MNI INSIGHT): The Reserve Bank of Australia is unlikely to re-invest any of its AUD350 billion government and semi-government bond portfolio when it begins to tighten interest rates and will take a call at its May meeting on the mechanics as reported, MNI understands. For full article contact sales@marketnews.com

UK-RUSSIA (RTRS): British foreign minister Liz Truss told Russia on Thursday there was still time to end its aggression towards Ukraine, which, she said, was undermining the country's international standing and strengthening the resolve of the NATO alliance. "The aggression by the Russian government and attempts to relitigate the past are seriously undermining Russia's international standing," she told a news conference in Moscow, standing alongside Russian Foreign Minister Sergei Lavrov. "These acts have actually had the effect of strengthening NATO's resolve and turning the Ukrainian people further away from Russia."

UK-RUSSIA: At a joint presser between Russian Foreign Minister Sergey Lavrov and his UK counterpart Liz Truss in Moscow, Lavrov offers stark criticism of the United Kingdom, saying that talks with the UK are 'like speaking to a deaf person who listens but does not hear'. Body language between the two extremely frosty. Truss threatens the "toughest sanctions" if Russia invades Ukraine. Catherine Philip at The Times tweets: "Lavrov next to Truss in Moscow: Uk-Russia relations are at "lowest level over many years". Then pointedly talks about scale of trade between two countries, after Truss said before talks she would threaten sanctions. Lavrov talks about how he told Truss about the ties Russia is building with China (translation: we've got a very big Big Brother)".

EU INFLATION: The European Commission is forecasting eurozone inflation to be below the European Central Bank's 2% target by the end of 2023, according to the latest round of economic forecasts out of Brussels. Despite upping their outlook for end-2023 from the Autumn projection, the EC is forecasting inflation at just 1.7%, up from the 1.4% seen in November. "Inflation in the euro area is projected to peak in the first quarter of 2022 and remain above 3% until the third quarter of the year," the report notes, before adding that "as the pressures from supply constraints and energy prices fade, inflation is expected to decline markedly" in Q4, before settling "below 2% next year."

PORTUGAL POLITICS: The final results from Portugal's legislative elections have finally come through, confirming that Prime Minister Antonio Costa's centre-left Socialist Party (PS) has won an outright majority in the Assembly of the Republic. The PS now holds 119 seats in the 230-member chamber, ahead of the 116 required for an outright majority. The PS gained 11 seats in the snap election, called after the PS' two former leftist allies refused to vote for the gov'ts budget in late-2021.

DATA:

LOOK AHEAD:

Date	GMT/Local	Impact	Flag	Country	Event
10/02/2022	1000/1100			EU	European Commission Winter Economic Forecasts
10/02/2022	1200/1300			EU	ECB de Guindos on Europe post-covid at LSE
10/02/2022	1315/1415			EU	ECB Lane on supply chain disruptions panel discussion
10/02/2022	1330/0830	**		US	Jobless Claims
10/02/2022	1330/0830	***		US	CPI
10/02/2022	1330/0830	**		US	WASDE Weekly Import/Export
10/02/2022	1530/1030	**		US	Natural Gas Stocks
10/02/2022	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
10/02/2022	1630/1130	**		US	US Bill 04 Week Treasury Auction Result
10/02/2022	1700/1700			UK	BOE Bailey speech at TheCityUK Dinner
10/02/2022	1800/1300	***		US	US Treasury Auction Result for 30 Year Bond
10/02/2022	1900/1400	**		US	Treasury Budget
10/02/2022	1900/1400	***		MX	Mexico Interest Rate
10/02/2022	0100/2000			US	Richmond Fed's Tom Barkin
11/02/2022	0700/0700	**		UK	UK monthly GDP
11/02/2022	0700/0700	**		UK	Output in the Construction Industry
11/02/2022	0700/0700	**		UK	Index of Services
11/02/2022	0700/0700	***		UK	Index of Production
11/02/2022	0700/0700	**		UK	Trade Balance
11/02/2022	0700/0700	***		UK	GDP First Estimate
11/02/2022	0700/0800	***		DE	HICP (f)
11/02/2022	0730/0830	***		CH	CPI
11/02/2022	0805/0905			EU	ECB Elderson on sustainable finance discussion at Finance Summit
11/02/2022	1500/1000	***		US	University of Michigan Sentiment Index (p)