Yen Lags Major Peers On Eve Of BoJ Policy Announcement

The yen went offered on the eve of the BoJ's monetary policy decision announcement, despite speculation that it might see policymakers tone down their dovish rhetoric. The BoJ are widely expected to deliver a modest upgrade to their FY2022 CPI forecast on Tuesday. Meanwhile, source reports have suggested that policymakers may discuss tweaks to the language around risks to the price outlook, which might involve dropping the long-held view that they are skewed to the downside. Nonetheless, the yen landed at the bottom of the G10 pile as T-Notes extended their rout (cash Tsys did not trade), with the touted tweaks to the BoJ's rhetoric seemingly priced in.

• Spot USD/CNH crept higher but took a dive into negative territory when a slew of Chinese data hit the wires. The economic growth slowed in 4Q2021 but was better than expected and topped the government's official target. Elsewhere, December retail sales growth undershot median forecast, yet industrial output rose faster than anticipated.
• By the time China's data hit the wires, the PBOC cut the interest rates applied to their 1-year MLF (for the first time since Apr 2020) & 7-day reverse repo operations by 10bp each. Only a handful of economists expected the People's Bank to trim rates today, while even this minority group was generally surprised by the magnitude of the cuts and the size of the liquidity injection. Offshore yuan held steady despite China's growing policy divergence with the U.S.
• The global data calendar offers little of note during the remainder of the day, with U.S. markets shut in observance of a public holiday. The dearth of catalysts outside China translated into muted price action across G10 FX space overnight.