A look at the day ahead in European and global markets from Wayne Cole.
The main surprise in Asia was provided by a Yomiuri newspaper report that the Bank of Japan will review the side effects of its yield curve control at a policy meeting next week and may take additional steps to correct distortions in the market.
The timing of the review was a surprise given the market had thought it would wait until BOJ Governor Haruhiko Kuroda retires in April before taking any big steps. Then again, the market had thought the same last month when the central bank wrongfooted everyone by widening its YCC band. The BOJ could raise the target to, say, 0.5% and lift the trading range to 0-1.0%, but markets would likely see it as capitulation and immediately take yields to the new ceiling.Whatever the decision, time is ticking for YCC and maybe even negative rates in Japan. That would be a seismic event for bonds given Japan has acted as an anchor for yields globally, while encouraging Japanese investors to funnel funds offshore.
The other major event in Asia was China's CPI for December which came in bang on expectations at 1.8% y/y, marking China as one of the very few countries in the world without an inflation dragon breathing down its neck.
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