New disappointment this week at the lack of further interest rate cuts from the Peoples Bank of China has added to concerns, not least as many suspect the reluctance is aimed at preventing a renewed slide in the yuan.
Amid the reports of wider market support on Tuesday, the yuan strengthened back to its best levels in a couple of weeks.
But at least some foreign portfolios and even domestic Chinese money has headed to Japan in recent months as a tech-heavy Asia alternative and regional “friendshoring” magnet in an increasingly polar geopolitical rift.
And unwriting the contrasting 10% boom in the Nikkei 225 this year has been a seeming reluctance of the Bank of Japan to “normalise” its negative interest rate policy amid ebbing core inflation which it is still aiming to sustain at 2%.
The BOJ held policy steady after a two-day meeting on Tuesday, although there were indications it may push ahead with tightening later in the year once it is convinced wage gains are solidified.
“If we get further evidence that a positive wage-inflation cycle will heighten, we will examine the feasibility of continuing with the various steps we are taking under our massive stimulus programme,” BOJ boss Kazuo Ueda said.
That saw the yen perk up somewhat and stopped the Nikkei in its tracks, ending the day little changed. The dollar slipped back more generally.
Back on Wall St, Treasury yields ticked back higher again – not least ahead of another week of heavy debt sales in which some $60 billion of two-year notes go under the hammer on Tuesday.
With Fed officials in a blackout period ahead of the next policy meeting this month, Fed futures pricing is gradually absorbing this year’s official pushback against excessive easing expectations. The chances of a cut as soon as March have now fallen back just below 50% – even though 130 basis points of easing over the whole year is still pencilled in.
Elsewhere, Bitcoin has fallen to a seven-week low, plunging below $40,000 for the first time since the launch of 11 spot bitcoin exchange-traded funds on Jan. 11. It has now lost more than 20% since the peak hit on the announcement.
