Asia Day Ahead: BoJ meeting in focus

Wall Street Wrap

Following a two-day reprieve, market participants are back to the sell button on Wall Street, with the Nasdaq sliding 1.7%, the S&P 500 dropping 1.1% and the DJIA declining 0.6% overnight. Second-tier US economic data has surprised on the upside, with housing starts, industrial production and capacity utilisation rate coming in stronger than expected, but those figures prove insufficient to reassure investors amid broader growth concerns and tariff uncertainties.

Tech bore the brunt of the sell-off yet again, with NVIDIA’s GTC 2025 failing to lift the sector. Rather than the disappointment in the innovation, it seems more of the broader cautious sentiments that are keeping NVIDIA’s share price down. With valuations under scrutiny, a lack of clear positive catalysts, ongoing geopolitical tensions, and a series of upcoming central bank meetings, risk appetite remains firmly on the defensive.

Thus far, a decisive V-shaped recovery—needed to validate the recent sell-off as a flush-out rather than a sustained downtrend—has yet to materialise. On the four-hour chart, selling pressure has emerged at a key support-turned-resistance trendline around the 19,840 level, aligning with the 23.6% Fibonacci retracement. Dip buyers may choose to defend a new higher low to keep the short-term upward trend intact, but the risks of a breakdown of the near-term rising channel ought to be closely monitored, where it may then confirm a bear flag formation, potentially signalling a continuation of the broader downtrend.

Federal Open Market Committee (FOMC) meeting on watch ahead

For the upcoming FOMC meeting, market expectations are firmly priced for US policymakers to keep the Federal Reserve (Fed) Funds rate on hold at 4.25% - 4.50%, with the focus likely to concentrate around policymakers’ rate outlook. Still above-target inflation and recent rise in consumer inflation expectations will justify the Fed's current cautious stance. The key question to be answered will be whether recent downside economic surprises and tariff uncertainties could prompt the Fed to consider accelerating rate cuts over the coming months.

Currently, markets anticipate the next 25 basis point (bp) rate cut to be in June, with a total of 50 - 75 bp cumulative cuts by the end of this year. The upcoming economic forecasts and dot plot projections will be critical in shaping these expectations, where policymakers sticking to two rate cuts may offer market some reassurances around growth resilience while signalling that the Fed is not hitting the panic button on economic risks just yet.

Asia session

We head off to Asia with a mixed open, as the Nikkei gains 0.4%, ASX slips 0.2% and the KOSPI rises 0.6%. Once again, lower tech weightage may help to cushion some of the selling pressures for the region, with a weaker US dollar and lower Treasury yields offering additional support. Ahead, eyes will be on the Bank of Japan (BoJ)’s monetary policy meeting, with the resilience in Japanese equities seemingly reflecting the view of a dovish outcome.

Expectations are that Japanese policymakers will likely take on further wait-and-see, so as to assess the impact of its January hike, while providing more time to evaluate potential effects of US reciprocal tariffs set to kick in on April 2. Additionally, policymakers may also want to seek further reassurances on wage growth from the spring wage negotiations to confirm that inflationary pressures are demand-driven and therefore, sustainable.

While additional rate hikes remain on the horizon, declining real wages, broader yen strength, and a recent downward revision to fourth-quarter gross domestic product (GDP)—driven by weaker-than-expected private consumption—could lead the BoJ to favour a gradual tightening path. Market expectations currently anticipate a 25 bp rate hike in July, followed by a pause for the remainder of the year. If confirmed, this outlook could provide some relief for Japanese equities, while the yen may remain resilient amid narrowing US-Japan yield differentials.

USD/JPY back at upper channel trendline resistance

One to watch may be the USD/JPY, which is currently back at a upper channel trendline resistance around the 149.50 level. With the pair maintaining a lower-high, lower-low structure since the start of the year, risk-reward dynamics may favour the formation of yet another lower high to continue the prevailing downtrend. Additionally, the daily relative strength index (RSI) is approaching its midline, a level that has acted as resistance on two prior occasions.