Asia Day Ahead: All eyes on BoJ policy meeting, Nikkei 225 resumes its record run

Market Recap

A push to a record high for Wall Street last Friday saw the momentum carried forward into this week, with major US indices extending their gains amid a relatively quiet economic calendar. The US Conference Board Leading Economic Index (LEI) registered yet another month of contraction at -0.1% in December, but being the smallest extent of contraction since March 2022, it continues to show improvement in economic conditions and put recession concerns in the backseat.

Sector performance overnight revealed investors’ ongoing appetite for risk-taking, as defensive sectors underperformed. There has not been too much of a move in US Treasury yields, with the two-year yields ending the day where it started while the 10-year yields continues to hang above the 4% level despite a slight drift lower. The US dollar extended its consolidation below its 200-day moving average (MA), with any close above the trendline likely to provide great conviction for dollar longs.

Ahead, attention will be focused on Netflix’s earnings after-market to provide markets with an early glimpse into major tech earnings. Market participants will be seeking for validation that the US earnings recovery since 3Q 2023 will continue, to support views that the worst is indeed over.

Netflix’s share price has been trading on higher highs and higher lows to reveal an upward trend since July 2022, but up ahead, the US$523.80 level will serve as a crucial resistance to overcome, where its previous result release in January 2022 has led to an intraday sell-off of 22%. While near-term momentum has been positive, the lower highs on recent peaks suggest some abating of upward momentum for now. On the downside, the US$450.00 level may be on watch as immediate support to hold.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.48%, ASX +0.53% and KOSPI +0.21% at the time of writing. The Nikkei continues to power on with its fourth straight day of gains after a slight breather last week, as buyers set its sight for an eventual retest of its 1990 high. Chinese equities continue to extend its divergence from global equities, with the Hang Seng Index (HSI) standing just less than 3% from its October 2022 bottom, as conviction for a turnaround in its economic conditions remains to be sought.

The key event ahead will be the Bank of Japan (BoJ)’s monetary policy meeting. Broad expectations are for the BoJ to maintain its ultra-loose monetary settings, coming off the back of subdued wage growth in November, further easing in inflation and a recent earthquake, which drove some near-term economic uncertainty.

Recent moves in Japanese 10-year bond yields and implied volatility for the 10-year government bonds futures suggest broad expectations in place that the upcoming meeting may not deliver much surprise. Nevertheless, markets will continue to scour the BoJ Governor’s comments for any hints of policy-exit timeline, with fresh economic projections being presented this time round to help move the dial around its rate outlook.

The USD/JPY has a great run since the start of the year, driven by widening US-Japan yield differentials on expectations that the policy divergence between the two central banks could drag for longer. Ahead, the pair will face a key resistance at the 150.00 level, where the BoJ has intervened with aggressive yen-buying back in October 2022. On the downside, the 146.40 level may serve as immediate support to hold, where the upper edge of its Ichimoku cloud on the daily chart stands.

On the watchlist: Silver prices back to retest November 2023 low

A confluence of higher bond yields, a firmer US dollar and ongoing economic weaknesses out of China has led silver prices to its one-month low lately, risking the breakdown of the US$22.20 level into this week. The US$22.20 level has served as a support for prices on at least four occasions since June 2023, with any failure for buyers to hold the line potentially paving the way for prices to retest the US$20.75 level next. For now, momentum has been to the downside, with its daily moving average convergence/divergence (MACD) reverting into negative territory while its relative strength index (RSI) trades at the lower end of its range.

Monday: DJIA +0.36%; S&P 500 +0.22%; Nasdaq +0.32%, DAX +0.77%, FTSE +0.35%