U.S. and Japan Coordinate to Stabilize the Yen

Market Overview

U.S. equities extended their rally, supported by continued strength in technology stocks. All three major U.S. indices posted a second consecutive gain, with the Dow Jones Industrial Average closing at record highs for two straight sessions. Among the “Magnificent Seven,” Microsoft surged more than 3%, NVIDIA gained 2.5%, while Apple retreated over 1%. The semiconductor sector outperformed the broader market, rising more than 1%, with AMD and Broadcom both climbing over 3%.

Markets also closely monitored rising political pressure on UK Prime Minister Keir Starmer, as the 10-year UK gilt yield briefly jumped more than 8 basis points. The U.S. dollar index declined for a second straight session, hitting its lowest intraday level in a week. In Japan, following Sanae Takaichis election victory, Japanese officials warned they are closely watching currency movements. The yen reversed a six-day losing streak, rebounding more than 1% after hitting a two-week intraday low. Offshore RMB strengthened sharply, breaking below 6.92 per dollar intraday for the first time in nearly three years. Bitcoin dropped more than 6% from its intraday high, briefly falling below USD 69,000, before staging a modest rebound.

Commodities rebounded for a second day. Crude oil reversed earlier losses of as much as 1.5% to trade higher. Gold surged more than 2%, reclaiming the USD 5,000 level intraday, while gold futures closed at their highest level in over a week. Silver futures spiked nearly 9% intraday. On the LME, tin jumped more than 5%, while copper rose over 1%.

Key Themes to Watch

● Bessent: The Fed Unlikely to Tighten Aggressively

U.S. Treasury Secretary Scott Bessent stated that the Federal Reserve is unlikely to pursue rapid balance-sheet reduction. He noted that even if Kevin Warsh were appointed Fed Chair, quantitative tightening would not be accelerated, as policy decisions could require up to a year of evaluation. Bessent emphasized that a shift toward an “ample reserves” framework would actually necessitate maintaining a relatively large balance sheet. These remarks suggest that, under a Trump administration aiming to keep mortgage rates low, the Fed would prioritize financial stability over aggressive tightening.

● January U.S. Nonfarm Payrolls May Undershoot Expectations

Ahead of the highly anticipated jobs report, the White House appeared to temper expectations. Kevin Hassett hinted that employment growth could come in below forecasts, attributing the trend to slower population growth and a sharp rise in productivity. He explained that as companies achieve higher output through technological advancements and efficiency gains, demand for additional labor naturally declines. Meanwhile, slower population growth further constrains the expansion of the labor supply.

Key Economic Events (GMT+8)

19:00 – U.S. January NFIB Small Business Optimism Index

21:30 – U.S. December Retail Sales

Overnight

01:00 – Cleveland Fed President Hammack speaks on “Banking and the Economic Outlook”

– EIA releases the Monthly Short-Term Energy Outlook

02:00 – Dallas Fed President Lorie Logan delivers remarks