Market analysis of Krantech 2023.1.16

January 16, 2023

【Market Trends from Last Week】

Last week the dollar softened from the previous Friday, and after the U.S. CPI release on the 12th it fell further. Regarding the stock market, U.S. stocks (the three major indices) moved relatively firmly.

The CPI result was as expected, but the six-month slowdown and the Philadelphia Fed president's statement that “a rate hike of 0.25% is appropriate going forward” acted as a tailwind for this round of market moves.

Also, regarding the cross-yen mentioned last week as “watch for now,” the major currencies also fell as the dollar/yen declined on the back of the U.S. CPI.This movement seems to be driven not only by the weakness of the dollar but also by market vigilance that the Bank of Japan may change its policy. As a result, the Nikkei average faced higher selling pressure and remained under pressure.

【This Week's Market Outlook】

This week on the 18th, the Bank of Japan will announce its policy rates. Although the BoJ policy rate announcements have not been a major focus for the market until now, this time it is highly anticipated.

The market is already moving with expectations of a policy change. If there is any announcement of a policy change, the yen will strengthen further and the Nikkei average will fall further.

On the other hand, if there is no change, what might happen? Probably the yen will remain weak, and the Nikkei may rebound. However, will this ease market caution going forward? Will the policy-change alert continue in subsequent weeks? If so, the cross-yen that rises (yen weakness) would be an ideal place to short on a rebound. Of course, any rebound in the Nikkei could be viewed as a selling opportunity on a pullback.

Ultimately, the yen and the Nikkei average are expected to continue the current trend until the new BoJ governor is decided and a clearer stance on policy emerges.

Next, for the dollar and U.S. stocks, the moves after last week’s CPI release are likely to continue for a while, with the dollar holding down against major currencies and U.S. stocks showing a firm, lower-bound-rising trend.

However, as noted in last week’s market analysis, for trades held over several months or longer, I think the dollar is a currency worth going long on.

Because although inflation is said to have peaked, the Fed’s inflation goal of 2% is still far from reached; in reality inflation remains high, and the Fed must avoid allowing this state to persist, which is why they have stated as such.

The market is underestimating the message from the Fed, leading to dollar selling and stock buying, but it seems to be pricing in rate cuts a bit too aggressively.

※ This article is not intended to promote investment decisions. Please make your own final investment decisions. I accept no responsibility for any damages arising from this article.