BoJ Hawks Circle as 10-Year JGB Yields Snake Upward; Asian Equities Defy Gravity

While the Western hemisphere grapples with geopolitical shocks, the Asian session has been defined by a significant shift in monetary tone from Tokyo and a relentless risk-on rally in equity markets.

Ueda's Hawkish Pivot

Bank of Japan (BoJ) Governor Kazuo Ueda delivered a clear message to markets on Monday: interest rate hikes will continue if the economic trajectory meets forecasts. Speaking to the Japanese Bankers Association, Ueda highlighted that wages and prices are finally synchronizing, a prerequisite for exiting decades of ultra-loose policy.

The impact was immediate. The benchmark 10-year Japanese Government Bond (JGB) yield spiked to 2.125%, a level not seen since 1999.

FX Impact: The USD/JPY pair remains volatile, trading around 157.00. The disparity between the Fed's potential easing and the BoJ's tightening cycle suggests a structural downward bias for the pair in the medium term. However, in the immediate term, rising US yields are keeping the Dollar bid. Traders are eyeing the upcoming BoJ quarterly outlook (Jan 22-23) as the next critical pivot point.

The AI-Driven Equity Rally

Despite the turmoil in Venezuela, Asian equity markets have largely ignored the geopolitical noise, focusing instead on the tech sector.

The Macro Implication: The rally is underpinned by the belief that the AI capex boom will continue to drive productivity and earnings through 2026. However, some analysts warn that this tech-fuelled demand for energy and chips could reignite global inflation, complicating the “soft landing” narrative for central banks later in the year.

For Forex traders, the resilience of Asian equities provides support for “risk” currencies like the AUD and NZD, preventing a complete washout despite the risk-off signals coming from the commodities complex.