Asia-Pacific FX Wrap: BOJ Holds Rates as Yen Intervention Fades

The Bank of Japan (BOJ) has decided to leave interest rates unchanged, with a voting outcome of 8-1. This decision aligns with market expectations. In economic data, China's July manufacturing PMI registered at 49.2, below the expected 50.0, indicating a contraction. Meanwhile, Australia's Q2 Producer Price Index (PPI) rose by 3.6%, surpassing the previous figure of 3.0%. Japan's preliminary industrial production for June increased by 1.3% month-on-month, exceeding expectations of 0.7%. The unemployment rate in Japan remained stable at 2.5%, while Tokyo's July CPI excluding fresh food rose to 1.9% year-on-year, slightly above the anticipated 1.7%.

In a notable development, South Korea also intervened in the foreign exchange market on Thursday. Consumer confidence in New Zealand showed improvement, bouncing back to 99.3 from a previous reading of 91.3. Treasury Secretary Bessent appeared to endorse the yen intervention, signaling a potential shift in policy.

Market reactions included a decline in WTI crude oil prices by $1.25 to $82.36, while US 10-year yields fell by 1 basis point to 4.65%. The US dollar led gains against other currencies, with the yen lagging. Gold prices dropped by $26 to $4,075. Futures for the S&P 500 rose by 0.3%, and the South Korean Kospi index surged by 14%.

In the US, the aftermath of the Federal Open Market Committee (FOMC) meeting continued to influence market sentiment, particularly with significant earnings movements from major tech companies. Amazon shares experienced a notable increase, while Apple shares declined. A significant development involved the Situational Awareness hedge fund, which sold its public equities to Citadel, marking a potential bottom for the market. This led to substantial rallies in chip stocks, including SK Hynix, which is heavily weighted in South Korean markets.

The USD/JPY pair experienced volatility as Japan made moves in the forex market ahead of the BOJ decision, resulting in a rise of 113 pips in Asia, surpassing the 160.00 level. The US did not respond to these moves, and Bessent's endorsement of the intervention has added to market speculation.

Despite the disappointing PMI figures from China, Chinese tech shares saw gains, reflecting a divergence in market performance. Overall, there appears to be a shift in market sentiment as major risks recede, potentially setting the stage for a momentum trade in August.