ASIA STOCKS: A Mixed Day as Indonesia Bounces Back. 

BoJ-dated OIS pricing continues to firm in February, with rates rising 1–6bps compared to late January levels, led by the October contract.  

• Recent economic data from Japan, including today’s Q4 GDP (P) beat, and stronger-than-expected wage growth and household spending, has fueled speculation that the BoJ may accelerate and extend its rate hikes beyond prior market expectations.
• Markets currently assign a 2% probability to a 25bp hike in March, a cumulative 58% chance by June, and now fully price in a 25bp increase by September—a shift from late January when a hike wasn’t fully priced in until October.

Figure 1: BoJ-Dated OIS – Today Vs. Friday 31 January

Source: MNI – Market News / Bloomberg

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• The RBA is set to begin an easing cycle with a 25bp rate cut on February 18 bringing the OCR to 4.10%. However, the decision is unlikely to be clear cut and as a result, the statement and press conference are likely to sound cautious.
• The decision may be framed as a reduction in policy restrictiveness due to lower-than-expected inflation rather than a desire to be stimulatory.
• A 25bp rate cut in April remains more than fully priced (117%), while the probability of a cut tomorrow stands at 83%.
• Q4 headline and trimmed mean inflation are likely to result in the updated staff forecasts being revised lower in at least 2025 and the mid-point of the band brought forward from Q4 2026.
• There is enough uncertainty regarding the outlook and strength in recent data to suggest that the tone around a February rate cut is likely to be cautious and that another move in April is unlikely, especially as it will be the first meeting with the new dual board structure. 

JGB futures are weaker, -24 compared to the settlement levels, and at session lows.

• Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms, this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported).
• December industrial production was revised down to -0.2% in the final report, while the operating ratio fell to 102.4 in December compared to 102.6 in the previous month. December’s Tertiary Industry Index rose 0.1% m/m.
• “Morgan Stanley MUFG Securities revises its forecasts higher on Japanese bond yields to reflect recent market moves, strategists including Koichi Sugisaki write in a note.” (see BBG link)
• Cash US tsys are closed for the Presidents Day holiday.  TYH4 is slightly weaker.
• Cash JGBs are 2bps cheaper to 1bp richer, with a flattening bias. The benchmark 10-year yield is 1.2bps higher at 1.374% versus the cycle high of 1.377%.
• Swap rates are 1-2bps higher. Swap spreads are wider.
• Tomorrow, the local calendar will see Tokyo Condominiums for Sale data alongside 20-year supply.