US TSYS: Tsys Yields Cheaper, Curve Steepens Ahead Of GDP

• Despite the safe-haven status it enjoys, gold suffered yesterday as the USD gained as markets came to grips with the latest tariff threats, and a tech route saw a flight to the dollar.
• With President Trump threatening tariffs on steel, aluminum and copper imports, the USD gained – which typically limits the upside for gold prices.
• The tech route wiped $1trillion from the NASDAQ on fears that the US may not have the AI superiority it thinks, giving support to the USD.
• Gold fell 1% and trading today has oscillated around where bullion closed yesterday.
• Opening at US$2,740.81 gold barely moved today to trade down to $2,739.84. 

EXECUTIVE SUMMARY

• The Bank of Japan's (BoJ) recent monetary policy developments, including the 24 January decision to raise the policy rate by 25bps to 0.5%, mark a continued shift toward normalisation. This decision, though widely expected, reflected the BoJ’s growing confidence in achieving its economic outlook, supported by upward revisions to inflation forecasts and expectations of strong wage growth.
• The BoJ’s decision was not unanimous, as Toyoaki Nakamura opposed the hike, reflecting lingering caution about the economic trajectory.
• Inflation forecasts were revised upward, with core inflation expected to reach 2.7% in FY2024, 2.4% in FY2025, and 2.0% in FY2026. This outlook supports the central bank’s guidance for further rate hikes, albeit at an unhurried pace.
• Analysts have noted that despite the hawkish shift in tone, Japan’s real policy rate remains deeply negative, suggesting minimal drag on economic activity. The BoJ’s emphasis on balancing inflation control with economic growth indicates that normalisation will proceed gradually.
• In summary, the BoJ’s January decision underscores its incremental shift toward normalisation, buoyed by stronger inflation and wage growth forecasts. However, the path ahead remains uncertain, with the pace and timing of further hikes dependent on a confluence of domestic and international factors. While markets anticipate additional tightening, the BoJ's cautious stance suggests that normalisation will be measured and deliberate, ensuring that economic growth remains on track amidst evolving risks.
• Full review here: 

The USD remains on the front foot, albeit off highs, the BBDXY index last near 1300 (earlier highs were at 1301.4). We are still up around 0.25% versus Monday levels.

• Earlier remarks from US President Trump around tariffs in the near future, along with other headlines that incoming Treasury Secretary Bessent favors universal tariffs (per BBG), has provided broad USD support. Tariff headlines/risks continue to be a key driver of FX sentiment.
• After outperforming yesterday, USD/JPY is up nearly 0.60%, last near 155.35/40. This puts us back above the 50-day EMA (in the low 155.00 region).
• US yields are up, with gains a little over 1bps across the Tsy benchmarks. US equity futures are holding positive, despite the tariff headlines, but this follows yesterday's sharp sell off in cash markets. Most regional equity markets (which aren't shut for LNY), are tracking lower in line with US losses on Monday.
• AUD/USD is down 0.35% to 0.6270, while NZD is off slightly more to 0.5665/70. Both sit up from session lows. USD/CNH is up +0.20%, albeit off session highs, last near 7.2675/80. China markets are out from today for the LNY break (back next Wednesday), so there is no onshore anchor point.
• We only have Japan machine tool orders out later, otherwise the Asia Pac calendar is very light, with several markets closed for LNY (along with China).