JGBS: Twist-Steepener Holds Going Into W/E, BoJ Gov Ueda Reiterates Caution

Following a disastrous day for the Jakarta Composite yesterday, attempts by authorities to stabilize things appear to be working as it posts some solid gains whilst bourses around the region are mixed. 

• Yesterday in Indonesia the Jakarta Composite fell by -6.8% at one stage, sufficient to see a trading halt before recovering to finish just -3.8% down.  The intervention, along with intervention in the currency markets has calmed investors and the index is up by +1.00% today.
• China’s bourses are mixed with the Hang Seng holding on to slender gains up +0.15%, the CSI 300 +0.05 whilst the Shanghai Comp fell -0.06% and Shenzhen is down -0.20%.
• The KOSPI was one of the other strong performers today up +0.78%, following and on track to deliver three successive days of gains.
• Malaysia’s FTSE Malay KLCI fell by -0.64% today, having enjoyed three straight days of gains.
• Singapore’s FTSE Straits Times is up +0.50%, the Philippines +0.20% whilst Taiwan is the worst performer in the region, down by -1.11%.
• As India’s NIFTY 50 starts it’s trading day up marginally, it follows on from yesterday’s very strong performance gaining +1.45%

The USD BBDXY index sits slightly higher in the first part of Wednesday dealings, last near 1263.1. We are still close to recent multi-month lows at 1261.15. Today's gain is around 0.10% at this stage. 

• Today's main focus has been the BOJ decision, but as widely expected, the central bank left rates on hold at 0.50%. The statement appeared balanced, in that the door was left firmly ajar for further hikes (virtuous wage and price cycle was described as intensifying), but significant uncertainty around the economic outlook was also highlighted (particularly from a trade standpoint). We have Ueda's press conference in just under 2 hours.
• USD/JPY was last near 149.55, slightly up on end Tuesday levels, with ranges of 149.20/64 so far. We had earlier data on trade and machine orders. The trade position moved back into surplus, while machine orders were weaker than forecast. Sentiment in the FX space didn't shift though. broadly USD/JPY is wedged between key support and resistance levels.
• NZD/USD has ticked down, back to 0.5810, off close to 0.20%. Q1 Westpac consumer confidence fell to 89.2 from 97.5, the weakest since Q2 2024 which is before the RBNZ began easing. The Q4 current account deficit was slightly wider than expected at $7.037bn but significantly narrower than Q3’s $10.84bn. Note tomorrow we get Q4 GDP. Upside focus for the currency is at 0.5860, the 200-day EMA. The 100-day at 0.5765 may act as downside support.
• AUD/USD has also edged down a touch, last near 0.6355/60. The currency remains sub key resistance at 0.6409, the Feb 21 high and bull trigger.
• In the cross asset space, US equity futures are slightly higher, but away from best levels. US Tsy yields have ticked up, the 10yr back to 4.295%, up a little over 1bps.
• Later the Fed’s decision is announced and includes updated projections and Chair Powell’s press conference. No change in rates is widely expected. The ECB’s de Guindos and Elderson speak later and February euro area CPI data print.

Bank Indonesia’s decision is announced today and is expected to leave rates at 5.75% given rupiah weakness against a range of currencies. Also with recent volatility, a rate cut may signal that the central bank has deeper concerns. JP Morgan expects BI to be on hold in March with IDR volatility and FX reserve drawdown making it hard to ease, but the risks are skewed towards a 25bp cut to “pre-emptively act amidst still-elevated US trade policy uncertainty”.

• JP Morgan is forecasting a June rate cut “with the bias for more easing if global/domestic growth conditions deteriorate”.
• “IDR volatility remains elevated, likely reflecting both regional (e.g., tariff overhang) and country-specific (e.g., lower commodity prices) concerns. February also recorded a US$1.6 billion drawdown in gross FX reserves as foreign portfolio outflows continue.”
• “The latest export earnings retention rule (GR8/2025) could boost onshore US$ liquidity and provide the degree of freedom for BI to cut rates. However, the full, positive impact of GR8/2025 on reserve accumulation may only kick in starting June once the FX redemption pressure from the previous ruling subsides. While our baseline scenario projects a substantial increase in FX reserves (US$50 billion in gross; US$15 billion in net) in the next 12 months, much depends on compliance and enforcement, and as such, BI may also intend to monitor the effectiveness of GR8/2025.”
• BI should “look through Jan-Feb CPI prints on temporary electricity tariff discount … We expect a payback in headline CPI prints, from 0.3%oya in Jan-Feb to 2.8%oya for the rest of 2025, with a full-year average of 2.3%, close to the mid-point of the 1.5-3.5% inflation target. In addition, core inflation momentum is on the rise, quelling concerns of weak demand-pull inflation for now.”