Asian equities started the session positive as Wall Street was on holiday. Still, the upside is capped amid a lack of new macro drivers, and traders await an uneventful Bank of Japan monetary policy decision. Still, participants will be eyeing any language tweaks after newswires’ hawkish reports last week. The USD/JPY overnight implied volatility is fairly quiet.
On the COVID front, some worries regarding the virus spread could trigger a mild demand for defensives as Japan’s Chief Cabinet Secretary Matsuno says Tokyo and nine other areas have requested COVID-19 measures.
On the geopolitical front, the Russia/Ukraine theme has been on the radar for E.M. traders for a few months now, worth keeping an eye on as Russian assets saw volatility after reports instead are preparing targeted economic penalties against Russian banks. If the theme continues to escalate, global markets – especially risk assets within the E.M. space – could find some bid in safe-haven assets, and a contagion risk will be on the table. For the session ahead, the bond/equity relationship could keep weighing on sentiment as the U.S. Treasury yields have edged higher across the curve, with 2-year yield crossing above the 1% mark. The next FOMC will take place next week, but as hawkish Fed chatter has grown louder, traders could start positioning for the event this week.
