The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

2104 ET - Japan's latest GDP data seems to back the case for more rate hikes, says Krishna Bhimavarapu, APAC economist at State Street Global Advisors. The positive surprise in the economic growth figures was driven by a better showing in private consumption and net exports, the economist says. The key takeaway for SSGA is that nominal household consumption grew significantly faster than real consumption, with the wide divergence potentially activating the BOJ's "inflation fighting mode." At the very least, the GDP print should soothe concerns that consumption is stalling, and is conducive to another rate hike, which SSGA thinks could now come sooner rather than later. (fabiana.negrinochoa@wsj.com)

2045 ET - Japan's overnight index swap curve may keep bear-flattening in short term, due to a rise in near-term BOJ policy rate expectations and declines in U.S. Treasury yields, three Japan-based strategists at Morgan Stanley MUFG Securities say in a report. The Bank of Japan's terminal rate will probably continue to be upwardly repriced, owing to factors such as BOJ officials' comments for a potentially higher neutral rate above 1.0%, they say. The brokerage's U.S. rates strategists maintain their view for Treasury yields to fall through September 2026, though the Fed has been signaling somewhat of a reluctance to keep cutting rates amid concerns over tariff-induced inflation, they add. (ronnie.harui@wsj.com)

2034 ET - There are unrecognized risks to the U.S. GDP growth outlook from the landslide of new policies from the Trump White House, warns Tim Rocks, chief investment officer at money manager Evans and Partners. These include lower population growth, which translates directly to less spending; lower government spending and job cuts, which directly feeds into GDP; tariffs cutting spending power while elevated uncertainty holds firms back on hiring and capital expenditure, he says. Reform and efficiency gains will be good eventually but there will be pain before the gain, Rocks adds. The cuts to growth could hit soon and the benefits might take a few years to play out, he says. (james.glynn@wsj.com; @JamesglynnWSJ)

2039 ET - Malaysia's 2025 GDP growth should be supported by strong investments, resilient consumer spending and a global tech upcycle driving external demand recovery, CIMB senior economist Vincent Loo says in a note. Loo forecasts 5.0% growth for the Malaysian economy this year, in line with the 5.1% recorded last year. However, he warns that downside risks remain, as trade tensions could fuel global inflation and prompt central banks to slow monetary easing, potentially weighing on growth. The current account surplus is expected to rise to 2.0% of GDP, from 1.7% last year, supported by stronger exports and tourism, he adds. (yingxian.wong@wsj.com)

2028 ET - The yen strengthens against most other G-10 and Asian currencies in the morning session, aided by growing prospects of further BOJ rate increases. Preliminary government data released earlier showing Japan's economy grew 2.8% on an annualized basis in 4Q was much faster than consensus expectations, RBC Capital Markets' Alvin T. Tan says in an email. Japan's quarterly growth has posted positive readings in the past three quarters, which will comfort the BOJ as it considers the possibility of speeding up the pace of policy normalization, the head of Asia forex strategy adds. USD/JPY falls 0.3% to 151.86; AUD/JPY edges 0.1% down to 96.60. (ronnie.harui@wsj.com)

2004 ET - Malaysia's economic growth is set to slow to 4.7% in 2025 from 5.1% in 2024, BMI analysts say in a note. Domestic demand could remain resilient, supported by civil servant pay hikes and a higher minimum wage, says BMI, a unit of Fitch Solutions. Fixed investment growth may ease as base effects fade, while exports are likely to weaken due to slowing demand from the U.S. and China, it adds. Inflation is expected to rise to 2.3% in 2025 from 1.8% in 2024, driven by an impending RON95 fuel subsidy cut and a broader sales tax, though government measures should keep it contained, allowing Bank Negara to maintain rates at 3.00% for the rest of the year, BMI says. Risks to growth remain, particularly if China's slowdown worsens or U.S. tariffs further affect Malaysian exports, it warns. (yingxian.wong@wsj.com)

1947 ET - The dollar-yen is likely to stay rangebound between 150-155 in the near term, four members of Nomura's global forex strategy team say in a recent research report. On the one hand, the Bank of Japan's worries over high inflation and its willingness to continue rate increases should limit potential upside beyond 155, the members say. On the other hand, factors such as investor expectations for a possible cease-fire in the Ukraine-Russia conflict may support the currency pair around 150, the members add. USD/JPY is down 0.2% at 151.89. (ronnie.harui@wsj.com)

1930 ET - JGBs edge lower in price terms during the morning Tokyo session, weighed by fears of more BOJ rate increases. Preliminary government data released earlier showed Japan's real GDP grew 0.7% in 4Q 2024 from the prior quarter. The data were much stronger than most had expected, says Capital Economics' Marcel Thieliant in commentary. "It supports our view that the Bank of Japan will tighten policy more aggressively this year than most anticipate," he adds. The JGB 2-year yield is up 1 bp at 0.800%; the 10-year yield is up 1 bp at 1.360%. (ronnie.harui@wsj.com)

1858 ET - As bond traders, economists and politicians all await the outcome of the Reserve Bank of Australia's policy meeting on Tuesday, there's a group of experts within the central bank awaiting news of the comparatively dull topic of 4Q wages growth data on Wednesday. Expected to show wage rises slowing to 3.2% on year from 3.5% on year in the prior quarter, the data will add to the case for the RBA to lower its estimate of full employment from 4.5%. David Bassanese, chief economist at Betashares, says wages data like that would further suggest that unemployment need not rise to 4.5% from 4.0% now to keep inflation contained, as the RBA has long suggested. Rather, it could stay as low as the current 4% rate, he adds. Such a change in thinking would be hugely important for the monetary policy outlook.(james.glynn@wsj.com; @JamesGlynnWSJ)

1838 ET - The case for the Reserve Bank of Australia to cut the official cash rate has been clear since the release of the 4Q CPI report showed retreating core inflation, says David Bassanese, chief economist at Betashares. The economy deserves to be rewarded for its good behavior with a rate cut as soon as possible, he adds. To not cut rates this week would effectively renege on a promise to deliver interest-rate relief once there was sufficient progress on lowering inflation, breaking the hearts of millions of Australians and further undermining the central bank's still-tarnished public reputation, Bassanese adds. So strong is the case to ease policy, the RBA should cut rates by 0.35% to 4.0%, he says. The RBA could follow up this rate cut by playing down the prospect of another cut anytime soon, he says. (james.glynn@wsj.com; @JamesGlynnWSJ)

1816 ET - If the Reserve Bank of Australia does cut interest rates at the conclusion of its two-day policy meeting on Tuesday, one of the key jobs for Governor Michele Bullock will be to manage expectations of further cuts through 2025. One fear the RBA holds is that one cut will result in expectations of a flood of cuts, with some homeowners potentially expecting the official cash rate to fall to something that resembles the emergency lows that existed through the pandemic. Money markets are currently priced for around 75 basis points of cuts this year, a reasonably shallow path that will be welcomed by the RBA. (james.glynn@wsj.com; @JamesGlynnWSJ)

1716 ET - The Reserve Bank of Australia's week is headlined by a decision on whether to cut interest rates or remain on hold. But it is also confronted by a data minefield. 4Q wages growth data on Wednesday and January employment numbers on Thursday could easily combine to challenge the wisdom of the central bank's decision on rates. If it cuts the official cash rate and the data then show recovering wages growth and unemployment stuck at historic lows, questions about the timing of the rate reduction will start. Economists expect the annual rate of wages growth to slow to 3.2%, with unemployment forecast to nudge up to 4.1% from 4.0%. (james.glynn@wsj.com; @JamesGlynnWSJ)

(END) Dow Jones Newswires

February 16, 2025 21:04 ET (02:04 GMT)

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