Yen’s sharp rebound today, triggered by suspected official intervention, is already fading quickly, highlighting the market’s skepticism toward one-off defensive actions. After an abrupt spike higher, the currency quickly lost momentum as traders faded the move. The development is inline with the view that government action alone is insufficient to reverse the broader bearish trend.
Japanese officials offered no confirmation. Finance Minister Satsuki Katayama acknowledged close monitoring of FX markets but avoided addressing speculation that authorities had checked rates with banks. Similarly, Atsushi Mimura, Japan’s top currency official, declined to comment on whether Yen-buying intervention had occurred, or whether rate checks had taken place.
Markets know from experience that intervention only works when it catalyzes a broader shift in positioning, rather than acting as a standalone signal. Without that alignment, intervention typically delays—rather than prevents—the underlying trend. Today’s price action fits that pattern, with selling pressure already returning as initial excitement fades. The broader backdrop remains unfavorable for Yen. Limited policy urgency from the BoJ, and strong risk-on appetite continue to weigh.
In contrast, Canadian Dollar strengthened, extending gains after retail sales surprised to the upside. The data added to evidence that consumer demand stabilized late last year. That strength builds on earlier CPI data showing headline inflation firming in December, which effectively closed the door on further near-term easing by the BoC.
With inflation and activity holding up, markets continues to see the BoC firmly on hold, and while talk of hikes remains premature, the directional risk has clearly shifted away from cuts.
Elsewhere, Kiwi leads performance this week as speculation grows that the RBNZ may deliver a rate hike this year. Aussie follows, buoyed by similar expectations for the RBA, but likely earlier than New Zealand. Swiss Franc ranks third, hinting that residual risk-off sentiment persists, particularly in Europe. At the bottom, Yen remains the weakest currency of the week. Dollar and Sterling also lag, while Euro and Loonie trade in the middle.
In Europe, at the time of writing, FTSE is up 0.06%. DAX is up 0.02%. CAC is down -0.23%. UK 10-year yield is up 0.029 at 4.504. Germany 10-year yield is up 0.008 at 2.896. Earlier in Asia, Nikkei rose 0.29%. Hong Kong HSI rose 0.45%. China Shanghai SSE rose 0.33%. Singapore Strait Times rose 1.31%. Japan 10-year JGB yield rose 0.023 to 2.264.
Canada retail sales rise 1.3% mom in November, but December cools
Canada’s retail sales rebounded strongly in November, rising 1.3% mom to CAD 70.4B, slightly above expectations of 1.2% mom. Gains were broad-based, with sales increasing in eight of nine subsectors, led by higher spending at food and beverage retailers, pointing to resilient consumer demand late in the year.
Underlying momentum was even firmer. Core retail sales, which exclude gasoline and autos, climbed 1.6% mom, suggesting household spending strength extended beyond volatile categories and reflecting solid discretionary demand.
However, the outlook is less upbeat. An advance estimate from Statistics Canada indicates retail sales likely -fell 0.5% mom in December, hinting that November’s surge may not have been sustained.
UK PMI composite jumps to 21-month high, growth kicks up a gear but price pressures stir
UK business activity accelerated sharply in January, with PMI surveys pointing to the strongest momentum in nearly two years. Manufacturing PMI rose from 50.6 to 51.6, a 17-month high, while Services PMI jumped from 51.4 to 54.3, lifting Composite PMI from 51.4 to 53.9, its highest level in 21 months.
According to Chris Williamson of S&P Global Market Intelligence, UK firms “kicked up a gear” despite geopolitical headwinds. The flash PMI reading is consistent with quarterly GDP growth approaching 0.4%, with services—especially financial services and tech—leading the expansion. Manufacturing also showed a gathering recovery, helped by goods exports rising for the first time in four years.
However, the upbeat activity picture is tempered by continued job losses, as firms cut headcount to manage elevated costs. High staffing costs were again widely cited as a driver of higher selling prices, pointing to intensifying inflation pressures above the BoE’s target.
Eurozone PMI composite stalls at 51.5, ECB likely to stay put
Eurozone business activity showed little momentum at the start of 2026, with January PMI data pointing to a fragile and uneven recovery. Manufacturing PMI improved modestly from 48.8 to 49.4, but remained in contraction. Services PMI eased from 52.4 to 51.9, leaving Composite PMI unchanged at 51.5, a level consistent with only modest growth.
According to Cyrus de la Rubia of Hamburg Commercial Bank, the recovery “still looks rather feeble.” Manufacturing continues to signal weakness, while services growth has moderated.
For the ECB, the details are “anything but reassuring”. Services inflation has risen sharply in terms of sales prices, while input cost inflation remains elevated. That dynamic is likely to reinforce the Governing Council’s preference to hold rates steady, with some hawkish members potentially arguing that the next move should be up rather than down.
Country-level divergences persist. Services activity in Germany expanded at a relatively solid pace in January, while French services slipped into contraction. In manufacturing, France marginally outperformed Germany, though output growth in both remains weak.
BoJ holds rates, upgrades growth outlook, hawkish dissent keeps hike risk alive
The BoJ left its benchmark interest rate unchanged at 0.75%, in line with expectations, but the decision revealed persistent internal debate. Hawkish board member Hajime Takata proposed a hike toward 1%, citing upside risks to inflation, though the motion was voted down by the majority.
The central bank maintained its assessment that the 2% inflation target will be achieved in the latter half of the three-year projection period through fiscal 2027, keeping its medium-term normalization narrative intact despite near-term caution.
At the post-meeting press conference, Governor Kazuo Ueda reiterated a data-dependent tightening bias. He said the BoJ would “continue to raise rates if economic and price forecasts materialize”, stressing that the pace and path of hikes would be determined meeting by meeting as conditions evolve.
In its quarterly outlook report, the BoJ upgraded growth forecasts, reflecting the impact of fiscal stimulus under Prime Minister Sanae Takaichi. The economy is now seen growing 0.9% in the current fiscal year and 1.0% next year, up from 0.7% previously. Inflation projections were largely unchanged, aside from a 0.1pp upward revision to 1.9% for fiscal 2026.
The BoJ highlighted risks from overseas growth and prices, adding “exchange rate developments are, compared to the past, more likely to affect prices.”
Japan’s CPI core falls to 2.4% with sharp energy drag, limited core-core cooling
Japan’s December CPI report showed sharp moderation in headline inflation, largely reflecting energy relief rather than broad-based disinflation. Headline CPI slowed to 2.1% yoy from 2.9%, the weakest pace since early 2022. Core CPI (ex-fresh food) fell from 3.0% to 2.4%, helped by government measures to stabilize gasoline prices.
However, the decline was far less pronounced beneath the surface. Core-core CPI (ex-fresh food and energy) edged down just 0.1pp to 2.9% yoy, highlighting the stickiness of domestic inflation. Food prices excluding fresh items remained elevated at 6.7% yoy, though the pace eased slightly from 7.0%. Rice prices were still up 34.4%, even as inflation in the staple continued to cool gradually from prior peaks.
Energy prices were the key drag, reversing into a -3.1% yoy decline as gasoline prices fell -7.1%, reflecting higher subsidies and preparation for a gasoline tax cut late in the month. While these policy measures are temporarily easing inflation readings, the modest pullback in core-core CPI suggests underlying price pressures remain too firm to ignore.
Japan PMI composite jumps to 52.8, manufacturing returns to growth
Japan’s January PMI readings delivered an upbeat signal, indicating a broadening recovery across the private sector, with PMI data pointing to the strongest expansion in 17 months. Manufacturing PMI rose from 50.0 to 51.1, returning to expansion. Services PMI jumped from 51.6 to 53.4. As a result, Composite PMI climbed from 51.1 to 52.8, signaling broad-based growth momentum.
According to Annabel Fiddes of S&P Global Market Intelligence, the data show a “solid start” to the year, supported primarily by accelerating services activity. Also, manufacturing output rose for the first time since June 2025, marking an important shift after a prolonged period of weakness.
The improvement was reinforced by the first increase in manufactured goods sales in more than three-and-a-half years, alongside rise in new export orders for the first time since early 2022.
However, business optimism weakened, reflecting concerns over rising costs, global uncertainty, labour shortages, and Japan’s ageing population, suggesting growth momentum may face headwinds later in the year.
Australia PMI composite surges to 55.0, manufacturing and services in solid expansion
Australia’s business activity accelerated sharply in January, pointing to a strong start to 2026. PMI Manufacturing rose from 51.6 to 52.4, while PMI Services surged from 51.1 to 56.0. As a result, PMI Composite jumped from 51.0 to 55.0, marking the joint-highest level since April 2022 and signaling a broad-based expansion.
According to Jingyi Pan of S&P Global Market Intelligence, the flash PMI data show that growth has become “more balanced”, with “solid expansions evident across both manufacturing and services”. The readings reflect resilient domestic demand and improving momentum entering the new year.
That said, forward-looking indicators were mixed. Faster new order growth contrasted with declining business confidence, particularly among service providers.
While output price inflation eased, driven by softer service-sector charges, rising manufacturing input costs remain a risk factor, suggesting inflation pressures could re-intensify later in the quarter.
NZ CPI pushes above target as RBNZ Breman’s tone shifts
New Zealand inflation accelerated again. Headline CPI rose 3.1% yoy, up from 3.0% and above expectations of 3.0%, pushing inflation back above the RBNZ’s 1–3% target band. It marked the highest annual rate since Q2 2024.
The composition of inflation showed renewed pressure from tradeable prices. Tradeable CPI jumped from 2.2% yoy to 2.6% yoy, while non-tradeable CPI held steady at 3.5% yoy.
On a quarterly basis, CPI rose 0.6% q/q, exceeding expectations of 0.5%, with both tradeable (0.7% qoq) and non-tradeable (0.6% qoq) components contributing.
Notably, RBNZ Governor Anna Breman struck a firmer in a Bloomberg interview, pledging that policymakers will ensure inflation returns to the midpoint of the target band. She declined to push back against market pricing for a rate hike, saying policy decisions would be based on a “holistic view” of incoming data at the February meeting—marking a clear shift from her more neutral comments earlier this month.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.3764; (P) 1.3805; (R1) 1.3826; More…
USD/CAD’s break of 1.3789 support suggests that rebound from 1.3641 as already completed at 1.3927. Intraday bias is back on the downside for retesting 1.3538/3641 support zone. Decisive break there will resume whole down trend from 1.4791. For now, risk will stay on the downside as long as 1.3927 resistance holds, in case of recovery .
In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen as the pattern extends, and break of 1.3538 will target 61.8% retracement of 1.2005 to 1.4791 at 1.3069. For now, medium term outlook will be neutral until there are signs that the correction has completed.
