Market Overview

• Markets experienced declines as investors anticipated the U.S. trading to fully restart after the holiday break.

• In New Zealand, the latest data surprised positively, with the services PMI moving back into expansion territory, which in turn bolstered the NZ dollar and provided support for the Australian dollar.

• Japan faced worsening conditions in its bond market, mainly driven by worries about public finances and tax cuts, leading to the yield on 40-year bonds rising to 4%.

• China maintained its loan prime rates and enforced a notable correction in the yuan, while also increasing purchases of U.S. soybeans.

• Geopolitical issues continued to make headlines, especially after President Trump suggested he might have received incorrect information regarding troop movements in Greenland.

• The yield on 10-year U.S. Treasuries continued its ascent, reaching a four-month high.

It was a trading environment characterized by limited data and a tentative atmosphere, as markets awaited a complete reopening in the U.S. after the holiday on Monday.

In December, New Zealand’s services sector bounced back with a PSI increase to 51.5, marking an end to 21 months of decline. This followed last week’s recovery in the manufacturing PMI and hinted at economic stabilization. The NZD/USD pair gained traction, with AUD/USD also rising as the session wore on.

The yen fluctuated within a narrow range, but Japan’s bond market came under more pressure. The yield on 40-year government bonds reached 4%, the highest point since a 2007 bond sale, marking a 30-year milestone for the country’s bond yields. This trend underscores growing concerns about fiscal sustainability, especially regarding proposed cuts to food sales tax. The Centrist Reform Alliance’s plan to fund a zero food tax through a new government-linked fund has raised red flags among investors.

In China, the People’s Bank of China kept both the one-year and five-year loan prime rates steady for the eighth month, revealing a preference for targeted easing over broader interest rate cuts, which are expected later in the first or second quarter. Subsequently, the USD/CNY benchmark rate was set at the highest level for the renminbi since May 18, 2023, and USD/CNH saw a depreciation soon after.

In another development, traders disclosed that China had purchased around 12 million tons of U.S. soybeans over the last three months, meeting a significant trade commitment established by the Trump administration in November.

On the geopolitical front, President Trump acknowledged in a call with British Prime Minister Keir Starmer that he might have received “bad information” about deploying European troops to Greenland. British officials noted that although significant disagreements remain between the U.S. and Europe, there is potential for easing tensions.

Looking ahead, President Trump is slated to make a special speech at the World Economic Forum in Davos on January 21, 2026, from 13:30 to 14:15 Japan time.

Overall, the major currency pairs traded somewhat steadily, with the market largely maintaining a consolidation phase.

Asia Pacific Stocks

• Japan (Nikkei 225) -1.14%
• Hong Kong (Hang Seng) -0.08%
• Shanghai Composite -0.12%
• Australia (S&P/ASX 200) -0.66%

Japan’s Nikkei average declined for the fourth consecutive session: