Week in review
- U.S. headline inflation rose 2.7% y/y in December
- China total social financing slowed to RMB 2210 bn in December
- Bank of Korea kept policy rates at 2.50%
Week ahead
- U.S. PCE index
- China 4Q GDP growth
- Bank of Japan interest rate decision
Thought of the week
The Japanese yen and Korean won remained under pressure this year, with both briefly testing the 159 and 1470 levels respectively last week before reversing modestly. This currency weakness stands in marked contrast to the robust performance in domestic equity markets, with the equity-currency return correlation dipped into negative territory for Japan and declining to historically low levels for Korea. While the policy trajectory under PM Takaichi’s administration may continue to elevate market expectations of an inflationary fiscal expansion in Japan, potentially sustaining the low-to-negative correlation between equity and currency returns, policy developments in Korea are increasingly orientated toward incentivizing capital repatriation and addressing the substantial capital outflows witness last year, which could moderate or reverse this declining correlation. Nevertheless, these policy shifts continue to create a constructive backdrop for both equity markets. And despite the remarkable rally thus far, their valuation discounts to other developed markets signal more scope for further upside rerating, albeit the implication on currency hedge may differ between the two markets.
Correlation between currency movement and domestic equity performance
Rolling 52-week return
Source: FactSet, MSCI, J.P. Morgan Asset Management. Data reflect most recently available as of 16/1/26.
Market data
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All returns in local currency unless stated otherwise.
Currencies’ return are based on foreign currencies per U.S. dollar. An appreciation of the foreign currency against the U.S. dollar would be positive and a depreciation of the foreign currency against the U.S. dollar would be negative.