A person flies a dragon shaped kite on the Bund in front of buildings in Pudong's Lujiazui Financial District in Shanghai, China, on Tuesday, 9 January 2024. (Photo: Qilai Shen/Bloomberg) 
Shares fell in South Korea, Japan and Australia, while Chinese equities traded in Hong Kong erased an early drop as the city’s markets reopened following the Lunar New Year holiday. The yen gained as much as 0.2% to 150.51 per dollar after Masato Kanda, Japan’s top currency official, cautioned that recent movements have been rapid, and authorities stand ready to take steps if needed.
“Remarks from the authorities probably put a cap on the dollar-yen today, but they were not intense enough to change the course of the pair,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. “The bigger impact to cause the dollar’s slight decline and the yen’s rebound is a halt in US Treasury yields in Asia and a drop in Japanese equities.”
Treasury yields steadied after soaring on Tuesday as traders trimmed bets for an early Federal Reserve interest-rate cut. Japan’s 10-year government bond yield climbed to the highest level since December, while a gauge of the dollar traded near a three-month high. Yields on Australian and New Zealand debt also advanced.
“The BOJ pushback last week on tightening expectations was a reality check for markets that had gone far in expecting a BOJ pivot,” said Charu Chanana, head of foreign-exchange strategy at Saxo Bank. “So (the) yen now has a double whammy of adjusting to more modest BOJ tightening expectations and a delay in Fed rate cuts.”
The Golden Dragon index of US-traded Chinese companies fell 2.7% on Tuesday, its biggest decline in almost a month, while China remains closed for Lunar New Year holidays. Swap traders ratcheted down their expectations for a Fed cut before July while the stock market’s “fear gauge” — the VIX — surged the most since October. US equity futures were little changed.
The CPI data came as a disappointment for investors after a recent downdraft in price pressures that helped build expectations for rate cuts this year. The numbers also gave credence to the wait-and-see approach highlighted by Jerome Powell and a chorus of Fed speakers.
“Today’s CPI report caught a lot of people off guard,” said Chris Zaccarelli at Independent Advisor Alliance. “Many investors were expecting the Fed to begin cutting rates and were spending a lot of time arguing that the Fed was taking too long to get started – not appreciating that inflation could be sticky and not continue down in a straight line.”
Swap contracts referencing Fed policy meetings — which as recently as mid-January fully priced in a rate cut in May and 175 basis points of easing by the end of the year — were roiled. The odds of a May cut dropped to about 32% from about 64% before the inflation data, with fewer than 90 basis points anticipated this year.
“While the door for a March cut had already been effectively shut given the recent Fed commentary and the jobs reports, the Fed has now locked the door and lost the key,” said Greg Wilensky at Janus Henderson Investors.
In other markets, oil edged lower from the highest close in two weeks following an industry report which flagged a substantial build in US crude stockpiles. Gold steadied after plunging below $2,000 an ounce for the first time in two months while Bitcoin traded near its $50,000 milestone