Asia FX & Rates: JGB Yields Spike vs. China Capital Inflows

Asian financial markets are witnessing a divergence in capital dynamics as Q1 2026 unfolds. While Japan faces rising sovereign yields, broader Emerging Markets (EM)—specifically China—are actively attracting foreign capital despite global headwinds.

Japan: Yield Pressures Mount

HSBC Asset Management reports a significant surge in long-dated Japanese Government Bond (JGB) yields as of January 2026. The move suggests growing market skepticism regarding the sustainability of Japan's low-rate environment amid fiscal concerns.

For the Japanese Yen (JPY), rising domestic yields typically offer support; however, if the rise is driven by debt sustainability fears rather than economic growth, it could lead to volatility in USD/JPY. The widening spread puts the Bank of Japan in the spotlight as traders assess the potential for policy normalization.

Emerging Markets: The China Rotation

Risk appetite for Emerging Market assets remains resilient. Data indicates that EM ETFs have recorded their 14th consecutive week of net inflows, adding $6.83 billion in the week ending January 23.

• China absorbed $1.65 billion of the weekly total, led by flows into the iShares Core MSCI Emerging Markets ETF.
• Global allocators finding value in Chinese equities may stabilize the Yuan (CNY) against the dollar.

SGD Policy Outlook

• DBS Bank projects policy stability for the Monetary Authority of Singapore (MAS).
• Limited downside expected for USD/SGD, expecting support to hold above the 1.2675 level.