- The topic of the day for the last session in Asian markets this week is the BoJ's decision to raise interest rates by 25bp. The key interest rate rose to 0.5% from 0.25% in line with market expectations.
- The bank raised its forecast for price inflation and indicated that this was due to positive trends toward wage increases. The BoJ indicated that it intends to continue the process of raising interest rates.
- The very tone of the report after the decision was hawkish. Core CPI inflation for the full year 2025 is expected to be at 2.4%, compared to 1.9% previously. This is a big jump, and the BoJ further admonished that Japan's real interest rate is “clearly low.”
- Further supporting the narrative of further hikes was Japan's CPI reading for December, which came in at +3.6% (+3.4% was expected, 2.9% previously)
- In reaction to the decision and the news regarding it, the Japanese yen gained against the US dollar and the USDJPY pair is currently trading near the 155.200 zone (losing 0.49% intraday).
- However, the reaction is not excessive in nominal terms, bearing in mind additionally that Donald Trump made a mild statement today about imposing tariffs on China.
- The president said: “We have one very big power over China, and that is tariffs, and they don't want them, and I'd rather not have to use them, but it is a huge power over China.”
- In a way, these words may suggest that the president is still not convinced that these higher tariffs will actually have to be imposed, which further weakened the U.S. dollar by indicating the possibility of trade cooperation between the two countries.
- With the start of the session in Europe and the US, the theme will change to PMI data for January.
- Bitcoin and precious metals are gaining this morning while slight declines are seen in natural gas. Stock futures are pointing to a higher opening in the cash session, after China's Hang Seng index gained nearly 2% today. In the FX market, the U.S. dollar, mentioned earlier, is the worst performer, and we see the biggest rebound in Antipodean currencies.
Heatmap showing volatility in the FX market today. Source: xStation
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