Bank Of Japan Hikes Rates, Signals More To Come

Central Bank

Forex

Summary:

In a widely expected decision, the Bank of Japan (BoJ) took another step along its monetary policy normalization path at this week’s meeting, raising its policy rate by 25 bps to 0.50%.

The BoJ also forecast underlying inflation to remain at or above its 2% inflation target over the medium term, in our opinion a strong signal of further tightening to come. Comments from Governor Ueda also leaned hawkish, as he said the current policy rate is still far from its “neutral” level, and that he was not considering some specific rate level as a barrier.

Against this backdrop, we continue to forecast a 25 bps rate hike to 0.75% at the BoJ’s April announcement. We now also forecast a final 25 bps rate increase to 1.00% in July, while acknowledging that the timing of that final rate hike could get pushed back depending on how local and global economic conditions evolve. Overall, we think the outlook for Bank of Japan tightening and eventual Fed easing could lead to a reasonably resilient yen through 2025, with more sustained and substantial yen weakness perhaps more likely in 2026 as the U.S. economy recovers.

Bank Of Japan Takes A Further Step Along Its Monetary Policy Normalization Path

In a widely expected decision, the Bank of Japan (BoJ) took another step along its monetary policy normalization path at this week’s meeting, raising its policy rate by 25 bps to 0.50%. In raising interest rates, the BoJ said growth and inflation have been developing generally in line with its forecasts, and also cited reasons for a firming in wage and price trends. The BoJ said:

There have been many views expressed by firms stating that they will continue to raise wages steadily in this year’s annual spring labor-management wage negotiations; and

With wages continuing to rise, there has been an increase in moves to reflect higher costs, such as increased personnel expenses and distribution costs, in selling prices.

The Bank of Japan also noted relative stability in global financial markets, saying “while attention has been drawn to various uncertainties, global financial and capital markets have been stable on the whole, as overseas economies have followed a moderate growth path.”

The Bank of Japan’s encouraging assessment of recent economic trends was also reinforced by upward revisions to its economic outlook. While the forecasts for GDP growth were little changed, there were some notable upward revisions to the central bank’s inflation forecasts. CPI ex-fresh food inflation is forecast at 2.7% for FY2024 (previously 2.5%), 2.4% for FY2025 (previously 1.9%) and 2.0% for FY2026 (previously 1.9%). In a similar vein, the outlook for CPI ex-fresh food and energy inflation was revised higher to 2.2% for FY 2024 (previously 2.0%), 2.1% for FY2025 (previously 1.9%) and 2.1% for FY2026 (unchanged). The forecast for Japan’s underlying inflation to remain at or above the central bank’s 2% inflation target over the medium term is, in our opinion, a strong signal of further tightening to come. The Bank of Japan indicated as much in its monetary policy announcement, saying that:

Given that real interest rates are at significantly low levels, if the outlook for economic activity and prices presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.

Hawkish Comments Hint at a Higher Terminal Policy Rate

In addition to the Bank of Japan’s announcement, in our view, comments from Governor Ueda also point to multiple further rate hikes from the Bank of Japan over the balance of 2025. Ueda said he expected solid results from this year’s spring wage negotiations, a development we think would be supportive of another rate increase in April. Ueda also suggested global markets have been relatively calm in the initial days of President Trump’s administration. Interestingly, Ueda also said that even after this week’s rate increase, the current policy rate is still far from its “neutral” level, and that he was not considering some specific rate level as a barrier. He indicated that one BoJ analysis suggested the neutral rate could be somewhere between 1.00% and 2.50%. So long as overall economic trends remain encouraging, we view those comments as consistent with the BoJ eventually raising its policy rate to 1.00%, perhaps by its July announcement.

Regarding recent economic trends, labor cash earnings rose 3.0% year-over-year in November and expectations for this year’s spring wage talks are upbeat. Inflation also remains elevated, with CPI ex-fresh food inflation at 3.0% year-over-year in December. Sentiment surveys, most notably the Tankan survey, have generally improved in recent quarters, consistent with steadier economic growth ahead. While these encouraging economic trends remain in place, and with global economic conditions perhaps more benign during the early part of this year as the U.S. economy advances at a steady pace and with Fed policy on hold, we view these conditions as most conducive for further Bank of Japan rate hikes. Against this backdrop, we continue to forecast a 25 bps rate hike to 0.75% at the BoJ’s April announcement. We now also forecast a final 25 bps rate increase to 1.00% in July, while acknowledging that the timing of that final rate hike could get pushed back depending on how local and global economic conditions evolve. Overall, we think the outlook for Bank of Japan tightening and eventual Fed easing could lead to a reasonably resilient yen through 2025, with more sustained and substantial yen weakness perhaps more likely in 2026 as the U.S. economy recovers.

Source: ACTIONFOREX

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Owen Li

Energy

Asian energy markets are facing heightened uncertainties as prices swing over the latest Western sanctions targeting Russian oil shipments and US President Donald Trump’s push to expand American oil output, with analysts cautioning the volatility may persist for months.

India and China, two of the world’s largest oil consumers, are facing the brunt of the impact after the US and the UK imposed the sanctions, analysts say.

Trump declared on Monday – his first day in office – that the US was facing a national energy emergency, signalling that the world’s largest oil producer might increase its output.

Benchmark Brent crude oil prices rose to US$80 per barrel in mid-January in the wake of the sanctions from US$73 on Christmas and have since fallen to US$79.13 as of Wednesday evening.

Earlier this month, the outgoing Joe Biden administration said it was imposing sanctions on more than 200 entities and individuals involved in the sale and transport of Russian oil, including 183 vessels that it believed were part of a shadow fleet that had evaded an earlier round of similar sanctions.

The UK government also imposed sanctions on Gazprom Neft and Surgutneftegas, two of Russia’s largest energy companies, saying their profits were “lining [Russian President Vladimir] Putin’s war chest and facilitating the war” in Ukraine.

Source:scmp

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Winkelmann

Economic

Sales of previously owned homes in the US rose for the third straight month in December, entering 2025 with some momentum after the worst year in nearly three decades.

Contract closings of existing homes last month increased 2.2% to an annualised rate of 4.24 million, the most since February, according to National Association of Realtors data released on Friday. That was in line with the estimate of economists surveyed by Bloomberg.

The third straight pickup in monthly sales — the longest streak since late 2021, when mortgage rates were less than half of where they are now — signals that homeowners and buyers alike have come to terms with borrowing costs around 7%. The new-home market also appears to be stabilising, providing some early signs of optimism for the new year.

“Home sales in the final months of the year showed solid recovery despite elevated mortgage rates,” NAR chief economist Lawrence Yun said in a prepared statement.

However, for all of 2024, sales reached the lowest since 1995, when the US had about 70 million fewer people. It marked the third straight annual decline, stretches only ever seen in the 2006 housing crisis as well as the recessions around the early 1980s and 1990s.

“The prospects for this year look better, but not by much as the triple threat of high mortgage rates, high home prices and low supply will continue,” Robert Frick, corporate economist at Navy Federal Credit Union, said by email.

The median sale price, meantime, climbed 6% over the past 12 months to US$404,400 (RM1.8 million), reflecting more sales activity in the upper end of the market. That helped propel prices for the entire year to a record.

After slowly creeping up for months, inventory dropped 13.5% in December from the prior month — which is typical at the end of the year. It’s still up 16.2% from December 2023.

Fed cuts

There was hope that 2024 could be a turning point for the housing market as the Federal Reserve started cutting interest rates. But mortgage rates track government bond yields, which rose nearly a full percentage point towards the end of the year after inflation proved stubborn, fueling concerns that officials eased policy too soon. They’re expected to keep rates steady at next week’s meeting.

Treasury yields are still elevated as investors brace for the cost of President Donald Trump’s policies and price pressures are cooling only somewhat. That’s projected to keep mortgage rates on average above 6% through at least 2027, according to some estimates.

In December, 53% of homes sold were on the market for less than a month, unchanged from November, while 16% sold for above the list price. Properties stayed on the market for 35 days on average, compared with 32 days in the previous month.

Existing-home sales account for the majority of the US total and are calculated when a contract closes. The government will release figures on new-home sales on Monday.

Separate data on Friday showed US business activity cooled this month on a slowdown in services, while consumer sentiment declined due to concerns about unemployment and potential tariffs’ impact on inflation.

Source: Theedgemarkets

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Economic

The economy demonstrated robust GDP growth, the stock market showed moderate gains, and bonds attracted foreign inflows. Against this backdrop, the India outlook for 2025 is optimistic. India’s solid economic expansion, minimal reliance on Chinese and US consumer markets, strong domestic demand for equities, and a central bank committed to maintaining currency stability are expected to enhance the nation’s attractiveness to investors amid global uncertainty, according to analysts.

Compared to 8.2% GDP growth in 2023, India‘s economy is losing some steam but is still the fastest-growing major economy, with a forecast of 7% in 2024 and 6.5% in 2025, according to IMF forecasts.

The re-election of Donald Trump in the United States has stirred up markets, and trade tariffs are expected to have the most significant impact on global markets. For India, UBS sees three challenges from trade tariffs: slower global growth, delayed private capex recovery due to China’s manufacturing surplus, and pressure on India’s trade balance from RMB depreciation. However, the investment bank notes that global policy shifts may also create opportunities, bolstering India’s role in ‘China + 1’ supply chain strategies over the medium term.

HSBC AM highlights that India, with its focus on domestic demand and limited reliance on U.S. exports, is among the least affected major economies by global trade disruptions. “Notably, there has been a gradual decoupling of India’s economic and financial markets from major global markets, including the US, Europe and Japan,” the asset manager notes in the 2025 Global Investment Outlook. “This has been demonstrated by a lower correlation of MSCI India with these major markets compared to the past five years, presenting appealing diversification benefits.“

India Outlook: Equities

Eastspring Investments points out that the Indian economy faces some cyclical challenges but says India’s equity market presents a structural opportunity. “Ongoing reforms, rising urbanisation, and supply chain shifts are expected to support India’s economic and earnings growth over the longer term,” the asset manager states.

Matthews Asia notes a recent pullback in earnings growth, which caused a small correction in the market. “The weakness in earnings has been fairly consistent across the board but the main impact has been in the mid- and small-cap space and in consumer segments. We believe earnings expectations for mid- and small-cap companies were too high, while the earnings of consumer-facing companies were weak. India remains an expensive market but fundamentally we still favour areas that are producing good earnings,” says Sean Taylor, Chief Investment Officer, Matthews Asia.

The Indian equity market reached over $4 tn in valuation in 2024 for the first time.

Kenneth Ng, Portfolio Manager with the Asian Equities team at Lion Global Investors, sees India as “one of the structural stories of the coming decade”. “India has given 14% compounded returns over the last twenty years, and we see enough catalysts for it to still repeat that in the next twenty,” the portfolio manager says.

India Outlook: Bonds

Investment experts believe that Indian bonds will perform well in 2025. The expected interest rate cuts by the central bank in response to the slowdown in economic growth sustained foreign inflows linked to index inclusion, and steady demand from local pension and insurance funds should increase the attractiveness of Indian government bonds.

In June 2024, JP Morgan began including Indian government bonds in its Emerging Market Global Bond Index (JPM GBI EM). Gradually adding 1% each month, Indian bonds will hold a total weight of 10% in the index upon conclusion on March 31, 2025. According to clearing house data, this triggered net inflows from overseas investors of about $14.5 bn.

“For 2025, foreign inflows into the Indian government bond market are expected to remain strong but may not match the record levels of 2024,” says Wei Li, Portfolio Manager at BNP Paribas Asset Management, citing inflation expectations, policy adjustments and global market fluctuations as reasons.

Schroders highlights that the ten-year local government bond yields in India (6.9%) are well-positioned to provide potentially high returns in 2025. “However, it’s important to consider active hedging of currency risks in these local bond markets, especially given the current strength of the US dollar and the potential for a renewed global trade war following the inauguration of the new Trump administration in early 2025,” cautions Abdallah Guezour, Head of Emerging Market Debt at Schroders.

Source：asia fund managers

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Economic

Between 2010 and 2019, the country’s average annual gross domestic product (GDP) growth was a robust 6.4%.

The pandemic, however, significantly disrupted this growth trajectory, with the economy contracting by a record 9.6% in 2020. Prolonged lockdowns to contain Covid-19 resulted in sharp declines in consumption, investment, exports, tourism, and remittances.

The recovery was swift, with the economy expanding by 5.7% in 2021 and accelerating to 7.6% in 2022, surpassing pre-pandemic levels. In 2023, GDP growth moderated to 5.6%, reflecting a normalisation of economic activity. The IMF projects continued resilience, forecasting growth of 5.8% for 2024 and 6.1% for 2025. Philippine Economy_1

The Philippines’ population currently stands at approximately 114.3 million, with a median age of 25.7 years (2024), highlighting a young and vibrant workforce.

The Philippines’ unemployment rate showed a general decline throughout 2024, indicating improvements in the labour market. It stood at 3.6% in November.

Currency and Central Bank

The Philippine peso (PHP), locally known as piso in Filipino, is the country’s official currency. It is subdivided into 100 centavos or sentimos. Before 1967, Philippine money featured the English term peso; this was changed to the Filipino language as part of cultural and linguistic reforms.

The Bangko Sentral ng Pilipinas (BSP), serves as the country’s central bank. The BSP was established in 1993 in accordance with Republic Act 7653 or the New Central Bank Act of 1993. This was later amended under Republic Act 11211 or the New Central Bank Act of 2019.

In 2024, the

Philippines achieved an average inflation rate

of 3.2%, aligning with the Bangko Sentral ng Pilipinas (BSP)’s target range of 2% to 4%. This marks a significant improvement from the 6.0% average inflation rate recorded in 2023.

Industry and Trade

Services, industry, and agriculture are the main sectors of the Philippine economy.

The services sector is the largest contributor to the country’s GDP, accounting for approximately 62% of the total output. Significant growth was observed in telecommunications, business process outsourcing (BPO), and finance. The BPO industry, in particular, continued to thrive due to the country’s high English proficiency, educated workforce, and cost advantages.

The industry sector contributes around 28% to the GDP. Key manufacturing activities included food processing, cement, glass, chemical production, and iron and steel manufacturing. The Value of Production Index (VaPI) for manufacturing showed a year-on-year increase of 5.9% in April 2024, indicating a rebound in industrial output.

Lastly, the agricultural sector’s contribution to the GDP has continued to decline in recent years and is currently at about 9%. However, it still provides employment for almost 24% of the labour force. Major agricultural products included coconut, sugar, and rice. The sector faced challenges such as weather disturbances and fluctuating commodity prices, impacting overall productivity.

The Philippines aim to boost exports and strengthen the country’s economic standing on the global stage. Key export products including integrated circuits, office machine parts, insulated wire, semiconductor devices, and electrical transformers. A partnership by the Department of Trade and Industry (DTI) and the Department of Agriculture (DA) aims to unlock the full potential of the agriculture and fisheries sector, actively promoting Philippine products in international markets.

The top export partners of the country are China, the United States, Japan, Hong Kong, and Singapore. On the import side, China, Japan, South Korea, the United States, and Singapore are the biggest trading partners. Major imports comprise integrated circuits, refined petroleum, cars, crude petroleum, and broadcasting equipment.

Stock Exchanges and Capital Markets

The Philippine Stock Exchange was established through the merger of the Manila Stock Exchange and the Makati Stock Exchange in 1992, is the country’s sole stock exchange and one of the oldest in Asia, with origins dating back to 1927.

The PSE Composite Index or PSEi is the main index of the Philippines. It comprises 30 of the largest and most active stocks listed on the exchange, selected based on criteria such as public float, liquidity, and market capitalization.

The PSE has a total market capitalisation of $344.875 bn in December 2024. Exchange-Traded Funds (ETFs) are offered via the First Metro Philippine Equity Exchange Traded Fund, Inc.

Bond Market

The Philippine domestic bond market comprises both short- and long-term instruments, predominantly issued by the national government, with treasury notes and bonds leading the market. While the corporate bond segment remains smaller in comparison, it has experienced significant growth over the years.

In the third quarter of 2024, the local currency bond market expanded by 3.8% quarter-on-quarter, reaching a total of PHP 13 trillion. This acceleration was driven by increased issuances across all bond segments, supported by the Bangko Sentral ng Pilipinas’ (BSP) dovish monetary policy stance.

In May 2024, the Philippines returned to the international capital markets, successfully issuing $2 bn in dual-tranche 10-year and 25-year dollar-denominated global bonds. The 25-year tranche was issued under the Republic’s Sustainable Finance Framework, marking the country’s fifth G3 ESG bond offering.

Building on the success of its maiden $1 bn 5.5-year Sukuk bond issued in December 2023, the Philippine government plans to issue another Sukuk bond in 2025. This initiative aims to develop the Islamic finance market and attract Shariah-compliant investments, reflecting the country’s commitment to diversifying its investor base and financial instruments.

Real Estate Market

The Philippine real estate market has experienced significant fluctuations over the past decade, influenced by various economic and global factors.

Between 2010 and 2018, the market saw substantial growth, driven by economic expansion and a burgeoning middle class. However, challenges such as the US-China trade tensions and the Covid-19 pandemic led to a slowdown in 2019 and 2020. By the end of 2020, the Philippines was among the worst-performing markets in the Global Residential Real Estate report.

Recovery commenced in 2022, with the average price of luxury 3-bedroom condominiums in Metro Manila’s central business districts rising by 3.98% to PHP 203,550 (US$3,571) per square meter, according to Colliers International.

In 2024, the market continued its rebound, supported by the government’s projected GDP growth of 6% to 7%. However, sustained high inflation rates posed potential challenges, particularly concerning interest and mortgage rates.

Source：asia fund managers

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Risk Warnings and Disclaimers

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Winkelmann

Cryptocurrency

Bitcoin hodlers continuing to accumulate during price declines, along with short-term holders buying more during price surges driven by FOMO (fear of missing out), sets a “bullish tone” for 2025, according to a crypto analyst.

Long-term Bitcoin (BTC) hodlers (LTH) — those who have held their Bitcoin for more than 155 days — dominance “remains high, signaling strong long-term conviction,” CryptoQuant contributor IT Tech said in a Jan. 24 analyst note. He said:

“They continue to accumulate during price declines and strategically take profits during upward trends.”

Short-term holder behavior is setting a ‘bullish tone’ for 2025

Meanwhile, IT Tech said that Bitcoin short-term holders — those who have held their Bitcoin for less than 155 days — seem more confident about buying into the market’s upside momentum, making him more optimistic about Bitcoin’s price over the next 12 months.

Bitcoin Short-term Holders 'Fomo-Driven Entries' Sets Bullish Outlook_1

Bitcoin is trading at $104,390 at the time of publication. Source: CoinMarketCap

He said that short-term holders jumping in most when Bitcoin’s price is on the rise signals they’re “FOMO-driven entries.”

“Short-term holders acting on speculation, sets a bullish tone for 2025,” he said.

Throughout January, Bitcoin has hovered around the psychological $100,000 price level, dipping below it a few times while briefly reaching a new all-time high above $109,000 on Jan. 20, just ahead of Donald Trump’s inauguration as US president.

At the time of publication, the average long-term holder's cost is $24,639 per Bitcoin, which represents the average hodler is in profit of more than four times that amount, as per Bitbo data.

Bitcoin’s current price is $104,390, as per CoinMarketCap data.

Bitcoin Short-term Holders 'Fomo-Driven Entries' Sets Bullish Outlook_2

Bitcoin long-term realized price is $24,639 at the time of publication. Source: Bitbo

The short-term realized price is $90,541. Data from Checkonchain, a Bitcoin onchain analysis program, indicated that 80% of short-term holders were back in the profit bracket after BTC’s recovery above $100,000. Earlier this month, the STH supply in loss dropped to 65% before Bitcoin rebounded.

LTH profit-taking creates accumulation opportunities

Meanwhile, IT Tech explained that occasional sell-offs by long-term holders shouldn’t be a cause for concern, as they can “create healthy pullbacks, offering opportunities for new accumulation,” he said.

According to a separate Jan. 24 analysis by CryptoQuant contributor “Crazzyblockk,” long-term holders are “largely avoiding significant selling, reinforcing a strong HODLing sentiment despite current market fluctuations.”

The analyst said that recent on-chain data revealed that only 18% of Bitcoin deposits into crypto exchange Binance come from long-term holders.

Source: COINTELEGRAPH

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Thomas

Cryptocurrency

Just four days after his inauguration, US President Donald Trump is starting to make good on his promises to the crypto market.

After heading into office with a brazen husband-and-wife double act ‘memecoin’ issuance, there was little doubt that Trump would fervently back the crypto market. He followed through on that signal, with an executive order entitled ‘Strengthening American Leadership in Digital Financial Technology’ on Thursday.

As is the case with most executive orders, it is light on firm policy detail. However, it does make a number of important promises.

First, it promises to promote access to public blockchain networks. At present, many institutions, particularly banks, find it difficult to interact with public blockchains because their open nature make them hard to draw regulatory perimeters around. When anyone can participate in a network, know-your-customer checks becomes all but impossible to enforce.

This, combined with the Securities and Exchange Commission’s withdrawal of its controversial Staff Accounting Bulletin 121 (which made crypto a distinct asset class, requiring banks to treat cryptoassets held in custody as a liability and hold an asset against them) opens the door for traditional financial institutions to begin offering crypto services to their clients.

The SEC has also established a crypto taskforce, headed by the well-respected commissioner Hester Peirce. The Commodities and Futures Trading Commission has yet to establish its own cryptoasset regulatory body despite the fact that key legislation presently in Congress would place crypto markets under the CFTC’s supervision.

The convergence of cryptoassets and traditional finance – though contrary to crypto purists’ anti-bank ethos – is likely to provide the boost to crypto-markets that many predicted following Trump’s election victory in 2024.

Second, Trump’s executive order highlights ‘protecting and promoting fair and open access to banking services’, which is a veiled allusion to ending the practice of crypto debanking. Many in the crypto industry have found it difficult to secure banking relationships with reputable US institutions, typically due to banks’ risk management frameworks. How exactly the Trump administration intends to see these rewritten remains to be seen, but it is safe to assume that crypto and traditional banking’s relationship will grow closer.

Third, the executive order hammers a final nail into the coffin of a US central bank digital currency, citing concerns that it would ‘threaten the stability of the financial system’. This assertion has mostly been discarded by the central banks of the rest of the world, whether or not they intend to issue CBDCs. It is mostly asserted by banks that perceive themselves as at risk from disruption by CBDCs.

A likely future for CBDCs and stablecoins

It is also interesting to note that the executive order’s definition of CBDC (‘a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank’) is so broad as to include not only retail and wholesale CBDCs, but also FedWire, the Federal Reserve System’s own wholesale payments service.

While this seems to preclude wholesale CBDC, the Fed may find a way to proceed with finding a means of representing central bank money digitally for use in financial markets or for interoperation with foreign central banks to improve cross-border payments. Such projects may find it beneficial to rid the label of ‘CBDC’ to ensure they are palatable to US authorities, but the legislative efforts so far (the CBDC Anti-Surveillance State Act) are primarily focused on retail CBDCs.

On the other hand, the executive order’s mention of stablecoins as a means of promoting and protecting the dollar’s sovereignty might suggest that the new administration will back private sector efforts to ensure that tokenised cash settlement and cross-border payments is carried out by stablecoins.

If so, that could result in a major divergence in the US from international efforts to bring central bank money onto unified ledgers. This risks seriously devaluing these projects since the dollar holds such an enormously important role in financial markets. For the Bank for International Settlements’ Project Agorá and its ilk to proceed without the dollar would lessen their value. It would also require a major pivot in their design principles to incorporate stablecoins instead of US central bank money.

What Trump 2.0 means for crypto

Trump’s pro-crypto stance will be divisive. Even among fans of the asset class, the issuance of the Trump memecoin (while retaining 80% of the supply) has drawn criticism as a brazen cash grab typifying the worst form of profiteering opportunism that has given the industry a bad name.

The executive order also revives Trump’s campaign promise of a ‘strategic bitcoin reserve’, the main purpose of which appears to be the enrichment of bitcoin holders.

But the removal of the obstructive approach that characterised Joe Biden’s administration (not to mention the much-criticised former SEC chair Gary Gensler’s ‘regulation by enforcement’ attitude to crypto rule-making) creates an environment where cryptoassets and the businesses that serve them can thrive in the US. The EU enjoyed a brief period of relative appeal thanks to the clarity of its Markets in Crypto-Assets Regulation, but the US, already home to the lion’s share of the industry’s talent, is ready to kick into gear.