Big Central Bank Day Ahead

Central Bank

Economic

Summary:

In focus today

A packed European central bank day kicks off with the Riksbank decision at 9:30 CET. We expect a 25bp cut to 2.50% and that the central bank will maintain a message of more cuts at the beginning of 2025. Following the November decision to cut by 50bp to 2.75%, the communication has been that the September rate path largely holds. We expect the new rate path to signal an endpoint of around 2.10%.

We expect Norges Bank to keep the policy rate unchanged at 4.5% and to signal that the first cut is most likely to be delivered in March. The decision will be published at 10:00 CET. We expect that the rate path will be marginally adjusted upwards and indicate between three and four rate cuts next year and a policy rate of just over 2.5% towards the end of the forecast period. This is well in line with the current market pricing for next year, but significantly lower for 2026-27.

For the Bank of England (BoE) decision at 13:00 CET, we expect the Bank Rate to be kept unchanged at 4.75% in line with consensus and market pricing. We pencil in a vote split of 8-1. Note, this meeting will not include updated projections nor a press conference. In 2025, we expect cuts at every meeting starting in February and until H2 2025 where we pencil in a slowdown to only quarterly cuts. This leaves the Bank Rate at 3.25% by end-2025.

Today’s data calendar is light with the US Philly-Fed business sentiment indicator for December being one of few highlights. In Sweden, the social partners within the industry exchange demands for the 2025 wage negotiation this morning.

Economic and market news

What happened overnight

Bank of Japan (BoJ) chose to keep rates unchanged, which was in line with market pricing and our call. The vote split was 8-1. The economic recovery in Japan looks on track, real wages have at least stopped falling and inflation is close to target. Thus, there is a sound case for hiking rates. The need for yen-support however seemed a bit less acute and the cost of postponing to January had come down. At least that was the case before the hawkish Fed turn yesterday. The yen has had some rough hours, sliding another 1% vs. the USD, first on the FOMC meeting and then the BoJ announcement. If anything, Governor Ueda will probably take a hawkish tone on the press conference to avoid adding further to the yen slide. We expect the BoJ will hike by 25bp in January.

What happened yesterday

The Federal Reserve cut the policy rate target by 25bp to 4.25-4.50% at last night’s meeting, yet Chair Powell struck a very hawkish tone on the outlook. Policy has entered ‘a new phase’, and barring major downside data surprises, the Fed expects a slower pace of rate cuts starting from January. The updated median dots now project only a single 25bp cut every six months for the next 2.5 years, while the longer-term dot was raised by 0.1pp to 3.0%. We have revised up our forecast for the Fed funds rate, and now expect only quarterly 25bp cuts from Mar/25 onwards. We maintain our terminal rate forecast at 3.00-3.25% (reached in Mar/26, prev. Sep/25). See Fed review: In a new phase, 18 December.

In the UK, inflation surprised slightly to the downside in November but overshot the BoE’s forecast. Headline came in at 2.6% y/y (consensus: 2.6%, prior: 2.3%, BoE: 2.4%), core at 3.5% y/y (consensus: 3.6%, prior: 3.3%) and services at 5.0% y/y (consensus: 5.1%, prior: 5.0%, BoE. 4.9%). While service inflation momentum slowed, our own measure of core services, which excludes volatile components, increased slightly after edging lower the past many months. Service inflation is likely to stay around 5% for the next couple of months, arguing for a more gradual approach from the BoE.

In US politics, incoming President Trump warned fellow Republicans of potential ousting if they chose to support House Speaker Johnson’s bipartisan funding bill, which would extend the current funding debate until mid-March. Trump insists that the bill should include an increase in the debt ceiling. If new funding is not agreed upon by Saturday, a partial shutdown of the US government could be the consequence.

Equities: Global equities declined sharply yesterday, driven by the US and the hawkish cut from the Federal Reserve, combined with a notable increase in inflation expectations in the Summary of Economic Projections (SEP). US equity markets got all the attention yesterday, as most indices experienced their worst session since the early August turmoil and ended close to the day’s low following the Fed meeting. With the significant turnaround, some of the past winners were sold off the most, particularly in consumer discretionary and auto & components sectors, with Tesla leading the decline, down 8%. Additionally, inflation fears resurfaced, impacting growth stocks and especially small caps, with the Russell 2000 losing 4.4% yesterday. The VIX increased from 16 to 28, which speaks more about investors’ positioning leading into this rather than the Fed change yesterday. As we approach Christmas, this situation becomes more delicate, as many investors likely remember 2018, when equities plummeted in December, accelerating towards Christmas Eve, only to recover the losses in the following three months. While we are in a different macroeconomic and monetary environment this time, we perceive risks for the markets, as investors are heavily loaded on risk and might be tempted to de-risk ahead of the holiday season. In the US yesterday, Dow -2.6%, S&P 500 -3.0%, Nasdaq -3.6%, and Russell 2000 -4.4%. Asian markets are lower this morning, but the movements are rather limited compared to what happened on Wall Street yesterday. US futures are mixed while European fugures are down by 1-1.5%.

FI: US rates rose significantly following yesterday’s hawkish signals from Powell. The UST curve trades about 13-15bp higher this morning, which will of course have implications for the EUR rates markets today. As market-based inflation expectation measures are (roughly unchanged), yesterday’s strong increase in yields and deep drop in equities has left US financial conditions significantly tighter. If this spills over to the EUR market, it could warrant a softer tone from the ECB at the coming period. The pricing of Fed cuts next year is about 20bp lower with only 35bp priced until end-2025. The EUR curve was roughly unchanged with the action happening after the close.

FX: FOMC decided to cut the Fed funds target range by 25bp to 4.25-4.50%, as expected. It was a hawkish cut as the rate path was lifted by half a percentage point for both 2025 and 2026, thus signalling a slower easing pace from here. The USD took a leap higher as did US yields. EUR/USD dropped well below 1.04 and USD/JPY toward 154.50, where the latter rose another figure to around 155.50 after the Bank of Japan left rates unchanged this morning. The overall reaction in EUR/Scandies was muted, though with a slight move higher. In relation to the Riksbank’s rate decision today, market-moving surprises, if any, could come with guidance including the rate path. We expect unchanged rates from both the Bank of England and Norges Bank, in line with market pricing, and hence we expect the FX response will be muted.

Source: ACTIONFOREX

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Pepperstone

Economic

WHERE WE STAND

The FOMC delivered about as hawkish a cut as they could muster up yesterday, and market participants were not particularly pleased about what they heard.

As expected, Powell & Co delivered a 25bp cut to the fed funds rate, lowering the target range to 4.25% to 4.50%, bringing the cumulative amount of easing this year to 100bp, as the Committee continue to return rates to a more neutral level, and ensure a ‘soft landing’ for the US economy.

However, the guidance and projections accompanying said rate cut were undeniably hawkish. The updated ‘dot plot’ showed a median expectation of just 50bp of further rate cuts next year, half the magnitude foreseen in the September forecast, while also nudging the longer-run rate estimate higher to 3.00%, suggesting a shallower easing cycle than previously expected.

Meanwhile, Powell struck a hawkish note at the post-meeting press conference, flagging that while policy is well-positioned, the FOMC can dial back restriction more slowly if disinflationary progress stalls, or more quickly if the labour market weakens unexpectedly. In simple terms, as risks to the dual mandate become more two-sided in nature, risks to the policy outlook must also become two-sided, thus opening the door to the FOMC skipping a cut at the January meeting.

It was, though, a little perplexing to see such a violent market reaction to Powell’s remarks, particularly considering how ‘every man and his dog’ had been expecting this sort of a pivot in the run up to the meeting.

Treasuries sold-off across the curve, with 2-year yields rising over 10bp on the day, while the benchmark 10-year yield surged north of 4.50%. In turn, this pressured risk appetite, as equities slumped across the board, with the S&P notching a 3% decline, its worst ‘Fed Day’ performance since March 2020, while the Nasdaq 100 fell almost 4%.

The dollar also vaulted higher against peers, as the DXY reclaimed the 108 handle, rallying over 1%, while the BBDXY rose to its best level since November 2022. In turn, other G10s lost ground, with the EUR sliding to within inches of fresh YTD lows around 1.0350, cable surrendering the 1.27 and 1.26 handles, while the AUD & NZD both lost well over 1.5%.

It feels, though, as if markets have over-reacted to Powell’s message, and that we may have reached something of a hawkish extreme here, particularly with the USD OIS curve now pricing just 31bp of easing over the entirety of 2025. Consequently, I’d be a dip buyer of equities here, as strong earnings and economic growth should see the path of least resistance continuing to lead to the upside, offsetting the fading impact of the ‘Fed Put’. I’d also be a seller of vol, particularly with the VIX running as high as 28 during yesterday’s session.

The FX space is a little more complex, though I remain a dollar bull, and a firm believer in the case for ‘US exceptionalism’ to continue, some longs may use this rally to take profits off the table before year-end, particularly before potentially USD-negative year-end flows begin to turn the FX market into a choppy and noisy mess.

LOOK AHEAD

Another busy day of policy decisions lies ahead.

Kicking things off this morning, the Riksbank are set to deliver a further 25bp cut, taking rates to 2.50%, as policymakers continue to keep pace with the ECB. Guidance is likely to not towards further such cuts in Q1 25, though 2% is likely to prove to be this cycle’s terminal rate, as upside inflation risks increasingly emerge. Across the border, the Norges Bank are set to hold rates steady at a cycle high 4.50%, with focus therefore falling on the NB’s policy guidance, and the likely pace of easing to be delivered next year, with the NOK OIS curve discounting a full 25bp cut by next March.

Closer to home, the Bank of England announce policy this lunchtime, with the MPC set to have voted 8-1 in favour of maintaining Bank Rate at 4.75%. External member Dhingra is, again, likely to favour an immediate 25bp cut, cementing her place as the MPC’s resident uber-dove. The Committee’s guidance, meanwhile, is likely to stress that a gradual pace of removing policy restriction remains appropriate, as policymakers remain data-dependent, and focused on signs of inflation persistence. This week’s above-forecast earnings data, and hot CPI figures, reinforce the MPC’s cautious approach, with the next 25bp Bank Rate cut likely to be delivered in February.

Besides policy decisions, there are a handful of notable data releases due. The final read on Q3 US GDP is unlikely to be revised, pointing to growth of 2.8% on an annualised QoQ basis over that period. The US also release the weekly jobless claims figures, with the initial claims print pertaining to the December NFP survey week, ass well as the monthly Philly Fed manufacturing survey, and the latest existing home sales report.

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Owen Li

Central Bank

Economic

HONG KONG (Dec 19): The Hong Kong Monetary Authority (HKMA) on Thursday cut its base interest rate charged via the overnight discount window by 25 basis points to 4.75%, tracking a move by the US Federal Reserve.

Major Hong Kong banks followed with reductions, but some at a smaller magnitude. HSBC cut its Hong Kong dollar best lending rate by 12.5 basis points to 5.25% and Bank of China (Hong Kong) lowered its Hong Kong dollar prime rate to 5.25% from 5.375%.

"The future path of rates remains highly uncertain going into 2025," HSBC's Hong Kong CEO Luanne Lim said in a statement.

"HSBC has decided to lower its Hong Kong dollar deposit and lending rates following another US rates cut, bringing a cumulative reduction of 62.5 basis points since this September," she added.

Hong Kong's monetary policy moves in lock-step with the US as the city's currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.

The Fed lowered its policy rate by a quarter of a percentage point, a decision Federal Reserve Chair Jerome Powell described as a "closer call," and said a slower pace of projected rate cuts next year reflected higher inflation readings in 2024.

"The pace of (US) interest rate cuts remains uncertain as it is dependent on US inflation and labour market data developments, and economic activity may also be influenced by fiscal, economic and trade policies," HKMA Chief Executive Eddie Yue told reporters.

Yue said Hong Kong interest rates could remain at relatively high levels for some time, and the extent and pace of future interest rate cuts was subject to considerable uncertainty. The public should manage interest rate risk when making property purchases, mortgage or borrowing decisions, he added.

Hong Kong's financial and monetary markets continue to operate in a smooth and orderly manner, while market liquidity conditions remain stable and the Hong Kong dollar exchange rate is steady, HKMA said.

Source: Theedgemarkets

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Economic

FOMC meeting round-up

The Federal Reserve (Fed) delivered a 25 basis point (bp) rate cut overnight to the range of 4.25%-4.5% as widely expected. While there are already some expectations for the Fed to come in more cautious on rate outlook compared to their November meeting, the totality of the economic projections and the press conference has called for a more hawkish recalibration in rate expectations.

Markets were previously eyeing three 25 bp cuts in 2025, but the updated dot plot showed policymakers leaning toward just two cuts in 2025 and two more in 2026. This was justified by a significant upward revision in inflation forecasts (2.5% for 2025 from 2.1% prior), alongside stronger growth (2.1% in 2025 real gross domestic product (GDP) from 2.0% prior).

Hopes that these numbers would be counterbalanced by some tints of dovishness in terms of data-dependency from the Fed Chair Jerome Powell were disappointed as well. There seems to be little reeling-in from the Fed Chair, with comments of “more cautious” on cuts ahead, labelling it as a “new phase”, recent cut being a “closer call” and him seeing slower progress on inflation.

Takeaways

The more hawkish tone from the Federal Open Market Committee (FOMC) meeting seems to have triggered some sell-the-news across Wall Street, which then cascaded into heavy profit-taking, given the stellar run-up we’ve had this year. While there are expectations that the Fed will turn more cautious at the recent meeting, the pronounced market decline may not align with the actual level of hawkishness, hinting at a potential move to flush out short-term speculators.

The future trajectory of rate cuts may also hinge on the policies of President-elect Donald Trump, which remain unclear at this stage. His initial rhetoric on tariffs does sound aggressive, but the extent to which these measures will be implemented is uncertain. As such, there is the possibility that the Fed might initially lean toward a shallower rate path, reserving the option to adjust course as more policy clarity emerges.

With the FOMC meeting behind us now, we may expect some calm to return (provided the upcoming Bank of Japan (BoJ) meeting does not throw in any more surprises), which may see a drift higher in Wall Street over the final two weeks of the year. But given the lack of further catalysts, pushing to a new record high by year-end also seems like a challenging task as well.

U.S. dollar at highest level since November 2022

The hawkish tone from the Fed meeting drove a surge in U.S. Treasury yields, with the 10-year yield surpassing 4.5%, propelling the U.S. dollar to its highest level since November 2022. Some cooldowns may be on the horizon, as rate expectations have already adjusted to reflect a more hawkish Fed path, potentially prompting some profit-taking in the absence of strong new catalysts.

Technical risks, such as the possibility of a lower high on the daily relative strength index (RSI), warrant consideration. However, the broader upward trend is likely to persist until there is greater clarity on President-elect Trump’s policy agenda. Any cool-off could still come short-lived for now, while buyers may eye for a retest of its 109.00 level of resistance over the longer term.

FOMC Meeting Round-up: Where are U.S. Dollar, Gold and Japan 225 Headed?_1

Gold prices dipping below support confluence

A stronger U.S. dollar and higher bond yields have seen gold prices reacting to the downside overnight, putting the key support confluence at the $2,610 level at risk of breaking down. This level represents both a critical trendline support and the 100-day moving average (MA). Adding to the bearish signals, the daily moving average convergence/divergence (MACD) has turned lower, failing to cross into positive territory, while prices have slipped below the daily Ichimoku Cloud support for the first time since March 2024. Should the downside persist, sellers may target the November 2024 low at $2,534 as the next key level. FOMC Meeting Round-up: Where are U.S. Dollar, Gold and Japan 225 Headed?_2

FOMC Meeting Round-up: Where are U.S. Dollar, Gold and Japan 225 Headed?_2

Japan 225 back to retest lower trendline of ascending triangle

Asian markets extended Wall Street’s broader sell-off, weighed down by a stronger U.S. dollar and rising bond yields. The Nikkei 225 has retreated to retest the lower trendline of an ascending triangle pattern, aligning with its daily Ichimoku Cloud support. So far, buyers have defended the 38,442 level, keeping the higher-lows formation intact. Sustaining this structure could signal a continuation of the upward trend, with the 40,220 level emerging as the next key resistance to watch.

Looking ahead, the BoJ meeting will be a crucial event. Market participants are hoping for minimal surprises, with expectations for the central bank to maintain current rates while signalling a gradual path toward rate hikes in 2025. FOMC Meeting Round-up: Where are U.S. Dollar, Gold and Japan 225 Headed?_3

FOMC Meeting Round-up: Where are U.S. Dollar, Gold and Japan 225 Headed?_3

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Justin

Stocks

Economic

BANGKOK (AP) — Shares skidded Thursday in Asia after U.S. stocks tumbled to one of their worst days of the year when the Federal Reserve hinted it may deliver fewer rate cuts in 2025 than earlier thought.

The Fed cut its key rate by a quarter of a percentage point to between 4.25% and 4.5%, as expected. Other major central banks have stood pat this week, with the Bank of Japan opting Thursday to keep its benchmark rate at 0.25%. That decision, which was expected, pushed the dollar higher against the Japanese yen.

Asian markets fell, but generally by less than 2%, with Tokyo's Nikkei 225 falling 0.7% to 38,806.70. The dollar was trading at 155.24 yen by midday Thursday, up from 154.79 yen.

A weaker yen tends to push prices higher in Japan, which depends heavily on imports, and that in turn raises pressure on the Bank of Japan to raise rates. Analysts say they expect a BOJ rate hike in January, but also that the central bank is wary of big changes as it waits to see possible shocks from President-elect Donald Trump's policies on tariffs.

There are “high uncertainties” surrounding Japan's business outlook and prices and developments in foreign economies and commodity prices, the BOJ said in a statement.

Chinese markets also declined. The Hang Seng index fell 1% to 19,666.12, while the Shanghai Composite index dropped 0.7% to 3,357.82.

Australia's S&P/ASX 200 shed 1.9% to 8,153.80, while the Kospi in South Korea slipped 1.5% to 2,447.17. India's Sensex fell 0.9%.

On Wednesday, the S&P 500 fell 2.9%, just shy of its biggest loss for the year, to close at 5,872.16. The Dow Jones Industrial Average lost 1,123 points, or 2.6%, to 42,326.87, and the Nasdaq composite dropped 3.6% to 19,392.69.

The Russell 2000 index of small-cap stocks tumbled 4.4%.

Wednesday's rate cut is the third this year after it began in September to lower rates from a two-decade high to support the job market. Wall Street loves easier interest rates, but the cut was already widely expected and investors were more focused on how much more the Fed will cut next year.

A lot is riding on it, particularly after expectations for a series of cuts in 2025 helped the U.S. stock market set an all-time high 57 times so far in 2024.

Fed officials released projections on Wednesday showing the median expectation among them is for two more cuts to the federal funds rate in 2025, or half a percentage point’s worth. That’s down from the four cuts expected just three months ago.

“We are in a new phase of the process,” Fed Chair Jerome Powell said.

Asked why Fed officials are looking to slow their cuts, he pointed to how well the job market is performing overall and how recent inflation readings have picked up.

Powell said some Fed officials, but not all, are also already trying to incorporate uncertainties inherent in a new administration coming into the White House. Worries are rising on Wall Street that President-elect Donald Trump’s preference for tariffs and other policies could further fuel inflation.

“When the path is uncertain, you go a little slower,” Powell said. It’s “not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

The reduced expectations for 2025 rate cuts sent Treasury yields higher, squeezing the stock market.

The yield on the 10-year Treasury rose to 4.51% from 4.40% late Tuesday, which is a notable move for the bond market. The two-year yield, which more closely tracks expectations for Fed action, climbed to 4.35% from 4.25%.

Nvidia, the superstar stock responsible for a chunk of Wall Street’s rally to records in recent years, fell 1.1% to extend its weekslong funk. It has dropped more than 13% from its record set last month and fallen in nine of the last 10 days as its big momentum slows.

In other dealings early Thursday, U.S. benchmark crude oil gave up 41 cents to $69.61 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, fell 39 cents to $73.00 per barrel.

The euro rose to $1.0377 from $1.0355.

Source: yahoo finance

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Pepperstone

Economic

As expected, and in line with money market pricing, the FOMC delivered a 25bp cut at the conclusion of the December FOMC meeting, thus lowering the target range for the fed funds rate to 4.25% to 4.50%.

Said cut marks the third reduction this year, as the Fed continue to move back to a more neutral policy stance, with a cumulative 100bp of easing having been delivered in 2024. This easing has come as policymakers attempt to stick the ‘soft landing’, and as risks to either side of the dual mandate come back into balance.

December 2024 FOMC Review: A Cut Now, A Skip Next_1

In contrast to the November meeting, the decision to deliver a 25bp cut was not a unanimous one, with Cleveland Fed President Hammack instead preferring to hold rates steady at this meeting.

Meanwhile, as always, accompanying the rate decision was the FOMC’s updated policy statement. Broadly, this was a repeat of that issued after the prior confab, with the Committee reiterating that the economy continues to expand at a "solid pace", that unemployment "remains low", and that inflation remains "somewhat elevated".

One notable change, though, was amending the phrase “additional adjustments” in the fed funds rate, to be prefaced by “the extent and timing of” such changes, perhaps a nod towards some increased flexibility in the policy outlook as we move into 2025.

December 2024 FOMC Review: A Cut Now, A Skip Next_2

Along with the statement, the December FOMC also saw the release of the Committee’s updated Summary of Economic Projections (SEP), including the all-important ‘dot plot’.

The dots, which had previously implied a median expectation for 100bp of further cuts next year, taking the fed funds rate midpoint to 3.375%, were revised substantially in a hawkish direction. As such, the dots now imply just 50bp of easing next year, with the fed funds rate set to end 2025 at 3.875%, before a further 50bp of easing in 2026, followed by just one 25bp cut in 2027. The longer-run estimate of the fed funds rate, a proxy for the neutral rate, was also nudged higher to a round 3%.

December 2024 FOMC Review: A Cut Now, A Skip Next_3

In addition to the dots, the SEP also included the FOMC’s latest round of economic projections, outlined below.

These projections, though, are likely to have a very short shelf life indeed, as they are conditioned on an assumption that the current fiscal ‘status quo’ will continue through the forecast horizon, and do not account for any policies, such as tariffs and tax cuts, that President-elect Trump may introduce after Inauguration Day in January. As such, the projections are not worth losing any sleep over, and are likely to be revised significantly come the next forecast round, in March.

December 2024 FOMC Review: A Cut Now, A Skip Next_4

After all of the above had been digested, it was then time to grapple with Chair Powell’s post-meeting press conference.

During the presser, Powell noted that policy is now “significantly less restrictive”, and that the FOMC can now “be more cautious” as further rate adjustments are considered. Furthermore, while stressing that policy is not on a “pre-set course”, and that today’s decision was a “closer call” than in November, Powell flagged that restriction could be dialled back more slowly if signs emerge that inflation is not moving sustainably towards 2%, while also flagging the possibility of faster easing in the event of unexpected labour market weakness, or inflation falling faster than foreseen. The reaction function, then, is considerably more two-sided in 2025, than in 2024.

In reaction to the statement, projections, and press conference, money markets repriced in a hawkish direction. The curve now prices next-to-no chance of any policy action at the January meeting, while seeing the March decision as a coin-flip for another 25bp cut. Further out, there are now just 38bp of cuts priced for the entirety of next year, down from around 45bp yesterday.

December 2024 FOMC Review: A Cut Now, A Skip Next_5

More broadly, markets displayed a hawkish reaction across the board.

Subsequently, Treasuries sold-off across the curve, led by the front-end, with 2-year yields rising over 10bp from pre-release levels, vaulting north of 4.30%. That, in turn, saw the dollar gain ground against all major peers, with the DXY rallying above the 108 figure, the EUR surrendering the 1.04 handle, cable sliding back under 1.26, while the AUD and NZD both slipped over 1.5%. Stocks also lost ground, with the S&P future falling over 1%, and sliding under 6,000.

December 2024 FOMC Review: A Cut Now, A Skip Next_6

Taking a step back, the December FOMC, as expected, saw Powell & Co. build in a greater degree of optionality into policymaking next year, broadly reflective of the two-sided inflation, and employment, risks that are likely to present themselves next year. This, subsequently, has opened the door to a ‘skip’ at the January meeting, though incoming data between now and the end of January will determine whether a pause is indeed appropriate to begin the new year.

For now, my base case is indeed that the FOMC will pause in January, in order to allow policymakers to take stock of the impact of the rate cuts delivered to date, and to digest the early economic announcements made by the Trump Administration.

More broadly, the year ahead is likely to see a slower pace of policy normalisation, with risks around the monetary outlook more two-sided in nature – the Committee remain prepared to ease quicker in order to prevent further labour market weakness, but also ease more slowly were disinflationary progress to stall.

Thus, the ‘Fed put’ which has supported risk appetite so forcefully in 2024, is unlikely to do so to the same degree in 2025. Though the path of least resistance for equities should continue to lead to the upside, albeit said path will likely be bumpier, and volatility higher, than seen over the last couple of years.

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Cohen

Central Bank

Economic

Governor Kazuo Ueda’s policy board left its benchmark rate at around 0.25%, according to a statement Thursday, an outcome expected by more than half of economists surveyed by Bloomberg.

The bank indicated the economy is moving in line with its expectations, a prerequisite for a rate hike, by reiterating that the inflation trend appears to be consistent with its target for the second half of its outlook period.

Board member Naoki Tamura voted against the stand-pat decision, and proposed a rate hike to 0.5% at this gathering. This was the first proposal against keeping borrowing costs steady after Ueda took the BOJ’s helm in April last year.

The yen weakened against the dollar immediately after the policy statement was released.

Ueda is searching for the right moment for his third rate increase, with recent economic indicators showing inflation is moving in line with the BOJ’s projections. While January has become the most popular timing for the next hike among market participants, the vote against holding rates is likely to keep expectations high for a move next month.

The central bank may also have been reluctant to raise rates in December given the potential for bad optics. Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party wary of early rate hikes to ensure support for next year’s annual budget. Those negotiations are expected to wrap up in the coming days.