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Market consensus overwhelmingly for steady rates

The Bank of Japan (BOJ) is anticipated to keep its interest rate steady at 0.25% during its upcoming two-day meeting on December 18-19, the last one for 2024. This decision aligns with the central bank’s cautious approach as it seeks more clarity on domestic wage and spending trends, as well as potential policy changes from the incoming US administration under President-elect Donald Trump.

Low rates and yen weakness

Japan’s interest rates remain the lowest among developed nations due to the BoJ’s long-standing policy to support the country’s sluggish economy. Economists see wage growth propelling Japan’s economy towards the BoJ’s 2% inflation target. However, they suggest the BoJ might wait another month to assess wage-driven inflation dynamics, focusing on the positive momentum from next year’s spring wage negotiations and the possible impact from Trump’s trade policies.

Timing of rate hikes in question

The BoJ ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. It has signaled its readiness to hike again if wages and prices move as projected and strengthen the conviction that Japan will durably hit 2% inflation. However, the central bank has been cautious about the timing of the next rate hike, leading to fluctuations in market expectations between November and December. Traders are almost entirely anticipating a quarter-point increase by March, as Governor Ueda and his colleagues have reiterated that they are ready to raise rates again in response to a strengthening economy, increasing earnings, and inflation exceeding the target.

Currency risks: Yen’s influence on BoJ decisions

Currency risks also play a significant role in the BoJ’s decision-making process. Analysts pointed out that the yen’s value against the dollar could influence the central bank’s actions. A stronger US dollar could weigh on the yen and accelerate the BoJ’s policy normalization, while a weaker yen supports Japan’s reflation efforts.

Currently, dollar/yen is easing after six consecutive green days but is standing above the 200-day simple moving average (SMA) at 152.10, which is acting as a strong support level. Any upside pressure may send the market to the three-and-a-half-month high of 156.75. However, a descending move below the 151.10 support and the short-term uptrend line may increase the chances for a bearish retracement.

Source: ACTIONFOREX

The government on Wednesday unveiled a series of measures to stimulate corporate investment in key industries, aiming to address concerns that recent political turmoil could have long-term negative effects on the economy.

The plan was introduced during a meeting chaired by Finance Minister Choi Sang-mok and attended by other economy-related ministers, amid rising concerns following the recent declaration of martial law and the impeachment of President Yoon Suk Yeol.

"The breakthrough for overcoming internal and external challenges ultimately lies in corporate investment," Choi said.

Under the plan, the government will provide various forms of support and incentives to facilitate investment in seven large-scale projects worth a combined 9.3 trillion won ($6.5 billion).

The projects include an artificial intelligence cluster hub in Gwangju, just outside Seoul, and the construction of a cutting-edge secondary battery facility in Saemangeum, a 409-square-kilometer reclaimed area in North Jeolla Province.

To accelerate progress, the government plans to fast-track administrative procedures by more than six months, allowing construction to commence early next year, Choi said. Additionally, tax incentives will be expanded.

"We will revise regulations and improve institutional frameworks to create an investment-friendly environment, ensuring businesses can proceed with their plans smoothly," Choi said.

The government is also prioritizing the approval of a semiconductor cluster in Yongin, south of Seoul. Originally slated for approval in the first half of next year, the process will now be completed by the end of this year.

"Amid concerns that the current domestic political situation could weaken corporate investment plans, we will actively support businesses to maintain their momentum," he said.

Since the brief imposition of martial law on Dec. 3, Choi, who doubles as deputy prime minister for economic affairs, has been holding daily meetings with business leaders from both home and abroad to ensure the country's credibility. (Yonhap)

Source: Koreatimes