The People’s Bank of China (PBOC) said on Thursday that they “will cut interest rates and Reserve Requirement Ratio (RRR) at a proper time.”
Additional takeaways
Will keep liquidity ample.
Will guide social financing cost to lower.
Will strenghthen expectation guidance, maintain yuan exchange rate basically stable at a reasonable and balanced level.
Market reaction
At the time of writing, AUD/USD is down 0.55% on the day, trading at 0.6285.
PBOC FAQs
The primary monetary policy objectives of the People’s Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People’s Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
The Canadian Dollar shed 0.3% against the Greenback on Tuesday.
Bank of Canada (BoC) rate call looms large during the midweek session.
US President Trump’s trade war against Canada has hit a new gear.
The Canadian Dollar roiled on Tuesday, falling roughly six-tenths of one percent against the Greenback at its lowest as markets weigh the latest evolution in US President Donald Trump’s self-styled trade war against Canada. The Canadian Dollar is still testing within familiar technical territory against the US Dollar, however, the Loonie is poised for further losses after shedding weight for three straight sessions against the USD, all on rising trade war fears.
The Bank of Canada (BoC) is slated to deliver its latest rate call on Wednesday, however markets are getting thrown for a loop on whether the BoC will be able to deliver its expected quarter-point rate trim as trade war rhetoric from team Trump ramps up. Donald Trump took to his favorite social media app to declare that he’s instructed his Secretary of Commerce to double tariffs on all steel and aluminum imported from Canada to 50%, also to begin on Wednesday.
Daily digest market movers: Canadian Dollar withers again on new tariff threats
US President Donald Trump vowed via social media to impose an additional tariff on Canadian steel and aluminum, bringing the total to 50% and declaring the tariff to go into effect on Wednesday.
Ontario Prime Minister Doug Ford was quick to retaliate against the US with a flat export tax of 25% on all electricity sent to the US, which sent Donald Trump into a further tailspin on social media.
Ontario PM Ford followed up with an additional warning that Ontario could shut up energy exports to the US entirely, which would see 1.5M Americans without power.
White House officials followed up with an announcement that the “paperwork” on additional steel and aluminum tariffs targeted at Canada hasn’t been “signed” in an effort to cross the moat that President Trump continues to dig for the US.
President Trump reiterated his misunderstanding of Canadian cap-trade tariffs on US dairy products that are baked into the USMCA trade agreement, which Donald Trump himself spearheaded during his first term in the White House.
The BoC is slated to cut interest rates by another quarter of a point to 2.75% on Wednesday, but rising tariff concerns could throw a wrench in the works.
Canadian Dollar price forecast
The Canadian Dollar whipsawed against the Greenback on Tuesday, falling 0.9% top-to-bottom at its absolute lowest as markets churn on geopolitical headlines. The Loonie has somewhat recovered its footing, but still remains down for a third straight session against the US Dollar. USD/CAD has risen around 2% in three straight trading days as the Loonie backslides against the Greenback.
USD/CAD 4-hour chart
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Wednesday, I “don’t have a preset idea in mind on the pace of future rate hikes.”
Further comments
Don’t have a preset idea in mind on the pace of future rate hikes.
It is not as if we will be raising rates at each policy meeting.
Wage is key to gauging Japan’s trend inflation.
Must be vigilant to how price moves for goods people buy frequently affect inflation expectations.
Will debate policy decision at each meeting looking at economic, price developments.
Market reaction
At press time, USD/JPY holds minor gains near 149.80 following these comments.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
The Bank of Japan is set to hike interest rates to 0.50% on Friday.
All eyes will remain on the language in the policy statement and Governor Ueda’s press conference.
The Japanese Yen could witness intense volatility on the BoJ policy announcements.
The Bank of Japan (BoJ) is widely expected to raise the short-term interest rate from 0.25% to a 17-year high of 0.50% in January, following the conclusion of its two-day monetary policy review on Friday.
The Japanese Yen (JPY) is set to rock on the BoJ policy announcements as investors seek to find fresh clues on the central bank’s next policy move.
What to expect from the BoJ interest rate decision?
The BoJ will likely begin 2025 with some action as it remains on track to revive its rate-hiking cycle after pausing for three consecutive meetings. In July 2024, the Japanese central bank unexpectedly raised rates by 15 basis points (bps) from 0.1% to 0.25%.
Markets speculated that a slew of hotter-than-expected inflation readings, the ongoing depreciation of the JPY and a fiscal budget strengthened the case for a BoJ rate hike at the January meeting.
Tokyo annual Consumer Price Index (CPI) rose 3% in November, up from 2.6% in October. Core inflation, which excludes food and energy costs, increased by 2.4% in the same period after reporting a 2.2% growth in October. Tokyo’s inflation numbers are widely considered a leading indicator of nationwide trends.
Meanwhile, Japan’s annual Producer Price Index (PPI) remained at 3.8% in December, driven primarily by high food prices, particularly a 31.8% increase in agricultural goods costs. Separately, the Japanese Cabinet approved a historic budget of $732 billion for the fiscal year beginning in April while restricting new bond issuance to its lowest level in 17 years, per Reuters.
The recent hawkish commentary from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino also pointed to a likely rate hike this week. Ueda said on January 16 that the board members “will debate at next week’s meeting whether to hike rates.” In his speech on January 14, Himino noted: “Japan’s inflation expectations have gradually heightened, now around 1.5%. Japan’s economy is roughly moving in line with our scenario projecting underlying inflation, inflation expectations to both move around 2%.”
With a rate hike almost a given, the language of the policy statement and Governor Ueda’s post-policy meeting press conference, due at 06:30 GMT, will help determine the path of the Bank’s next policy move.
The BoJ is also set to publish its quarterly Outlook Report and is expected to raise its inflation projections amid the gradual depreciation of the Japanese Yen and a recent surge in the cost of rice, Bloomberg reported, citing people familiar with the matter.
Analysts at BBH said: “Two-day Bank of Japan meeting ends Friday with an expected 25 bp hike to 0.5%. Markets have firmed up the odds of a hike over the past week to around 85% after BOJ officials expressed more confidence on wage growth gathering momentum.”
“In our view, the bar for a hawkish surprise is high because the BoJ will want to avoid unsettling the markets as it did back in July. As such, the Yen is likely to remain under downside pressure as the markets continue to price in the policy rate to peak around 1% over the next two years, the analysts added. “
How could the Bank of Japan’s interest rate decision affect USD/JPY?
Reuters reported last week, citing sources familiar with the central bank’s thinking, the BoJ is expected to maintain its hawkish stance while raising rates. The hawkish hike could be influenced by global financial market developments, such as United States (US) President Donald Trump’s return to the White House.
If the BoJ struggles to provide consistent guidance on the next policy move, reiterating that it will remain data-dependent and make a decision on a meeting-by-meeting basis, the Japanese Yen is likely to resume its downslide against the US Dollar (USD).
USD/JPY could fall hard if the BoJ hints at a March rate hike while expressing increased concerns over inflation.
Any knee-jerk reaction to the BoJ policy announcements could be temporary heading into Governor Ueda’s presser. Investors will continue to pay close attention to US President Donald Trump’s tariff talks, which trigger a big market reaction.
From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “USD/JPY remains confined between the 21-day Simple Moving Average (SMA) and the 50-day variant in the run-up to the BoJ showdown. However, the 14-day Relative Strength Index (RSI) sits just above 50, suggesting that the pair could break the consolidative phase to the upside.”
“A hawkish BoJ hike could revive the USD/JPY correction from six-month highs of 158.88, smashing the pair toward the 200-day SMA at 152.85. The next support is seen at the 100-day SMA of 151.59. Further declines could challenge the 151.00 round level. Alternatively, buyers must yield a sustained break above the 21-day SMA at 157.13 to resume the uptrend toward the multi-month highs of 158.88. Buyers will then target the 160.00 psychological level,” Dhwani adds.
Economic Indicator
BoJ Monetary Policy Statement
At the end of each of its eight policy meetings, the Policy Board of the Bank of Japan (BoJ) releases an official monetary policy statement explaining its policy decision. By communicating the committee’s decision as well as its view on the economic outlook and the fall of the committee’s votes regarding whether interest rates or other policy tools should be adjusted, the statement gives clues as to future changes in monetary policy. The statement may influence the volatility of the Japanese Yen (JPY) and determine a short-term positive or negative trend. A hawkish view is considered bullish for JPY, whereas a dovish view is considered bearish.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
