Bank of Japan Eases, January Purchasing Manager Surveys, and Various Comments from Trump – Currency Thoughts
Bank of Japan Eases, January Purchasing Manager Surveys, and Various Comments from Trump
January 24, 2025
The dollar fell overnight by 0.8% against the peso, 0.6% versus the yuan, 0.5% relative to the euro and sterling, 0.4% vis-a-vis the Australian dollar and 0.3% against Canada’s dollar. Alternatively, the dollar firmed 0.2% versus the yen as the Bank of Japan doubled its interest to “around 0.5%” in a move that had been widely anticipated.
Ten-year sovereign debt yields rose overnight by three basis points in Germany, two bps in Japan and Italy, and a basis point each in France, Spain and Great Britain. By contrast, the 10-year Treasury yield settled back a basis point.
U.S. stock futures are slightly lower following big gains yesterday. Share prices elsewhere rose 1.9% in Hong Kong, 1.0% in Taiwan, 0.9% in Indonesia and South Korea, and 0.7% in China. In wide-ranging remarks to the World Economic Forum in Davos, President Trump signaled he’s predisposed to raise tariffs against China by significantly less than suggested in his campaign at least for now. Euroland stock markets are slightly higher so far, while the British FTSE is down a bit.
Bitcoin is experiencing a good session with a gain thus far of 1.2%, and gold and oil prices have risen by 0.9% and 0.6%.
The new 0.5% Bank of Japan interest rate is not only its highest since November 2008 but also matches its highest point since September 1995. This week’s Bank of Japan Board meeting coincided with an updated Outlook for Economic Activity and Prices with new forecasts that leave projected growth closely aligned with those made last July and October but that bump up projected fiscal 2025 core consumer price inflation (excluding fresh food but not energy) by a half percentage point to an above-target 2.4%. Today’s decision, which was favored by 8 of 9 Board members are summarized here. More rate hikes are likely to follow. “If the outlook 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,” but Governor Ueda reiterated in a subsequent press conference that there is no predetermined time table. Nakamura cast the sole dissenting vote on the rate hike, preferring to wait a meeting by which time an expected acceleration of wage awards this spring can be confirmed.
The Monetary Authority of Singapore, which subordinates interest rate policy to an exchange rate policy, loosened its monetary policy today. The central bank’s policy consists of a trading corridor for the trade-weighted Singapore dollar, defined by the slope, width and midpoint of target. Officials reduced the trading band’s slope but left the midpoint and width unchanged. Today’s action was the first modification since a policy tightening in October 2022 and the first easing since the pandemic year of 2020. Policy had been tightened in April, July and October 2022.
Based on preliminary information, Euroland’s composite purchasing manager survey in January rose 0.3 points to a 5-month high of 50.2. This was a tad better than analysts were expecting and resulted from an 8-month high in the manufacturing score, which at 46.1 still reflected a fairly significant recession in that sector. Services printed above the 50 breakeven point at 51.4.
Preliminary PMI findings also got reported for Euroland’s two largest economies. The German composite PMI crossed above 50 for the first time in seven months with a reading of 50.1. The French composite PMI also rose but stayed beneath 50 at a 4-month high of 48.3. All of these Euroland surveys showed a rise in inflationary pressure.
Britain’s composite, manufacturing and service sector PMI scores rose to 3-month highs in January of 50.9, 48.2, and 51.2. Each exceeded expectations.
Japan’s composite PMI rose 1.0 point to a 4-month high of 51.1, as an increase in services to 52.7 outweighed a 10-month low manufacturing reading of 48.8.
India’s composite PMI fell 1.3 points to a one-year low but still signaled a robust expansion with a score of 57.9. Services sank to a 26-month low, but manufacturing had its strongest growth in a half year.
In Australia, the composite PMI this month of 50.3 was 0.1 point above December’s level and the best in 5 months. Still, the level implies tepid growth.
President Trump’s stress on manufacturing rather than services is reflected in the preliminary U.S. purchasing manager survey results. A 9-month low in services (52.8, down from 56.8 in December) outweighed a 0.7-point rise in manufacturing to 50.1 (a 7-month high), resulting in a 9-month low in the composite PMI of 52.4.
Trump’s remarks to political and business leaders at the annual World Economic Forum touched on familiar themes: tariffs, deregulation, selective energy output increases, and a transactional request for European governments to sharply raise their defense budgets to 5% of GDP.
Japanese consumer prices jumped 0.6% on month in December, their biggest monthly rise in 14 months and resulting in a 28-month high year-on-year advance of 3.6%. Core inflation of 3.0% was at a 16-month high, but core-core CPI that excludes energy remained unchanged at 2.4%.
In other price news today, producer price inflation rose to a 22-month high in Spain of 2.3%, a 5-month high of -0.8% in Finland, and a 3-month high of 2.0% in Sweden but dipped 0.1 percentage point to a 2-month low of 7.1% in Iceland.
The Confederation of British Industries’ distributive trades survey showed a faster deterioration in retail with a 5-month low reading of -24. Consumer confidence in the U.K. this month sank to a 14-month low.
Czech business confidence rose to a 2-month high this month even as consumer sentiment there fell to a 5-month low.
Consumer confidence in the euro area edged 0.3 index points higher to a 2-month high of minus 14.2 this month.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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