Japan and China Officials Playing Closer Attention to Their Currencies – Currency Thoughts
Japan and China Officials Playing Closer Attention to Their Currencies
December 29, 2025
(159) An abbreviated summary of this month’s Bank of Japan Board meeting that lifted the short-term policy interest rate to a 3-decade high of 0.75% states that ” business sentiment has not been weak” and predicts that “next year’s wage hikes at large firms with labor unions are likely to be at least around the same level as this year, mainly reflecting relatively high price increases, solid corporate profits, and continued labor shortages.” These changes lead to the assertion that “Japan’s economic growth being modest is no longer the baseline scenario, and this has reduced the possibility that the underlying trend in prices will become sluggish.” Several Board members went even further, expressing a fresh desire for ensuing interest rate hikes and for some a concern about the yen becoming too weak. “Japan’s real policy interest rate is by far at the lowest level globally. Considering the impact such a low real policy interest rate has on prices through foreign exchange markets, it is appropriate for the Bank to adjust the degree of monetary accommodation.”
BOJ members did not all feel this new urgency to speed up tightening, and some opposing concern was expressed against a pre-determined rush to reach a neutral policy stance, especially since the interest rate level associated with neutrality is far from known. But two takeaways from the summary text are a growing impatience with the extreme slowness of interest rate hikes so far and a recognized danger that one-sided downward yen movement could have on import prices and therefore inflation.
Chinese officials have the opposite worry, that is of the yuan strengthening too quickly. There currency has been hovering near the 7.0 per dollar level lately, and they have some misgivings about a sharp appreciation that could ensue after it breaks above this barrier. Chinese corporate profits remain lackluster, posting a mere 0.1% uptick in January-November versus the year-earlier level.
This will be the second holiday-shortened week in a row. Data flow will be subnormal. Trading volume is likely to be thinner than normal and more reflective of book-closing actions than representative of underlying market supply and demand. In overnight financial market action this Monday, the dollar rose 0.2% against the euro, loonie, peso, Swissy and sterling while dipping 0.1% versus the yen. Larger gains of 0.7% and 0.5% occurred against the New Zealand and Australian dollars. Ten-year sovereign debt yields dipped by two basis points in Italy and a basis pint in the United States, Germany, France and Spain. The 10-year Japanese JGB yield, in contrast, edged a basis point higher. Bitcoin fell 0.7%, while prices for oil and gold advanced by 2.3% and 0.6%. Stock markets in Asia rose 1.3% in Indonesia, 2.2% in South Korea and 0.9% in Taiwan but closed down 0.7% in Hong Kong and 0.4% lower in Japan and India. European share prices have barely moved, and key U.S. indices have lost 0.3-0.5% in pre-open futures trading.
Manufacturing purchasing manager surveys from December were reported for Russia and Austria, both showing two-month and sub-50 readings of 48.1 and 49.3, respectively. Russia’s production subindex was at its lowest since March 2022, the month after the war with Ukraine began. Austria’s PMI in November had poked above 50.0 to a 40-month high of 50.4.
Producer price inflation in Singapore of 2.2% and Malaysia of -1.8% during November were each at 3-month lows.
In Finland, which borders Russia, consumer confidence has registered below zero since right after Russia’s invasion of Ukraine that began on February 24, 2022. A two-month low of -7.3 this month followed November’s 4-month high of -6.5. Finland’s business sentiment measure printed at zero this month.
The 12-month advance of factory output in India rebounded to 8.0% in November from 2.0% in October. This was associated with a 6.7% year-on-year increase in industrial production, representing the most in 25 months.
While year-on-year growth in Norwegian retail sales of 5.2% in November was the most in 56 months, sales growth of 3.3% in Lithuania was the lowest in five months, and a sales rise of just 1.0% in Slovenia constituted a 3-month low.
Pending home sales and the Dallas Fed manufacturing survey will be reported in the United States later this morning.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Austrian and Russian manufacturing PMI surveys, Bank of Japan
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