Bloomberg Daybreak: Asia Edition A Look at the Week's Central Bank Rate Decisions
Dec 20, 2024
David Finnerty, a Bloomberg F/X and rates strategist, and Vishal Khanduja, Head of Broad Markets Fixed Income at Morgan Stanley, dive into the intricate world of central bank rate decisions. They discuss the Federal Reserve's hawkish stance and its ripple effects on currencies, particularly the Japanese yen and Chinese yuan. The duo also examines the implications of political instability in South Korea and analyzes the ongoing challenges in monetary policy, inflation targeting, and navigating investment opportunities in Asian fixed income markets.
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BOJ's Surprise Dovishness
- The Bank of Japan's unchanged rate decision was expected, but the Yen's weakening to 158 against the dollar surprised markets.
- Markets anticipated a more hawkish stance, potentially a rate hike in January, but Governor Kuroda's tone resembled the dovish May decision.
Fed's Impact on BOJ
- The Fed's adjusted outlook, reducing expected rate cuts in 2025 from four to two, supports dollar strength.
- This complicates the BOJ's situation, potentially forcing earlier tightening due to Yen weakening.
China's Yuan Support
- The offshore Chinese Yuan weakened to a one-year low, prompting Beijing to increase support.
- The PBOC's fixing suggests a tolerance for gradual Yuan depreciation, but rapid declines are undesirable.