SEOUL (Reuters) – South Korea’s central bank governor said on Thursday that the most important factor determining the health of Asia’s fourth-largest economy in the next few months was whether recent political turmoil would stabilise.

“Previously, the biggest variable was U.S. monetary and trade policy. Now, more than that, the biggest factor determining the economy is whether the political process proceeds stably, as we all want, in the next few months,” Bank of Korea Governor Rhee Chang-yong told a news conference.

“That is why a normalisation of the political process is way more important than lowering interest rates a month earlier or later,” said Rhee, speaking after the Bank of Korea unexpectedly held policy interest rates steady at 3.00% on Thursday.

The policy decision is the first since President Yoon Suk Yeol’s attempt to impose martial law in early December triggered the country’s biggest political crisis in decades. The turmoil prompted the government to cut its 2025 economic growth forecast to 1.8% from 2.2%.

Rhee also said the decision not to cut rates reflected a need to support the won “which in part has been weakening due to political reasons.”

The central bank governor said, however, that the political event that took place on Wednesday provided support to the won, apparently referring to the arrest of impeached President Yoon.

Yoon’s arrest – the first of a sitting president – was fairly orderly amid fears violence could flare as more than 3,000 police officers marched on his residence. A previous attempt to arrest him on Jan. 3 failed after an hours-long standoff between investigators and Yoon’s personal security.

“The dollar-won exchange rate fell today, thanks to the U.S. inflation report, but what happened yesterday also affected it in a comprehensive manner,” Rhee said, when asked about movements of the won in relation to domestic political turmoil.

On Wednesday, the won briefly strengthened after news of Yoon’s arrest broke.

The currency extended gains on Thursday to hit its strongest level since Jan. 8 at 1,449.6 per dollar.

Yoon’s arrest may have ended one chapter in South Korea’s political crisis, but is unlikely to mark the end.

Yoon did not intend to take part in a second day of questioning on Thursday, his lawyer said, further stonewalling a criminal probe into whether he committed insurrection with his martial law bid as he fights for his political survival.

By Leika Kihara

(Reuters) -The Bank of Japan holds its first policy meeting of the year next week and the outcome will be announced days after the inauguration of U.S. President-elect Donald Trump.

Here is a guide on what to expect and why the BOJ’s rate review matters:

WHEN DOES THE BOJ MEETING TAKE PLACE?

The BOJ board that sets monetary policy is due to meet on Jan. 23-24. It will announce its decisions at the end of its deliberations.

The BOJ ended years of negative interest rates in March and raised its short-term policy target to 0.25% in July. It has signalled a readiness to hike again if wages and prices move as projected.

IS THE BOJ GOING TO RAISE INTEREST RATES?

There is growing conviction within the BOJ that conditions for another increase are coming into place. The economy continues to expand moderately and inflation has held above its 2% target for nearly three years.

Companies continue to pass on rising raw material and labour costs to buyers, suggesting the BOJ board is likely to revise up its inflation forecasts in a quarterly outlook report due next week.

More importantly, there have been increasing signs that firms will offer bumper pay hikes for a third straight year in annual wage negotiations with unions kicking off in March.

The BOJ’s regional branch managers said wage hikes are spreading to companies of all sizes and sectors, meeting a key prerequisite for raising interest rates.

As such, the central bank is likely to raise rates to 0.5% next week, barring a Trump-induced market shock.

WHAT HAVE BOJ POLICYMAKERS SAID SO FAR?

The BOJ’s views on wages and the U.S. policy outlook have been closely watched by markets, after Governor Kazuo Ueda cited uncertainty over the domestic wage outlook and Trump’s policies as reasons to hold off raising rates last month.

In a speech on Tuesday, Deputy Governor Ryozo Himino said wage growth will likely remain strong this year. A day later, Ueda echoed the optimism in a sign of the BOJ’s conviction that Japan was progressing towards durably hitting its inflation target.

Both Himino and Ueda said the BOJ will debate whether to raise rates next week, indicating a strong chance of a hike.

WHAT COULD HOLD POLICYMAKERS BACK?

With increased prospects of sustained wage gains, the only remaining hurdle for raising rates next week would be the risk of Trump dropping a bombshell and upending financial markets.

Aside from his inaugural speech, Trump is expected to issue a number of executive orders when he begins his second term in the White House on Monday.

Deputy governor Himino said he would look for clues on the “balance and schedule” of the new president’s policy steps, as well as anything that had not been flagged by Trump so far.

If Trump’s comments shock markets and cause a plunge in global stocks, the BOJ may prefer to stand pat until markets have priced in the news.

HOW COULD MARKETS REACT TO A JAPAN RATE INCREASE?

Receding bets of further rate cuts by the U.S. Federal Reserve mean the U.S.-Japan interest rate differential will remain wide, keeping the yen under downward pressure.

A rate hike by the BOJ will likely nudge up the yen. But the currency’s gains may be short-lived unless Ueda delivers hawkish comments on the outlook in his post-meeting news briefing.

WHAT ELSE SHOULD MARKETS LOOK OUT FOR?

The BOJ will release a quarterly outlook report with revised growth and inflation forecasts, which will show how optimistic the board is on Japan’s prospects for sustainably hitting 2% inflation. That will affect the pace of future rate increases.

Ueda may also give clues on the timing and pace of further hikes at his post-meeting briefing.

The key would be the governor’s view on Japan’s neutral rate. BOJ staff estimates show the inflation-adjusted real neutral rate to be in a range of around -1% to +0.5%. That means if inflation were to hit the BOJ’s 2% target, it could raise its short-term rate at least to around 1% without cooling growth.

Based on forecasts in October, the BOJ expects short-term rates to approach what it considers neutral “in the latter half of the three-year projection period” through March 2027, which suggests some time after October 2025.

While hawkish board member Naoki Tamura projects the neutral rate to be around 1%, Ueda has said it was too hard to come up with credible estimates due to a lack of data.

WHAT’S NEXT?

Many analysts expect the BOJ to keep raising rates at a pace of roughly twice a year. If the BOJ increased rates next week, it may stay in a holding pattern until the latter half of this year when there is more clarity on the impact of Trump’s policies.

Domestic politics also complicate the BOJ’s rate-hike timing with an upper house election slated for July, where Prime Minister Shigeru Ishiba’s minority coalition could struggle to garner votes. The BOJ may prefer to avoid shifting policy until the political dust settles.

By Satoshi Sugiyama

TOKYO (Reuters) – The Bank of Japan will raise interest rates again at one of the two meetings this quarter to 0.50%, an overwhelming majority of economists surveyed by Reuters said, with most leaning toward a January move.

The findings show the BOJ’s determination to take further steps toward more normal monetary policy after years of radically accommodative settings, raising rates even as most of its global peers still tilt toward cuts.

In a Jan. 8-15 poll released on Thursday, all but two economists surveyed, 59 of 61, said the BOJ would raise borrowing costs again, to 0.50% by end-March. 

Among 32 who expect a hike this quarter and specified which month, just under two-thirds, 20, said at the Jan. 23-24 meeting, while the rest said March.

Since policymakers held rates in December, analysts have been speculating about when the BOJ will raise rates again, given uncertainty about domestic wages and economic plans from U.S. President-elect Donald Trump, who moves back to the White House on Jan. 20.

BOJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino said earlier this week the central bank will debate whether to raise rates at its next meeting.

Strong domestic wage momentum and new price pressures support the case for a January hike, said Ayako Fujita, chief Japan economist at JPMorgan Securities.  

“If the inauguration of incoming U.S. President Trump does not cause major market turmoil, delaying the interest rate hike until March is seen as excessively increasing market volatility risk,” Fujita said.

The BOJ said last week wage hikes were spreading to firms of all sizes and sectors, signalling conditions for a near-term hike were continuing to fall into place.  

Having ended negative interest rates in March 2024, the central bank last raised its short-term policy target, to 0.25%, in July. It signalled a readiness to hike again if wages and prices move as projected and heighten its conviction that Japan will durably hit 2% inflation.

All but one of 22 economists who answered an extra question said it was more likely for inflation in Japan to swing higher than their predictions this year.

“There is a higher risk of inflation rising than of it falling, due to the risk of the yen weakening for longer than expected over factors such as a delay of interest rate cuts in the U.S.,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

Additionally, the median of 23 economists who offered their view on the rate of pay increases at this year’s spring labour-management negotiations was 4.75%, slightly up from 4.70% in a poll last month. It was below last year’s 5.1% but still higher than 3.58% in the prior year.

Given growth and inflation are moving in line with BOJ’s forecast and import prices are believed to have turned positive year-on-year in December, the BOJ is facing a situation that cannot overlook the weak yen, said Atsushi Takeda, chief economist at Itochu Research Institute.

The weak Japanese currency – which has pushed up import costs and inflation – was among the factors that led to the BOJ’s decision to begin raising interest rates.

In the poll, two-thirds of respondents, or 14 of 21, said the Japanese authorities will intervene in the currency market if the yen falls to 165 against the U.S. dollar. Nearly 20%, or four, said 160 yen.  

(Other stories from the Reuters global long-term economic outlook polls package)

TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said on Thursday the central bank will debate next week whether to raise interest rates, based on its fresh quarterly growth and inflation forecasts.

In remarks made at a meeting with regional bank executives, Ueda also said the new U.S. administration’s policy outlook and domestic firms’ wage negotiations with unions are key factors in deciding whether to raise rates.

By David Shepardson

(Reuters) -Toyota Motor unit Hino Motors has agreed a $1.6 billion settlement with U.S. agencies and will plead guilty over excess diesel engine emissions in more than 105,000 U.S. vehicles, the company and U.S. government said on Wednesday.

The Japanese truck and engine manufacturer was charged with fraud in U.S. District Court in Detroit for unlawfully selling 105,000 heavy-duty diesel engines in the United States from 2010 through 2022 that did not meet emissions standards.

The settlement, which still must be approved by a U.S. judge, includes a criminal penalty of $521.76 million, $442.5 million in civil penalties to U.S. authorities and $236.5 million to California.

A company-commissioned panel said in a report in 2022 Hino had falsified emissions data on some engines going back to at least 2003.

Hino agreed to plead guilty to engaging in a multi-year criminal conspiracy and serve a five-year term of probation, during which it will be barred from importing any diesel engines it has manufactured into the U.S., and carry out a comprehensive compliance and ethics program, the Justice Department and Environmental Protection Agency said.

Assistant Attorney General Todd Kim said Hino “falsified data for years to skirt regulations” adding the company’s “actions led to vast amounts of excess air pollution and were an egregious violation of our nation’s environmental, consumer protection and import laws.”

The settlement includes a mitigation program, valued at $155 million, to offset excess air emissions from the violations by replacing marine and locomotive engines, and a recall program, valued at $144.2 million, to fix engines in 2017-2019 heavy-duty trucks

The EPA said Hino admitted that between 2010 and 2019, it submitted false applications for engine certification approvals and altered emission test data, conducted tests improperly and fabricated data without conducting any underlying tests.

Hino President Satoshi Ogiso said the company had improved its internal culture, oversight and compliance practices.

“This resolution is a significant milestone toward resolving legacy issues that we have worked hard to ensure are no longer a part of Hino’s operations or culture,” he said in a statement.

The California Air Resources Board began an investigation in 2019 when Hino’s certification applications were reviewed and found inconsistencies in the emissions data.

“Hino knowingly took unlawful advantage of California’s incentives designed to accelerate the adoption of clean transportation technologies, which safeguard the health and safety of Californians from pollution,” said California Attorney General Rob Bonta.

Hino said it booked an extraordinary loss of 230 billion yen, or about $1.54 billion, in its second quarter results in October to cover the expected costs of resolving the litigation.

Over the last decade, several automakers admitted to selling vehicles with excess diesel emissions, including Volkswagen (ETR:VOWG_p) which paid more than $20 billion in fines, penalties and settlements after it admitted in 2015 it had cheated emissions tests by installing “defeat devices” and sophisticated software in nearly 11 million vehicles worldwide.

By Tom Westbrook

SINGAPORE (Reuters) – The dollar slipped on Thursday to stand just off recent peaks as cooling U.S. inflation data knocked down bond yields, while the yen hit a one-month high on rising bets on a rate hike in Japan.

The yen was the biggest major mover on the dollar overnight, rising about 1% and extending gains in Asia, as inflation relief in the U.S. raised chances of Federal Reserve rate cuts and coincided with murmurs of a Bank of Japan hike next week.

The yen traded as firm as 155.21 per dollar, its strongest since Dec. 19. The greenback also handed back some recent gains against the Australian and New Zealand dollars and the Aussie hit a one-week high of $0.6248 in the Asia morning.

The euro ended up fairly steady and was last buying $1.0298. The dollar index was heading lower for a fourth straight session on Thursday, easing slightly to 109.02.

Foreign exchange markets made little direct reaction to the announcement of a ceasefire deal in Gaza, though the Israeli shekel did touch a one-month high.

Core U.S. inflation was 0.2% month-on-month in December, in line with forecasts and below November’s 0.3%. Annualised, the 3.2% reading was cooler than the expectation for 3.3%. That followed a similarly softer-than-expected British inflation reading and remarks from a Bank of England policymaker saying the time was right to bring down interest rates.

Traders who have been growing worried about inflation responded with relief, buying stocks and sending benchmark 10-year Treasury yields down more than 13 basis points, although the currency market reaction was a bit more muted.

The dollar index remains 0.5% firmer in January and, if sustained, would notch four consecutive monthly gains. Markets priced in about an extra 10 bps of Federal Reserve easing this year after the inflation data, reckoning on 37 bps of cuts.

“Of course, the dollar has overshot rate spreads lately,” said Deutsche Bank (ETR:DBKGn) macro strategist Tim Baker in a note.

“But it’s not all that large,” he said. “The dollar should build in risk premium given the geopolitical backdrop.

“Further,” he said, “it’s also completely normal to see dollar strength like this when U.S. growth is outperforming peers to this extent – and in previous episodes the dollar has overshot this relationship.”

Markets have a wary eye on Donald Trump’s inauguration day on Monday for a slew of executive orders, especially on tariffs, that are likely to roil asset prices and the dollar.

“USD strength may partly reflect Trump 2.0 (tariff) fears,” said Mizuho (NYSE:MFG) economist Vishnu Varathan.

China’s yuan, seen on the front lines of tariff risk, hardly caught a break and was near the weak end of its trading band at 7.3312 in early trade. [CNY/]

The New Zealand dollar, at $0.5623, is still near Monday’s two-year low of $0.5543 and the Aussie remains within reach of a recent five-year low, receiving only a brief boost from robust employment figures on Thursday.

Sterling dipped slightly to $1.2233 in Asia and there was not all that much relief for smaller currencies.

Indonesia’s rupiah had made a six-month trough on Wednesday following a surprise rate cut from Bank Indonesia. South Korea’s won did not take much of a boost, either, from the central bank defying expectations for a cut to leave its benchmark rate on hold at 3% on Thursday.

Besides the beginning of Trump’s presidency, markets are looking ahead to Chinese growth figures due on Friday and to a Bank of Japan meeting next week.

Recent remarks from BOJ Governor Kazuo Ueda and his deputy Ryozo Himino have made clear that a hike will at least be discussed and markets have priced about a 74% chance of a 25 basis point rise in short-term rates to 0.5%.

By David Lawder and Lawrence Delevingne

WASHINGTON (Reuters) -Scott Bessent, U.S. President-elect Donald Trump’s choice to head the Treasury Department, on Wednesday vowed to ensure that the dollar remains the world’s reserve currency as he laid out a vision for a “new economic golden age”.

Bessent, who faces questioning before the U.S. Senate Finance Committee on Thursday, said in prepared testimony that the new Trump administration must prioritize productive investment that grows the economy over “wasteful spending that drives inflation.”

“We must secure supply chains that are vulnerable to strategic competitors, and we must carefully deploy sanctions as part of a whole-of-government approach to address our national security requirements,” Bessent said in the remarks.

“And critically, we must ensure that the U.S. dollar remains the world’s reserve currency.”

Bessent, a hedge fund manager who has advocated for Trump’s plans to impose significantly higher tariffs on imports, did not single out China in his remarks, but he has previously said China’s trade practices have hollowed out American industry.

Trump has threatened a 60% tariff on imports from China and a 10% duty on global imports. Trump has also said he would impose 25% duties on Canadian and Mexican imports, until those two countries halt the flow of illegal immigrants and fentanyl into the United States.

$4 TRILLION TAX HIKE

Bessent also said the administration and Congress need to “make permanent” the expiring provisions of Trump’s 2017 Tax Cuts and Jobs Act.

“If Congress fails to act, Americans will face the largest tax increase in history, a crushing $4 trillion tax hike,” Bessent said.

The Trump administration and Congress also need to implement “pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors,” he said.

The latter policies refer to Trump’s campaign promises to lower the corporate tax rate to 15% from 21% for companies manufacturing products in the United States, and to exempt income from tips and Social Security from taxation.

Bessent said that with support from Congress, the Trump administration could usher in a new, more balanced era of prosperity for Americans that he called “a generational opportunity to unleash a new economic golden age”.

Investing.com– South Korea’s central bank unexpectedly kept interest rates unchanged on Thursday amid heightened political uncertainty in the country after the recent arrest of impeached President Yung Suk Yeol. 

The Bank of Korea left its benchmark rate at 3%, compared to expectations that it would cut the rate to 2.75%. 

The central bank had cut interest rates twice in 2024, as it kicked off an easing cycle to help support economic growth. Consistently softer inflation in the country sparked expectations of more rate cuts.

But these expectations were dented by heightened political uncertainty in the country, after President Yoon attempted to unsuccessfully implement military law in December.

Yoon was impeached, and was arrested at the Presidential compound on Wednesday. 

Investors had also expected more easing by the BOK to help offset the impact of increased political uncertainty, especially after South Korean stocks and the won were battered over the past month. The won in particular slumped to its weakest level in 15 years. 

Analysts said that the central bank was likely to cut rates soon, amid increasing signs of economic pressure from the ongoing political crisis. The BOK’s latest easing cycle was triggered largely by signs of weaker economic growth, high household debt and slowing inflation.

“There are good reasons to expect the central bank to resume its easing cycle soon amid signs the political crisis is weighing on the economy. But even if the crisis is resolved soon, GDP growth is expected to struggle,” analysts at Capital Economics wrote in a note.

Focus is now on an upcoming press conference by BOK Governor Rhee Chang-Yong for more cues on policy.

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank unexpectedly left its policy interest rate unchanged on Thursday, weighing the impact of its back-to-back cuts last year while supporting the won which weakened to a 15-year low versus the U.S. dollar in recent weeks.

The Bank of Korea held its benchmark interest rate at 3.00% at its monetary policy review, an outcome expected by only seven of 34 economists polled by Reuters. The remaining 27 had expected the bank to cut the rate by 25 basis points.

The decision is the first since impeached President Yoon Suk Yeol’s attempt to impose martial law in early December threw Asia’s fourth-largest economy into its biggest political crisis in decades. The turmoil prompted the government to cut its 2025 economic growth forecast to 1.8% from 2.2%.

The crash of Jeju Air flight 7C2216, which killed 179 people in the deadliest air disaster on South Korean soil, has also weighed on the economy.

On top of that, the won’s slide has been a major concern among policymakers. In the final three months of 2024, the currency weakened 10.6% against the dollar, the biggest quarterly drop since the third quarter of 2008.

Local currency dealers said South Korea has been relying on smoothing operations in the onshore dollar-won market as well as the National Pension Service’s currency hedging operations to support the won.

“(Thursday’s rate decision) would be due to its (the BOK’s) greater focus on economic and financial stability concerns, until political uncertainty eases. Instead of January, we expect the BOK to cut the policy rate again at its February meeting, after it revises its economic outlook.” said Park Jeong-Woo, an analyst at Nomura Securities who was one of the seven analysts who correctly predicted the rate decision.

Analysts now see the central bank eying a more gradual pace of interest rate reduction in the year ahead.

Median forecasts in the survey showed one interest rate cut of 25 basis points this quarter and cuts of the same degree in both the second and third quarters taking the rate to 2.25%.

Market focus now switches to Governor Rhee Chang-yong’s press conference at 0210 GMT, where the names of any dissenters to the policy decision could be announced. Dissenting votes typically lead to policy changes in subsequent months.

By Andrea Shalal

NEW YORK (Reuters) – U.S. Treasury Secretary Janet Yellen said on Wednesday U.S. President-elect Donald Trump’s plan to set up a new government agency to collect tariffs would duplicate an existing agency and was unlikely to save money.

Yellen, taping an appearance on “The Late Show with Stephen Colbert,” dismissed Trump’s plan for an “External Revenue Service,” first announced on Tuesday on his social media platform Truth Social.

“If they’re looking to save money for American taxpayers, setting up a duplicative agency doesn’t seem like a good first step,” she told the U.S. television comedian.

Trump on Tuesday said he would create the new agency on Jan. 20, the day he takes office, “to collect tariffs, duties, and all revenue” from foreign sources.

He did not specify if the new agency would replace collections of tariffs, duties, fees and fines by the existing U.S. Customs and Border Protection, or the collection of taxes on foreign corporate and individual income by the Internal Revenue Service.

It was unclear whether the move would create additional government bureaucracy, which would appear to go against the plans of Trump’s informal Department of Government Efficiency, an effort led by billionaire Elon Musk and former biotech executive Vivek Ramaswamy aimed at finding trillions of dollars in budget savings by streamlining government operations.

Yellen also took aim at Trump’s repeated promises to impose new tariffs, saying they would amount to a “tax increase for the American consumer.”

Trump has proposed a 10% tariff on global imports, a 25% punitive duty on imports from Canada and Mexico until they clamp down on drugs and migrants crossing borders into the U.S., and a 60% tariff on Chinese goods.

Trade experts say the duties would upend trade flows, raise costs and draw retaliation against U.S. exports.

Yellen said U.S. consumers would face higher costs for any imported goods and tariffs would make U.S. companies less competitive globally, while failing to address Americans’ concerns about higher prices.

“What they’re going to see is the cost of making goods and services is going to go up. They’re going to be less competitive in the global economy,” she said. “So this doesn’t seem like a way to address the things that Americans have said are bothering them.”