LONDON (Reuters) – It’s a big week ahead as the U.S. Federal Reserve, European Central Bank and Bank of Canada hold their first meetings of 2025.

Into the mix go earnings from heavyweights including Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA), and likely market spikes from comments by new U.S. President Donald Trump – especially any on tariffs.

Here’s your guide to the week ahead in global markets from Lewis (JO:LEWJ) Krauskopf in New York, Kevin Buckland in Tokyo and Amanda Cooper, Lucy Raitano and Yoruk Bahceli in London.

1/ FED AHEAD The Fed holds its first meeting of the year, just over a week after Trump’s return to the White House. The central bank is widely expected to pause its easing cycle on Wednesday, after cuts totalling 100 basis points (bps) last year. Investors want to know how many more reductions are likely this year. Remember, the Fed rattled markets in December when it lowered projected rate cuts for 2025 as it braced for firmer inflation than it had previously estimated. Since then, data showing slower underlying inflation brought relief, especially after a blowout jobs report. Earnings reports will also take centre stage, with megacap companies Apple, Tesla and Microsoft (NASDAQ:MSFT) headlining a busy earnings week, while the advanced reading of Q4 U.S. economic growth is out Thursday.

2/ CUT? WHY NOT

The ECB is set to cut rates again by another 25 bps on Thursday as tariff threats from the Trump administration cast a shadow over the euro zone’s sluggish economy.

Trump did not impose day-one tariffs and said the U.S. is not ready for universal ones, but Canada, Mexico and China are in the firing line, as is the European Union.

Traders are watching for further clues from ECB chief Christine Lagarde that could move the needle for the three further cuts they expect this year after Thursday’s move.

Some policymakers have also signalled agreement that rates will fall towards 2%, within the estimated range of the “neutral” rate that neither boosts nor restricts the economy.

The question is whether tariffs will change that. That depends on how they impact inflation.

3/ TICK TOCK TO TARIFFS

The United States’ biggest trade partners face a nervous wait until the turn of the month, when Trump has threatened new tariffs on Canada, China and Mexico.

What maybe surprising is the 10% levy faced by Beijing is dwarfed by the 25% duties promised for Trump’s neighbours, and well below the 60% blanket tariff on Chinese imports previously mooted.

Perhaps the rekindled Trump-Xi Jinping bromance has something to do with it. Or maybe Trump is just starting slow.

Either way, the self-proclaimed dealmaker looks as if he wants to bring Beijing to the negotiating table, with TikTok as the centrepiece.

So the lead up to Feb. 1 could be busy with backroom conversations, though China breaks for the Lunar New Year on Wednesday.

Beijing made sure it acted before that, fortifying its stock market against tariff shocks with plans to channel tens of billions of dollars of investment from state-owned insurers into equities.

4/ ROLLER-COASTER RIDE

For all the hand-wringing leading up to the inauguration, Trump’s first week in office was mostly benign for markets.

Volatility across stocks, bonds and currencies has retreated, and demand for hedging risk around the Mexican peso, the Canadian dollar and the Chinese yuan has shrunk from the extremes hit on inauguration day.

Analysts expect there will be more detail on what tariffs Trump will apply and where on April 1.

Before then, there is plenty of time for more of Trump’s off-the-cuff comments, such as remarks to journalists on Jan. 21 that he was considering duties on China from Feb. 1. Investors should brace for more roller-coaster price action.

5/ EUROPE INC Europe’s earnings season is overshadowed by uncertainty over Trump’s policies, although Q4 numbers are expected to be marginally positive. According to LSEG I/B/E/S estimates, Q4 earnings, on average, rose 1.9% from the same period in 2023, driven by growth in utilities and financials. Energy names are expected to drag. Geopolitics and weak euro zone business activity should be offset by a robust U.S. economy and falling euro, a tailwind to exporters, supporting earnings. After all, 40% of the STOXX 600 index revenue comes from outside Europe. Luxury bellweather LVMH reports Tuesday, Dutch computer chip equipment maker ASML (AS:ASML) Wednesday, and Deutsche Bank (ETR:DBKGn) Thursday. Danish weight-loss drug manufacturer Novo Nordisk (NYSE:NVO) reports the week after. European stocks attracted their second largest allocation in a quarter of a century in January, a BofA investor survey shows, a sign that sentiment is shifting even as Trump angst reigns.

(Graphics by Kripa Jayaram, Pasit Kongkunakornkul and Vineet Sachdev; Compiled by Dhara Ranasinghe; Editing by Barbara Lewis)

Investing.com — Taiwan’s economy experienced its fastest growth in three years in 2024, driven primarily by technology exports in the AI industry. The growth, however, is faced with uncertainty this year due to potential tariff threats by President Donald Trump.

The nation’s gross domestic product (GDP) increased by 4.3% on-year, as reported by the statistics bureau on Friday. This growth aligns with the median estimate put forth by a Bloomberg survey of economists.

The GDP for the fourth quarter of 2024 was recorded at 1.84%, falling slightly short of the estimated 2.0%. This marks the third consecutive quarter where the economic expansion has seen a slowdown, highlighting the challenges Taiwan faces in sustaining rapid growth.

Looking ahead, the statistics bureau has revised its growth prediction for the economy in 2025. The new forecast suggests a growth of 3.29%, a slight increase from the previously predicted 3.26%.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Investing.com — A study by Begbies Traynor, a U.K. business recovery, financial advisory and property services consultancy, has revealed a significant increase in financial distress among U.K. firms.

The study was published on Friday and indicates a challenging year ahead for businesses across all sectors in the country.

The firm’s latest Red Flag Alert report highlighted a concerning surge in the number of U.K. businesses entering a state of “critical” financial distress in the final quarter of 2024.

The report showed a rise of 50.2% in financial distress, affecting 46,853 companies. This significant increase underscores a deteriorating business outlook across the U.K., according to the study.

The report, which monitors the health of U.K. companies, pointed to a historic jump in financial distress, indicating that businesses across all sectors of the country are set for a challenging period. The findings of the report suggest a tough year ahead for U.K. firms as they grapple with increased financial distress.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Lucy Raitano

LONDON (Reuters) – European companies are set to deliver a third straight quarter of profit growth, which may help to maintain newfound investor enthusiasm for the region despite political and economic turmoil and concerns over U.S. President Donald Trump’s tariffs threat.   

European stocks are trading at record highs, having outperformed Wall Street in the opening weeks of 2025, yet valuations are still rock bottom in comparison.

Investor cash has poured into the European market at the second-fastest pace in 25 years in January, according to Bank of America, even before Trump assumed the presidency and the first European company earnings began to trickle in.

Analysts are cautious, having chopped their estimates for fourth-quarter earnings growth to 1.5% from the previous year – or 4.9% excluding energy – down from an estimated 2.5% just two weeks ago, according to data from LSEG I/B/E/S.

This would still mark the third consecutive quarter of expansion with forecasts showing both profit and sales growth for the first time since the first quarter of 2023.

“There is a high chance that if companies exceed expectations during the reporting season, share prices could rise. The potential for upside is greater than the downside,” said Matthieu Dulguerov, head of equities at REYL Intesa Sanpaolo (OTC:ISNPY).

However, with Trump threatening to impose tariffs on European Union imports, and political and economic uncertainty wracking the euro zone’s growth engines – France and Germany – the mood is tense.

“We think European management teams will err on the side of caution and give wide ranges considering the uncertainty and previous difficult years in Europe,” said Bernie Ahkong, CIO Global Multi-Strategy Alpha at UBS O’Connor. He cited the uncertainty around the new U.S. administration, the Chinese economy, a key market for European exporters, and geopolitics. 

Luxury bellwether LVMH reports on Tuesday, Dutch computer chip equipment maker ASML (AS:ASML) on Wednesday, and Deutsche Bank (ETR:DBKGn) the following day. Danish drugmaker Novo Nordisk (NYSE:NVO) reports the week after.

LOWER BAR, EASIER BEATS

It’s early days for earnings, but already, Swiss luxury giant Richemont (SIX:CFR)’s shares recorded their biggest daily rise in 16 years on Jan. 16 after fourth-quarter sales smashed expectations. 

The latest surveys of business activity show the euro zone’s three largest economies – Germany, France and Italy – are stuck in an industrial recession, lagging global surveys, which have been driven by a strong U.S. economy, thereby cushioning European earnings.  

Another factor that has given European stocks a tailwind is the euro, which has lost some 4.5% in the last year. 

“Many believe Europe is facing economic challenges and will have lower growth compared to the U.S. However, most European companies are not heavily reliant on European economic growth as they operate globally,” said Dulguerov.

Goldman Sachs strategists estimate that 60% of European company revenues come from outside Europe.   

European shares are trading near their largest discount on record to the S&P 500 index, at a forward price-to-earnings ratio of around 13.3, compared with 21.6 for U.S. stocks, according to LSEG Datastream.

Many of these factors are already baked into investors’ assumptions, and for Ahkong, the commentary around full-year guidance will be key for his team taking a strong view on specific sectors. 

Investors will be poring over company announcements for any clarity on the impact of Trump’s policies on results.  

On Monday, Lanxess (ETR:LXSG) shares jumped 5.1% after the German specialty chemicals maker said it expected its fourth-quarter core profit to exceed market expectations by more than 20%, largely due to pre-buying by U.S. customers ahead of Trump’s Jan. 20 inauguration, given his threats on tariffs.

By Ariba Shahid

KARACHI (Reuters) – Pakistan’s central bank is expected to lower its key interest rate by at least 1 percentage point on Monday, analysts said, in its sixth straight cut as it attempts to revive economic and business sentiment as inflation slows sharply.

The central bank has slashed rates by 900 bps from an all-time high of 22% in June 2024, in one of the most aggressive moves among emerging markets’ central banks and topping the 625 bps in rate cuts it did in 2020 during the COVID-19 pandemic.

The median expectation of the fifteen analysts surveyed by Reuters is for the State Bank of Pakistan to lower rates by 100 basis points (bps). Only one analyst expects the bank to hold rates at 13%.

Of the 14 analysts who expect a rate cut, 11 expect a 100 bps reduction, one expects the central bank to lower rates by 150 bps and two expect it to chop rates by 200 bps.

Ahmad Mobeen, senior economist at S&P Global Market Intelligence, said his forecast for a 150 bps cut was “driven by the low December inflation figure and a stable exchange rate supported by a healthier current account.”

The South Asian country is navigating a challenging economic recovery path and has been buttressed by a $7 billion facility from the International Monetary Fund (IMF) in September.

Pakistan’s consumer inflation rate slowed to an over 6-1/2-year low of 4.1% in December, largely due to a high year-ago base. That was below the government’s forecast and significantly lower than a multi-decade high of around 40% in May 2023.

The central bank, in its policy statement in December, noted that it expected inflation to average “substantially below” its earlier forecast range of 11.5% to 13.5% this year.

However, inflation may pick up in May as the base year effect wears off, said Saad Hanif, research analyst at Ismail Iqbal Securities.

That is “in addition to other risks to inflation including increases in energy tariffs, new taxation measures, and a potential hike in the levy on petroleum prices,” said Hanif, who expects a 100 bps cut.

# Name/ Organization Expectation

1. Al Habib Capital Markets -100

2. Ammar Habib Khan -100

3. Arif Habib Limited -100

4. AWT Investments 0

5. Equity Global -100

6. FRIM Ventures -100

7. Intermarket Securities -100

8. Ismail Iqbal Securities -100

9. JG Global -100

10. K Trade -100

11. Lakson Investments -200

12. Pak Kuwait Investment Company -100

13. S&P Global Market Intelligence -150

14. Topline Securities -100

15. Uzair Younus -200

Median -100

By Mike Dolan

LONDON (Reuters) – The extreme global investor bias for all things American may not need to end with some major U.S. shock, but could eventually reverse with just a modest lifting of the pervasive gloom surrounding Europe.

Many experts are wary of the scale with which the U.S. is hoovering up global investment and the resulting strength of the dollar. This is raising fears that any missteps stateside could cause a sudden reversal of these gigantic cross-border flows.

But the majority of those flows are coming from other rich economies, mostly in Europe. So the lack of a compelling case to stay at home is arguably as big a driver of the yawning geographic investment imbalances as the magnetic pull of Wall Street.

Few question the attractions of the U.S. – impressively brisk growth, giant tech investment drivers, rising productivity and now, with the return of Donald Trump to the White House, a new round of deregulation to boot.

Spurring this momentum is both the greater liquidity of U.S. markets compared to their foreign peers and the ever rising U.S. share of supposedly ‘diversified’ global equity and bond indexes. Indeed, U.S. stocks now make up two thirds of MSCI’s all-country equity basket..

But the sheer scale of negativity surrounding the economic outlook beyond U.S. shores, especially in Europe, is a major driver keeping European money moving across the Atlantic and U.S. investors at home.

To be sure, Trump’s threatened trade wars and ‘America First’ investment agenda has much to do with keeping those clouds thick and dark overseas.

The mood at the World Economic Forum on Davos this week spoke to that.

“You meet the Americans, (it’s) a real party. You meet the Europeans, it is like at a funeral,” the chief executive of Norway’s $1.8 trillion sovereign wealth fund Nicolai Tangen said of his meeting with other CEOs.

BALLOONING NIIP

The latest official U.S. net international investment position (NIIP), which measures the difference between the value of U.S. investment overseas against that of foreign holdings of U.S. securities, showed a record gap of $23.6 trillion at the end of the third quarter of 2024.

This figure shows net overseas holdings of U.S. assets – U.S. liabilities to the rest of the world – at some 90% of the country’s estimated full year gross domestic product in 2024. And the value of foreign holdings of U.S. assets has almost doubled to more than $60 trillion over the past decade.

The explosion of the NIIP gap is partly due to the scale of price outperformance of U.S. securities over foreign securities held by U.S investors. The dollar’s rising exchange rate is also playing a role. But, even more importantly, the underlying flows just keep coming.

The Bureau of Economic Statistics last month said that additional foreign purchases of U.S. debt and equity securities in the third quarter of last year alone amounted to some $717 billion, stripping out valuation effects.

Where does all the money keep coming from?

One big player stands out. Germany overtook Japan last year as the world’s largest net outward investor, with its contrasting NIIP surplus now soaring above $3 trillion to more than 70% of German GDP and double the share it recorded only a decade ago.

So much so, the entire euro zone NIIP flipped into net surplus for the first time two years ago.

As a share of GDP, Switzerland is another big outward investor – in part due to the Swiss National Bank’s near $1 trillion reserve pile. Sweden’s ranking is rising too.

“STUPIDLY BIG”

Societe Generale (OTC:SCGLY) strategist Kit Juckes described the U.S. NIIP deficit at $23 trillion as a “stupidly big number” that raises reasonable questions about its long-term sustainability.

“If this transpires to be some form of bubble in the U.S. equity market, I struggle to believe $23 trillion is just going to go back to $21.5 trillion. When it re-balances it’s going to be a very big move indeed.”

But Juckes noted that a major driver of the imbalances was the fact that European investors can’t find anything more attractive at home. If this perspective changes, the massive bias toward U.S. markets could possibly ‘lighten up’.

To that effect, the new year has provided some shards of light. Euro zone stocks have actually outperformed U.S. indexes two-to-one in dollar terms for the year so far. Drawing funds interest in the extremity of the Transatlantic valuation gap, it’s a notable rarity over any timeline recently.

Meanwhile, Bank of America’s latest fund manager survey revealed this week that global funds recorded the second largest allocation to European stocks in a quarter of a century.

A flash in the pan or a portent of things to come?

Ironically, Trump may hold the keys to that. If successful, his push for an end to the war in Ukraine could do much to lift the mood on the eastern side of the Atlantic. Backing away from tariff hikes on Europe would obviously be another major relief for the continent.

Germany’s election next month could also possibly generate more optimism, if the outcome signals that there will be a review of the country’s draconian public spending limit.

Valuations in the U.S. and investor positioning are already at extremes. All that may be needed is a trigger and a narrative.

The opinions expressed here are those of the author, a columnist for Reuters.

By Jiaxing Li and Ankur Banerjee

HONG KONG/SINGAPORE (Reuters) – New shades of capitalism are emerging in China’s tuckered out stock market as companies, at Beijing’s behest, buy back their shares and pay record dividends to investors lying in wait for a so-far evasive rebound.

Investors say the record spree of share buybacks and dividend payouts mark a cultural shift in the market, turning the spotlight on shareholder returns akin to the ongoing corporate governance makeover in Japan.

The dividend yield on Chinese stocks has risen to around 3%, the highest since 2016, rewarding investors who have bravely stayed invested in a market that has been limp for years and faces more stress after Donald Trump’s return as U.S. president.

“China’s regulators and policymakers are trying to engineer this culture of shareholder return,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas (OTC:BNPQY).

“If that can be successfully engineered, it will change the makeup of the capital market, and you’ve seen some early sign of that,” referring to increased shareholder returns.

The buybacks and dividends were introduced as part of proposals by Chinese authorities in September to lift stock prices and boost consumer sentiment.

The benchmark CSI 300 index has struggled in recent years, down more than 27% since 2021 against a 65% rise for the S&P 500. The market value of Chinese stocks has stagnated for a decade at around $11 trillion.

Lingering concerns over the indebted property sector, deflationary pressures, lack of big stimulus and geopolitical tensions have hurt sentiment, causing a foreign investment exodus. The threat of tariffs from Trump is another worry.

Even after Beijing showed willingness to boost the market in September, stock prices have lost momentum. The CSI300 index surged 40% in the two weeks after the first stimulus announcements but disappointment with the degree and pace of implementation has seen gains halve since then.

“The simple way to look at it, you should be paid enough of a dividend … for you to take the pain of the fact that the recovery might not happen in valuations,” said Bhaskar Laxminarayan, chief investment officer for Asia at Julius Baer (SIX:BAER).

“You’re being paid for that patience. If you’re not, then it’s not worth it.”

BIG DATA

Chinese firms distributed dividends totalling a record 2.4 trillion yuan ($329.7 billion) in 2024. Share buybacks too rose to a record high 147.6 billion yuan last year, data from regulators showed.

Wu Qing, head of the China Securities Regulatory Commission, said on Thursday that more than 310 companies are expected to pay out dividends totalling more than 340 billion yuan in December and January.

That is a 9-fold increase in the number of companies and a 7.6-fold rise in dividend amount versus the same period last year.

In a sign of how the market is maturing into one where shareholder return is becoming a differentiator, investors have been steadily pouring into dividend-themed exchange-traded funds (ETFs), with nearly $8 billion of inflow since 2020, compared with just $273 million in the previous five years, LSEG Lipper data showed.

The CSI Dividend Index – comprised of traditional energy, financial and material companies that yield high dividends – is up 20% in the past five years compared with a drop of about 8% for the blue-chip CSI300 index.

The CSI growth index sank 25% in the same period.

CULTURAL SHIFT

Policy measures, including a 300 billion yuan share buyback financing programme and guidelines requiring mainland companies to improve shareholder returns and valuations, have helped sharpen the focus on higher-yielding firms.

“China was never a dividend-yielding asset class as a whole, because it was always seen as a growth-oriented play. But now I think we’re in a nice sweet spot where you have both growth and yield,” said Nicholas Chui, China portfolio manager at Franklin Templeton.

Roughly two-thirds of the stocks in Chui’s portfolio are now yielding at least 2%, which is “not just a deliberate allocation on my part, but really the entire market has gone up in yield,” Chui said. “It’s a change in culture.”

Rising dividends also prevent income-seeking mainland investors from rushing into bonds, as they have done for months. The dividend yield is now well above the 1.7% they can earn on 10-year government bonds.

Shares of battery maker Contemporary Amperex Technology and e-commerce behemoth Tencent rose after the companies announced buybacks or dividend payouts.

Goldman Sachs estimates Chinese companies listed at home and abroad could return a total 3.5 trillion yuan to shareholders in 2025, a jump of over 17%.

“Companies don’t know where to put their cash, so they return it now to shareholders. This is a very big shift in mindset,” said Herald van der Linde (NYSE:LIN), head of equity strategy for Asia-Pacific at HSBC.

“I think 10 years ago, you wouldn’t have expected this.”

($1 = 7.2798 Chinese yuan)

TOKYO (Reuters) – Consumer inflation in Tokyo likely accelerated in January, underlining persistent pressure on living costs, a Reuters poll showed on Friday.

The core CPI for Japan’s capital will come out after the Bank of Japan on Friday raised interest rates to their highest in 17 years, underscoring its confidence that rising wages will keep inflation stable around its 2% target.

The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide price trends, likely rose 2.5% year-on-year in January after a 2.4% gain in December, the median forecast of 16 economists showed.

“Electricity and gas prices remained high and gains in gasoline prices likely pushed up inflation,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

Data on Friday showed Japan’s nationwide core consumer prices rose 3.0% in December year-on-year, the fastest annual pace in 16 months. nL3N3OI0T4

The internal affairs ministry releases Tokyo CPI data at 8:30 a.m. on Jan. 31, Japan time (2330 GMT at Jan. 30).

Next (LON:NXT) week’s data also includes Japan’s industrial output, which was expected to show a 0.3% rise in December from a month ago, rebounding from a 2.2% fall in November, the poll found.

Production machinery such as semiconductor manufacturing equipment and transport machinery probably likely boosted factory output, analysts said.

Retail sales were forecast to have risen 3.2% in December from a year ago, helped by solid sales of products such as air conditioners, which are used for heating during winter months, according to the poll.

The trade ministry will release both factory output and retail sales at 8:50 a.m. on Jan. 31, Japan time (2350 GMT Jan. 30).

The nation’s jobless rate was seen at 2.5% in December and the jobs-to-applicants ratio likely stood at 1.25, both figures were unchanged from November, the poll showed.

The jobs data will be released at 8:30 a.m. on Jan. 31.

SINGAPORE (Reuters) – The Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis, underscoring its confidence that rising wages will keep inflation stably around its 2% target.

The board decided to raise the BOJ’s short-term policy rate to 0.5% from 0.25% by an 8-1 vote. Board member Toyoaki Nakamura dissented to the decision.

QUOTES:

NAOYA HASEGAWA, CHIEF BOND STRATEGIST AT OKASAN SECURITIES, TOKYO

“The decision was in line with our expectations. We await comments from BOJ Governor (Kazuo) Ueda at his post-meeting news conference. We want to know his outlook for the future rate path, rather than why the BOJ raised rates at this meeting. The market now expects that the BOJ raises rates every six months so we want to know Ueda’s view on that.”

MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE

“The hike may have been expected but in what feels like the first time in a very long time, there were no major downgrades to their economic outlook. This keeps the door open to another 25bp hike by the year-end, and rates to sit at a whopping 0.75%.”

TAKAHIRO OTSUKA, SENIOR FIXED INCOME STRATEGIST AT MITSUBISHI UFJ MORGAN STANLEY SECURITIES, TOKYO

“The outcome was as expected, but it seems to be a little hawkish with the BOJ raising its inflation forecast. We want to check comments from (BOJ Governor Kazuo) Ueda to confirm the BOJ’s stance.”

KIERAN WILLIAMS, HEAD OF ASIA FX, INTOUCH CAPITAL MARKETS, LONDON

“The statement is something of a Rorschach test; hawks are pointing to the reiterations that price risks are skewed to the upside and that the BOJ will continue to hike if the economy evolves in line with the outlook… while doves are clinging to the dovish dissent from Nakamura, negative real wage mentions, notes of caution and the line that easy financial conditions will be maintained.”

“The evolution of yen price action throughout the day will depend on the tone adopted by BoJ Governor Ueda at the press conference.”

JOSEPH CAPURSO, HEAD OF INTERNATIONAL AND SUSTAINABLE ECONOMICS, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY

“They dropped a lot of hints in the media that they might do this, and they’ll probably hike again this year, we think they’ll probably hike two more times this year. But they might decide to wait for some time between rate hikes… so we think they’ll probably hike again mid-year.”

TOM NAKAMURA, CURRENCY STRATEGIST AND CO-HEAD OF FIXED INCOME, AGF INVESTMENTS, TORONTO

“A 25 basis point hike to 0.5%, as broadly expected, but inflation forecast raised for both headline and core. I think there was a risk that the Bank of Japan would lean more dovish in their assessment, but this reinforces the broader market expectation for another 25 bps hike later in the year.”

“The market reaction should be neutral, perhaps on the margin mildly bullish for the yen and slightly higher Japanese government bond yields. Ueda’s press conference will be key… for references to the perceived neutral rate and how it would influence the pace and extent of future policy changes.”

NAKA MATSUZAWA, CHIEF MACRO STRATEGIST, NOMURA, TOKYO

“Their logic remains the same. They are still far away from neutral, so it’s natural to make an adjustment. It’s not necessarily a tightening, rather a lesser easing, in a sense.”

“Unless the BOJ either changes the logic of rate hikes, or even raises the neutral point, which they have been mulling – about 1% – there’s not going to be much room for the market to price in further hikes in the future.”

MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO

“The focus of Ueda’s press conference would be about what was different this time in terms of the available information compared to December. Certainly, there have been new inputs such as BOJ Branch Managers’ Meeting and U.S. President Donald Trump’s inaugural speech, but at least Japan’s wage situation has not changed much. I’m wondering how Governor Ueda will explain that.”

“The terminal rate is also a point of interest. The economy would stay on-track (to the BOJ’s forecast), but it is questionable if inflation will stay stably above 2% toward the end of FY25. If goods price inflation slows and is not fully passed on to service prices, the BOJ may not be able to raise rates beyond 1% and stop at around 0.75%.”

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE

“Dollar/yen went both ways likely in reaction to the non-unanimous vote, but it subsequently eased. The upward revision to CPI forecast also exudes a sense of confidence the policymakers have with regard to inflation and the economy meeting expectations. The focus next is on Governor Ueda’s press conference.”

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO

“The rate hike itself was fully priced in, as it had been widely reported beforehand. The rate hike was as I expected, and I now predict that the Bank of Japan will implement rate hikes every six months going forward.”

“Due to the significant upward revisions to the inflation outlook for fiscal years 2025 and 2026, the USD/JPY reacted with yen appreciation. Governor Ueda’s comments on exchange rates during the press conference (will also) draw attention.”

BEN BENNETT, ASIA-PACIFIC INVESTMENT STRATEGIST, LEGAL AND GENERAL INVESTMENT MANAGEMENT, HONG KONG

“The decision was well-telegraphed. The backdrop of elevated global yields and a strong dollar is supportive for such a move, reducing the likelihood of a repeat of the summer market meltdown when a Japanese rate hike led to a spike in the yen.”

“Today’s move is still yen positive, but I’m not surprised the market reactions have been modest.”

KOTA SUZUKI, STRATEGIST, NOMURA ASSET MANAGEMENT, TOKYO

“I expect the rate will be kept the same for at least the next six months. This rate hike took six months from the last time. The central bank will be a little more cautious from now on as it will carefully assess the economic situation and the impact of the interest rate hike.”

“If the rate hike were to be brought forward, it would probably be due to the depreciation of the yen, which would have an impact on prices through rises in import prices.”

“When the interest rate hike is postponed, it’s because of economic uncertainty both in Japan and overseas.”

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO

“The BOJ put the price outlook above 2% for both fiscal 2025 and 2026, revised up from the previous forecasts of 1.9% for both years. This indicates that the BOJ would continue raising interest rates through 2026, against some market expectations that rate hikes will stop when the policy rate hits 0.5%-1%.

“Whether the BOJ can do so will probably depend on oil prices and foreign exchange rates… I don’t think the underlying inflation is still strong enough to reach 2%. I expect the BOJ to stop rate hikes sometime in fiscal 2025.”

SHOKI OMORI, CHIEF GLOBAL DESK STRATEGIST, MIZUHO SECURITIES, TOKYO

“This rate hike had been fully priced in, resulting in no significant volatility.”

“For the Outlook Report, it has been noted that the inflation forecast has been revised upward due to cost-push factors. Although comments on rice prices had been reported in advance, this emphasis may be intended to highlight the upward revision of the inflation outlook driven by cost-push elements. There may be caution in stressing the advancement of demand-pull inflation at this juncture, possibly due to concerns that it could significantly elevate expectations for policy rate hikes.”

“A preliminary review of the Outlook Report suggests that while further interest rate increases are anticipated in the future, there is an emphasis on maintaining flexibility regarding the timing and terminal rate.”

Investing.com– The Federal Reserve is expected to largely disregard any inflationary effects stemming from tariffs under Donald Trump’s administration, as such impacts are viewed as one-time price level increases rather than persistent inflationary pressures, Goldman Sachs analysts said in a research note.

However, analysts acknowledged concerns that tariffs could lead to higher inflation expectations, a development that might constrain the Fed’s policy flexibility. These expectations could become more sensitive given the recent surge in inflation, they said.

Goldman Sachs cited economic studies showing that individuals’ lifetime inflation experiences significantly shape their inflation expectations. Using data from the University of Michigan’s consumer sentiment survey, the analysts noted that recent inflation experiences, particularly in highly visible areas like gasoline prices, have an outsized impact on public sentiment.

Based on these findings, the analysts projected that tariffs, under their baseline scenario, would have minimal effects on inflation expectations. Even in a scenario involving a 10% universal tariff, one-year inflation expectations might rise by 0.5 percentage points, and five-year expectations by just 0.1 percentage points.

However, Goldman Sachs warned that tariffs could have a larger psychological impact if price increases garner significant media attention, akin to gasoline price spikes. Recent jumps in Michigan inflation expectations and frequent mentions of tariffs in survey responses suggest that such effects are plausible, analysts stated.

This heightened public sensitivity to tariff-driven price changes might influence policymakers. The Federal Open Market Committee (FOMC) could refrain from cutting rates under such circumstances, while the White House might face pressure to limit further tariff increases, the analysts concluded.