The yen is in the spotlight, but for a brief moment before the Fed's decision.
A Punch-Drunk Yen? The yen's sudden overnight fall has left investors dazed. It hit a record low against the euro and dropped significantly against the Aussie. The dollar, too, is on the brink of breaking through the 157 yen level.
But here's where it gets controversial: the move seems untriggered, suggesting it might be positioning ahead of the Bank of Japan's (BOJ) meeting next week. A 25-basis-point hike is expected, but the real question is what happens after that. With Japan's fiscal and growth concerns, there's little reason to tighten policy further beyond December.
So, if the expected hike is followed by another long wait, the yen's trajectory is unlikely to change significantly, leaving the currency vulnerable to further downside risks.
Even at 0.75%, Japan's rates would remain among the world's lowest. Meanwhile, policymakers in Australia and Europe have hinted at potential rate hikes.
In other news, China's annual consumer inflation hit a 21-month peak in November, while factory-gate deflation deepened. The Politburo has pledged to expand domestic demand and support the economy with proactive policies in 2026.
Indonesia's rupiah weakened after a U.S. official warned that its trade agreement with the U.S. is at risk due to Jakarta's backtracking on commitments. However, an Indonesian official later assured that tariff negotiations are on track.
And this is the part most people miss: the Fed's decision on Wednesday could be one of the most contentious in recent years. Investors have been stressed leading up to the meeting, with little data due to the U.S. government shutdown and conflicting messages from Fed officials.
White House adviser Kevin Hassett, a potential Fed chair, said there's room to cut rates further, but inflation could change that calculation.
The Bank of Canada is also expected to hold its policy decision later today, with easing inflation and a robust economy reducing the need for further cuts.
Key developments to watch:
- Federal Reserve rate decision
- Bank of Canada rate decision
Stay tuned for more updates as these decisions could significantly impact global markets.
