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Traders in the swaps market have significantly increased their bets on an interest rate hike by the Bank of Japan (BOJ) at its upcoming 23-24 January meeting, with the likelihood rising to nearly 99% from 71% earlier in the week. Market expectations were bolstered by BOJ Governor Kazuo Ueda’s comments on Wednesday, suggesting a decision on rates would be made soon and expressing confidence in wage growth. Japan’s government bond yields have climbed, with the 2-year yield reaching its highest level since 2008.

Chinese stocks saw their sharpest decline in three weeks as investors awaited detailed fiscal stimulus measures following the Central Economic Work Conference (CEWC). The CSI 300 index fell 2.4%, erasing recent gains, while Hong Kong-listed Chinese stocks dropped over 2%. Commodities such as iron ore and copper, reliant on Chinese demand, also slumped, reflecting market scepticism about the government’s economic pledges. The CEWC emphasised boosting consumption and domestic demand, with plans to raise the fiscal deficit and strengthen the social safety net. However, specific policies, including growth targets, remain deferred until March, leaving investors cautious.

The Bank of Japan (BOJ) has signalled that a potential rate hike remains under consideration, despite its decision to maintain current monetary policy during its December meeting. According to a summary of discussions, board members expressed differing views on the timing of a rate adjustment. Some advocated for patience to monitor wage trends and uncertainties surrounding the US economy, while others highlighted the need for pre-emptive action to address inflationary pressures and Yen depreciation. Governor Kazuo Ueda’s recent cautious remarks have tempered market expectations towards an imminent rate hike.

The world’s economic pulse in November could be summed up in one phrase: risk is back in vogue. After a tumultuous year marked by uncertainty and caution, investors seemed ready to embrace risk across most asset classes, resulting in a month of strong performances, albeit with some notable exceptions.

Chinese stocks saw their sharpest decline in three weeks as investors awaited detailed fiscal stimulus measures following the Central Economic Work Conference (CEWC). The CSI 300 index fell 2.4%, erasing recent gains, while Hong Kong-listed Chinese stocks dropped over 2%. Commodities such as iron ore and copper, reliant on Chinese demand, also slumped, reflecting market scepticism about the government’s economic pledges. The CEWC emphasised boosting consumption and domestic demand, with plans to raise the fiscal deficit and strengthen the social safety net. However, specific policies, including growth targets, remain deferred until March, leaving investors cautious.

China’s top leaders plan to ease monetary policy and expand fiscal spending in 2025 as Beijing braces for heightened economic challenges, including potential trade tensions. The Politburo, led by President Xi Jinping, announced a shift toward a “moderately loose” monetary policy—the first such adjustment since 2011. Fiscal policy will also adopt a more aggressive stance, evolving from “proactive” to “more proactive,” according to state media. At the December meeting, officials pledged to stabilise property and stock markets and deploy “extraordinary counter-cyclical policy adjustments,” signalling a readiness to use unconventional measures to support the economy. These steps highlight China’s determination to bolster confidence amid external risks, including the prospect of U.S. tariffs.