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The Bank of Japan (BOJ) raised its key policy rate to 0.5%, the highest since 2008, signalling a bullish view on inflation. Governor Kazuo Ueda indicated that future rate hikes depend on economic conditions. The yen strengthened by 0.8% against the dollar, and 10-year Japanese government bond yields rose to 1.225%. Japanese stocks fell slightly by 0.1%. The BOJ’s decision was influenced by stable global financial markets and the return of Donald Trump to the White House.

The final month of 2024 offered a mixed bag for global markets, capping off a year that was largely favourable for risk assets but ended on a more cautious note. December’s economic pulse reflected a challenging environment, as markets navigated the implications of a shifting policy landscape, persistent geopolitical tensions, and regional economic divergences. Performance across asset classes was mixed, with equities delivering modest gains in some regions but generally underwhelming results overall. Alternatives and bonds faced broad declines, while currency movements highlighted the strength of the dollar against its major counterparts.

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.