Ahead Today
G3: US PMI, leading index, University of Michigan sentiment index; eurozone PMI; BOJ policy rate decision
Asia: Thailand trade and international reserves, Singapore CPI, India PMI, Taiwan industrial production
Market Highlights
The spotlight today falls on the Bank of Japan’s upcoming policy meeting, where we expect the central bank to keep its policy rate unchanged at 0.75%. The nuance will likely be around BOJ Governor Ueda’s forward guidance, which will be a key market catalyst for USDJPY and broader Asia FX sentiment.
In particular, markets will likely watch for whether Governor Ueda opens the door to an earlier policy rate hike should the yen weaken further. Any hint that FX stability is gaining weight as a policy consideration could inject volatility into JPY crosses. Markets will also watch for any signals to contain the recent surge in Japan’s long-term yields. Notably, Finance Minister Katayama has earlier called for calm by reiterating the government’s commitment to fiscal discipline and signalling that FX intervention is an available option. From an FX perspective, the near-term bias remains for a still weak JPY, particularly with Prime Minister Takaichi’s call for a snap election adding a layer of uncertainty for the yen.
Meanwhile, US GDP data shows 4.4%qoq annualized growth in Q3, while core PCE inflation picked up to 2.8%yoy in November, up from 2.7%yoy in October. Markets have further moderated their US rate cut expectations to 43.5bps this year, or less than 2 cuts, versus expectations of around 60bps of cuts at start of the year.
Regional FX
The PBOC has reinforced a clear easing bias for 2026, signalling that monetary policy will remain “moderately loose” as Chinese authorities work to stabilise growth and guide a gradual recovery in prices. PBOC Governor Pan has also signalled that further cuts to the reserve requirement ratio and interest rates remain on the table, with authorities pledging to keep liquidity ample and financing costs low. Taken together, these signals point to a sustained policy support environment in 2026, which could help support domestic growth and resilience in the Chinese yuan amid global uncertainties. In turn, this could help anchor regional sentiment and bode well for selective regional currencies including SGD, MYR, and TWD.
Meanwhile, Bank Negara Malaysia kept the Overnight Policy Rate unchanged at 2.75%, reaffirming its view that the current monetary stance remains appropriate to support economic growth while maintaining price stability. Inflation will likely remain moderate while growth is supported by resilience in domestic demand. In our view, BNM’s policy stance remains broadly neutral, with little impetus for near term policy adjustments. At the same time, narrowing yield differentials with the US, alongside continued strength in Malaysia’s electrical and electronics exports, could provide an additional tailwind for the ringgit.