The Bank of Japan will decide on interest rates on Friday with the majority of economists expecting rate hike. In Europe, the European Central Bank (ECB) head Cristine Lagarde said that the European Union should be prepared for potential US tariffs.
 

BoJ Interest Rate Decision 

The Bank of Japan governing board is scheduled to decide on matter of monetary policy on Friday morning. Economists’ forecasts suggest that the BoJ could increase its benchmark interest rate by 25 basis points, tightening its monetary policy in a time when major central banks lower their borrowing costs. This would be the third interest rate hike following the increases in March and July 2024.

A report by Reuters suggested that “keen to avoid a recurrence, the BOJ has carefully prepared markets with clear signals by Governor Kazuo Ueda and his deputy last week that a rate hike was on the cards. The remarks caused the yen to rebound as markets priced in a roughly 80% chance of a rate increase on Friday Jan. 17th.”

Several economists believe that the Japanese economy would be ready to manage interest rates up to 1% without any overheating or overcooling issues.
 

ECB’s Villeroy Not Worried About Inflation

European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Tuesday that “there is a plausible consensus that we will act at each meeting.” The French banker mentioned that the ECB’s board is not on a pre-set course on interest rates.

Regarding monetary policy adjusting, he noted that “if we are decisive about the pace of rate cuts, we don't need larger ones,” but did not rule out any larger cuts in case needed in the future.

De Galhau said that although the central bank should remain vigilant, it is not worried about inflation as there has been progress thanks to its policies.
 

Canada And New Zealand CPI Inflation Reports

Canada CPI inflation rose by 1.8% on an annualized basis in December, slightly lower than the 1.9% anticipated by market analysts. On the contrary, core CPI surged to 1.8%, up from 1.6% registered in November.

In New Zealand, CPI inflation remained steady at 2.2% in the December quarter on a yearly basis while, on a quarterly basis, inflation rose by 0.5%. Statistics NZ noted that “prices are still rising, but not as much as previously recorded. The most recent peak was in the June 2022 quarter when annual inflation reached 7.3%.”

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