Equities Withstand Japanese Rate Hike
December 19, 2025
As widely anticipated, the Bank of Japan implemented its first interest rate increase in 11 months. At 0.75%, the short-term deposit facility has attained its highest level in in just over three decades. Today’s fourth increase since March 2024 won unanimous approval by the central bank board after 5 hours of deliberation, but monetary officials managed to avoid signaling any sense of speeding up the normalization process. By their own admission, today’s increase leaves the bank’s policy stance still extremely skewed toward growth promotion:
Real interest rates are expected to remain significantly negative, and accommodative financial conditions
will continue to firmly support economic activity.
The timing of future interest rate hikes was left very vague, with language very similar to what was used during the prior 11 month pause. It all depends on the future evolution of price and wage inflation. In total, the interest rate has gone up marginally less than a percentage point since being held at -0.1% for eight years. Core consumer price inflation in Japan, by contrast, has exceeded the 2% target for 44 straight months, including a reading of 3.0% last month. In reaction to today’s rate hike, the 10-year Japanese JGB yield rose five basis points to 2.01%. However, the yen slumped 1.0% to a monthly low against the dollar, and the Nikkei-225 index of equities closed up 1.0%. By downplaying the significance of today’s decision, officials avoided triggering an immediate disruption in the global monetary system that some market participants had feared.
In weighted terms despite the aforementioned appreciation against the yen, the DXY dollar index is up only 0.1% today, with a dip of 0.1% versus the euro and no change relative to sterling.
Ten-year sovereign debt yields climbed five basis points in France, four bps in Germany, the U.K. and Spain, three bps in Italy and two basis points in the United States.
Stock markets rose 0.8% in Hong Kong and Taiwan and 0.7% in South Korea and so far in the Russell 2000 and S&P 500 U.S. indices. European stock markets are up, too, but by noticeably less than these moves.
Bitcoin is ending the week on a high note, climbing 3.1% so far today. Oil is 0.5% firmer, while gold has edged down 0.1%.
Many countries have released economic data today in the rush before the holidays.
Consumer confidence weakened to a 20-month low in Germany, a 4-year low in the Philippines, a 2-month low in Slovenia, a 5-month low in Turkey, a 3-month low in the euro area but improved to 2-month highs in Sweden, Italy and Great Britain, a 4-month high in Denmark and matched the prior month’s 14-month high in the Netherlands. The U. Michigan-compiled U.S. consumer sentiment index for this month has been revised downward and, at 52.9, represents a 2-month low after November’s second weakest reading ever and a huge drop from the December 2024 reading of 74.0 taken soon after last year’s national election.
November producer prices in Germany were unchanged from October and experienced their deepest 12-month decline (-2.3%) in 19 months. French producer prices posted an even larger 3.2% on-year drop, biggest in 11 months. In Slovenia, PPI inflation settled back to a 2-month low of 1.1% following October’s 4-month peak. Latvian PPI inflation of 2.1% in November matched October’s 8-month high. Georgian PPI inflation of 6.1% was at a 9-month high, and South Korean PPI inflation of 1.9% was its highest in 16 months.
Euroland’s seasonally adjusted current account surplus widened to a 3-month high of EUR 25.7 billion in October. Over the past 12 months of reported figures, the unadjusted current account equaled EUR 318 billion. That’s 2.0% of GDP, down from 2.8% of GDP in the 12-months to October 2024.
British retail sales volume dipped 0.1% on month in November, underperforming expectations and yielding a 0.6% year-on-year rise for a second straight months.
Canadian retail sales rebounded 1.2% last month after back-to-back declines in September and October totaling 1.4%.
Swedish and Danish retail sales were 5.6% and 4.7% above year-earlier levels in November.
In the Caribbean island nation of Jamaica, which is reeling from the massive destruction of Hurricane Melissa, the central bank left its key interest rate unchanged at 5.75% as had been expected. There had previously been rate reductions totaling a full percentage point in the second half of last year plus another 25-bp cut last May. Although consumer price inflation jumped from 2.9% in October to 4.8% in November and despite the inflationary risks accompanying infrastructure repair, a rate hike now would have been ill-advised.
The Bank of Russia has cut its interest rate by another 50 basis points, but the level remains high at 16.0% versus on-year CPI inflation of 6.6% in November, which was a 26-month low. “Proinflationary risks still prevail over disinflationary ones in the mid-term horizon.” The central bank rate had crested at 21.0% from October 2024 until an initial cut of 100 basis points this past June. That move was followed by cuts of 200 bps in July, 100 bps in September and a lesser 50 bps in October.
Further decisions on the key rate will be made depending on the sustainability of the inflation slowdown and the dynamics of inflation expectations. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 4.0–5.0% in 2026. Underlying inflation will reach 4% in 2026 H2. In 2027 and beyond, annual inflation will stay on target.
Mongolia’s central bank rate was left unchanged at 12.0% and thus remains at its highest level in over 5 years. Mongolian CPI inflation of 8.2% last month still exceeds the 3-7% target range.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of Jamaica, Bank of Japan, Bank of Mongolia, British and euro area consumer confidence, British and Swedish retail sales, Central Bank of Russia
ShareThis
