Yen drops as BOJ dashes hopes of near-term end to negative interest rates

The Bank of Japan

As expected, the Bank of Japan maintained ultra-loose monetary policy. At the two-day meeting that ended on Tuesday, December 19, the BOJ kept its short-term rate target at -0.1% and the 10-year government bond yield around 0%. It also left unchanged a loose upper band of 1% set for the 10-year yield. But the yen weakened when the Bank of Japan (BOJ) dashed hopes that it would tweak the language to signal a near-term end to negative interest rates. Instead, the bank said it would not hesitate to take additional easing steps if necessary, adding that uncertainty regarding the economy was "extremely high."

Some analysts believe the BOJ may want to wait for months like January and April, when it will be releasing a quarterly outlook report with fresh growth and price projections. More than 80% of economists polled by Reuters in November expect the BOJ to end its negative rate policy next year, with half of them predicting April as the most likely timing. Some see the chance of a policy shift in January.

The Reserve Bank of Australia

A couple of weeks ago, the Reserve Bank of Australia decided to keep its cash rate steady at 4.35%. The minutes released on Tuesday show how Michelle Bullock and her team of policymakers are trying to find the right balance, considering the latest macroeconomic data. On the Hawkish side, the board agrees that there is a risk that returning inflation to the Reserve Bank of Australia (RBA)'s target range of 2-3% will take longer than expected. Consumer price inflation ran at 5.4% in the third quarter. But this is balanced by the risk that aggregate demand slows more quickly than anticipated. Australia's economy barely grew in the third quarter. Exports have been on a downward trend since the middle of last year. Households have been cutting back on spending. The jobless rate hit a 1-1/2-year high of 3.9% in November.

The Canadian consumer price index

Later today, the market awaits the Canadian consumer price index for the month of November. Headline consumer price index (CPI) is expected to rise by 2.9%, down from 3.1% the previous month. That would be the lowest level of inflation since last June. More importantly, core CPI growth is forecast to fall to 2.5%, a new two-and-a-half-year low. This data would comfort Tiff Macklem and his team in their opinion that the Bank of Canada (BOC) monetary policy was moderating spending and relieving price pressures. In an interview aired on Monday, the BOC governor said the bank could start cutting interest rates next year as long as core inflation comes down as predicted. The Bank of Canada had previously forecast that inflation should hit 2% by the end of 2025, but now the bank believes it should be closer to target by the end of next year.

UBS shares

Watch out for UBS at the open today. It was announced on Tuesday that activist investor group Cevian Capital has taken a 1.3% stake in Swiss Bank, worth around $1.3 billion, and is now a top-10 investor in the bank. Cevian, who believes UBS could double its valuation over the next three to five years, has invested just under a tenth of its total portfolio in UBS shares. Since UBS agreed to take over Credit Suisse, its shares have risen almost 50%, up to 25 Swiss Francs. Cevian co-founder Lars Förberg thinks it could double that, as he says, "UBS is valued like an average European bank, not as a leading global wealth manager."

FedEx

Shipping company FedEx will report its fiscal second quarter later today, after the US markets close. In the past two quarters, shipping demand has been down. In the lead-up to the holiday period, shippers have been offering discounts to customers during a period when they usually raise prices. On the other hand, FedEx managed to benefit from events that affected some companies in the sector. In recent months, it picked up business from bankrupt delivery company Yellow. It also gained some momentum as negotiations between rival UPS and Teamsters took a long time. Analysts anticipate earnings of $4.19 per share, down from the $4.55 of the previous quarter but about one dollar higher than a year ago.

Revenues are forecast to reach $22.37 billion, nearly half a billion dollars lower than a year ago. Given the current environment, investors will want to know how much volume has been hit and by how much margins have shrunk.