The Bank of Japan (BOJ) maintained its interest rate at 0.25%, quashing any lingering hopes for an imminent rate hike. While expectations of a hike had already diminished in recent weeks, the yen’s reaction suggests some traders were still holding out hope. The BOJ’s dovish tone reinforced its cautious stance, signaling no urgency to raise rates, though the central bank may be better positioned to do so in 2024. The yen’s sharp drop reflects the abrupt collapse of these rate hike expectations.

Yen Underperforms Among Major Currencies

The Japanese yen emerged as the weakest performer among major currencies on Thursday, with significant moves across FX pairs:

• CHF/JPY: The Swiss franc surged 2% against the yen, marking its best day in two years.
• GBP/JPY: The pound broke above its 2015 high, aligning with bullish market sentiment.
• USD/JPY: The pair reached a five-month high during its strongest session in six weeks.

Meanwhile, the New Zealand dollar faced selling pressure following a weak GDP report confirming a technical recession. This kept NZD/JPY from exceeding its 10-day average trading range.

ASX 200 Futures Show Potential for Stabilization

ASX 200 futures have dropped approximately 5.4% from their December highs, but signs of stabilization are emerging. A bullish divergence has formed in the daily RSI (2) within the oversold zone, and the 1-hour RSI (14) also shows a bullish divergence. This suggests bearish momentum is waning.

While the November low is within striking distance, it seems unlikely that prices will close below it today. Wall Street indices held above their FOMC session lows, and historical patterns indicate indices often rally during this time of year.

Although strong gains may not materialize, a partial retracement of recent losses appears possible, particularly as seasonal trends favor positive returns for the ASX 200 between December 19th and 30th.

Broader Economic Developments

• Bank of England: Held rates steady at 4.75%, with three MPC members voting for a cut a slightly less dovish outcome than expected. This boosted the pound, with GBP/USD nearing its November lows.
• Upcoming Events (AEDT):
  • 10:30: Japan CPI
  • 11:30: Australian housing credit
  • 12:00: China loan prime rate
  • 13:00: New Zealand credit card spending
  • 18:00: UK retail sales
  • 23:30: FOMC Daly speech
  • 00:30: US PCE inflation

The global markets continue to navigate a mix of monetary policy signals and year-end seasonal trends, with traders eyeing opportunities for short-term moves in key indices and FX pairs.