Interest Rates

Australia added 56,000 full-time positions in December while unemployment stayed flat at 4.3 percent, suggesting the labour market has found its floor. The Reserve Bank of Australia now has cover to hold rates steady through the first half of 2025. Participation rates hit record highs as more Australians enter the workforce, keeping wage pressure contained despite job creation. The data reinforces Australia's position as one of the few developed economies achieving full employment without triggering runaway inflation.

The Bank of Japan's default mode when facing uncertainty is simple: hold. A former BOJ executive director confirms what markets suspected — the central bank's "wait-and-see" approach makes December's rate decision too close to call, even with underlying inflation at 2% and the economy near full employment. The latest 7-2 vote to hold at 0.5% reflects concerns about U.S. trade policy impacts on Japan's manufacturing, while board members like Junko Koeda push for normalisation given low real rates. With fiscal 2026 wage negotiations starting pre-March, the BOJ's next move hinges on whether services inflation proves sustainable.

A crypto flash crash dragged down everything else yesterday, snapping Wall Street's longest winning streak since October. Bitcoin tumbled below $85,000 on fears the Bank of Japan might finally hike rates, unwinding the yen carry trade that's been funding speculative bets worldwide. The VIX spiked 5.4% to 17.24 as manufacturing data showed nine straight months of contraction, reminding everyone that 'bad news is bad news' again. Small caps took the worst beating, with the Russell 2000 down 1.25%, while Apple hit all-time highs — classic flight to quality when the party stops.

New Zealand's central bank held rates at 2.25% but Governor Anna Breman warned of "decisive and timely" increases if core inflation accelerates, with the bank now forecasting annual inflation spiking to 4.2% in June—well above the 3% target ceiling. The Middle East conflict has "materially altered" the outlook, disrupting oil, gas and petrochemical supplies critical to transport and agriculture. The RBNZ cut rates 325 basis points since August 2024 but supply chain disruptions may force a hawkish pivot.