Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 02/12/25
Japanese government long-term bond yields have climbed to multi-year highs as monetary policy is expected to turn broadly neutral
Despite pressures by the new Administration to stand pat, Japanese monetary authorities are planning to normalize further their policy stance as the JPY has depreciated rapidly amid inflation rates that remain above the central bank target of 2.0% for the past 43 months.
Comments from the Bank of Japan’s Governor Ueda on December 1st, suggest that the case is strengthening for a hike in the reference interest rate (current: +0.50%) as soon as at the next meeting on December 19th, likely by +0.25%.
According to overnight index swaps, investors now price-in a high likelihood of c. 80% for such an event, versus c. 40% a week ago. The Yen posted gains of +0.6% against the US Dollar on December 1st to $/155 and Japan’s government bond yields rose significantly by +7 bps to +1.87% at the 10-Year tenor (the highest since June 2008) and by +5 bps to +3.39% at the 30-Year tenor, a record high.
At the same time, the Federal Reserve has entered the so-called “black-out” period, i.e. a period before monetary policy meetings, during which FOMC participants and staff, speak publicly or grant interviews at a limited extent.
FFR futures price-in a close to 90% chance that another 25 bps cut in the policy rate to a range of 3.50%-3.75% will take place in December. Expectations for where the FFR will stand at end-2026 have not been materially altered, with futures pricing-in roughly split chances for a range of 2.75% - 3.00% or 3.00% - 3.25%.
Strong expectations for a continuation of monetary policy easing in the US supported, inter alia, global equity markets, with the MSCI ACWI at +3.5% wow. However, global equity markets entered the current week with modest losses (-0.4% on Monday), alongside a broad based increase in government bond yields (of +4 to +8 bps in the 10-year tenor) stemming from developments in Japan.
In the UK, the Autumn 2025 Budget incorporates measures which are estimated by the Office for Budget Responsibility to have a roughly neutral direct fiscal impact cumulatively at a 5-year horizon.
Up to fiscal year 2027-28, the upside impact on the deficit that mainly stems from social welfare measures, exceeds personal income tax increases, by c. £6.5 bn per year. However, later on the aforementioned analogy reverses, with an annual average net downside impact on deficit of £11.3 bn up to fiscal year 2030-31.
In all, a gradual narrowing of the general government deficit as % of GDP is expected to -4.5% in the ongoing fiscal year (2025-26) from -5.1% in the past FY and towards -1.9% by 2030.
The general government net debt is estimated to stabilize at c. 100% of GDP in the final years of the forecast horizon, amid broadly realistic real GDP growth assumptions of +1.5% on average throughout the forecast horizon, from +1.1% in 2024.
10-year Gilt yields declined by -10 bps to 4.44% following the Autumn Budget (-36 bps from a recent peak of 4.80% in past September), as some concerns for possible deficit-widening decisions were not confirmed.
Despite pressures by the new Administration to stand pat, Japanese monetary authorities are planning to normalize further their policy stance as the JPY has depreciated rapidly amid inflation rates that remain above the central bank target of 2.0% for the past 43 months.
Comments from the Bank of Japan’s Governor Ueda on December 1st, suggest that the case is strengthening for a hike in the reference interest rate (current: +0.50%) as soon as at the next meeting on December 19th, likely by +0.25%.
According to overnight index swaps, investors now price-in a high likelihood of c. 80% for such an event, versus c. 40% a week ago. The Yen posted gains of +0.6% against the US Dollar on December 1st to $/155 and Japan’s government bond yields rose significantly by +7 bps to +1.87% at the 10-Year tenor (the highest since June 2008) and by +5 bps to +3.39% at the 30-Year tenor, a record high.
At the same time, the Federal Reserve has entered the so-called “black-out” period, i.e. a period before monetary policy meetings, during which FOMC participants and staff, speak publicly or grant interviews at a limited extent.
FFR futures price-in a close to 90% chance that another 25 bps cut in the policy rate to a range of 3.50%-3.75% will take place in December. Expectations for where the FFR will stand at end-2026 have not been materially altered, with futures pricing-in roughly split chances for a range of 2.75% - 3.00% or 3.00% - 3.25%.
Strong expectations for a continuation of monetary policy easing in the US supported, inter alia, global equity markets, with the MSCI ACWI at +3.5% wow. However, global equity markets entered the current week with modest losses (-0.4% on Monday), alongside a broad based increase in government bond yields (of +4 to +8 bps in the 10-year tenor) stemming from developments in Japan.
In the UK, the Autumn 2025 Budget incorporates measures which are estimated by the Office for Budget Responsibility to have a roughly neutral direct fiscal impact cumulatively at a 5-year horizon.
Up to fiscal year 2027-28, the upside impact on the deficit that mainly stems from social welfare measures, exceeds personal income tax increases, by c. £6.5 bn per year. However, later on the aforementioned analogy reverses, with an annual average net downside impact on deficit of £11.3 bn up to fiscal year 2030-31.
In all, a gradual narrowing of the general government deficit as % of GDP is expected to -4.5% in the ongoing fiscal year (2025-26) from -5.1% in the past FY and towards -1.9% by 2030.
The general government net debt is estimated to stabilize at c. 100% of GDP in the final years of the forecast horizon, amid broadly realistic real GDP growth assumptions of +1.5% on average throughout the forecast horizon, from +1.1% in 2024.
10-year Gilt yields declined by -10 bps to 4.44% following the Autumn Budget (-36 bps from a recent peak of 4.80% in past September), as some concerns for possible deficit-widening decisions were not confirmed.