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Hello everyone, today XM Forex will bring you "[XM Forex]: The aftershocks of the Bank of Japan's hawkish push up debt interest rates, is the wave of unwinding of carry trades approaching?". Hope this helps you! The original content is as follows:
On Wednesday, the U.S. dollar index continued its decline. After the ADP employment report showed an unexpected decline in U.S. employment in November, the U.S. dollar expanded its losses. As of now, the U.S. dollar is quoted at 98.97.
ADP employment in the United States fell by 32,000 in November, the lowest level since March 2023, and the market expected an increase of 10,000.
The U.S. ISM service industry PMI recorded 52.6 in November, maintaining a moderate expansion trend. However, the employment www.xmasseuse.component is still in the contraction range, and new orders have fallen sharply.
According to Politico: The Trump administration is considering implementing an executive order on robots next year and "going all out" to accelerate the development of the industry.
Trump: Microcars are a huge market in the United States. People will be allowed to deduct car loan interest.
Kremlin: It is incorrect to say that Russian President Vladimir Putin rejected the U.S. plan for Ukraine. This was only a preliminary exchange of views.
US media: US Treasury Secretary Bessent may concurrently serve as director of the National Economic Council.
U.S. Treasury Secretary Bessent: Weakness has appeared in some areas of the economy and interest rates need to be cut.
US media: Trump aides will meet with senior Ukrainian negotiators in Miami on Thursday.
The Italian government plans to declare the national gold reserve as "people's property", and the European Central Bank requires it to review the gold reserve proposal.
JPMorgan Chase: Maintaining its multi-year bullish outlook for gold, it is expected that continued strong central bank and investor demand will push gold prices to $5,000 per ounce by 2026.
Rabobank: There are opportunities for downward trends in the United States and Japan in the future, and 150 is the main target
Since Sanae Takaichi won the election, the foreign exchange market has been worried that she may put pressure on the Bank of Japan to keep interest rates unchanged to ease the impact of the cost of living crisis on residents. However, there are inherent inconsistencies in this assumption, one of which is that higher imported food prices due to a weak yen are themselves a source of cost-of-living pressures. After meeting with Sanae in Yutakaichi, Kazuo Ueda said that the new prime minister did not make any demands on monetary policy. We still believe that the Bank of Japan's main consideration for future policy will be its own judgment of economic conditions, and we are likely to see the Bank of Japan take a more hawkish stance at the December meeting, which is enough to surprise yen shorts.
Ueda Kazuo said in October that he hoped to see more data on salary in the future. As Japanese exporters are hit by U.S. tariffs, the market is worried that www.xmasseuse.companies will be more cautious in asking for wage increases during next year's spring war. Although tariffs have indeed put some pressure on the balance sheets of manufacturing www.xmasseuse.companies, this month's Reuters Tankan Index showed that Japan's manufacturing confidence has risen to the highest level in nearly four months. This improvement may provide policymakers with some www.xmasseuse.comfort about next year's salary outlook. Although the final results of the next round of salary negotiations will not be known until next spring, some www.xmasseuse.companies may release signals about salary intentions in advance this month.
Based on this, we believe that the USD/JPY pair will most likely fall steadily back below 150 from a three-month perspective, and expect the currency pair to show a further downward trend in 2026. This will reflect the trend forces brought about by higher interest rates from the Bank of Japan, Japan's continued escape from deflation, and structural reforms to attract capital inflows.
Rabobank’s Euro Outlook for 2026: The uptrend will www.xmasseuse.come in the second half
In our view, the heavy sell-off of the US dollar at the beginning of this year was more due to investors’ rapid position changes after years of dominance of the “Buy America” theme. From the global financial crisis to 2024, the proportion of global investment portfolios held by non-US asset management institutions in global GDP has increased significantly, and a considerable part of it has flowed to the US stock market and bond market. During this period, the United States continued to outperform other G10 countries in terms of growth, productivity, and consumption power.
At the beginning of this year, the market was worried that Trump’s tariff policies would trigger recession and reflation in the United States, which promoted discussions on asset allocation diversification and triggered the need for overseas investors to re-examine their US dollar asset positions in the spring. The decline of the U.S. dollar at this stage was further amplified as a large number of non-U.S. institutions increased their efforts to hedge their existing U.S. dollar assets. However, by the end of spring, U.S. stocks were already reaching new highs driven by the AI narrative. As the world’s largestThe concentration of technology www.xmasseuse.companies has once again strengthened expectations for future productivity improvements, investment and growth to continue to lead. This outlook is fundamentally supportive for the U.S. dollar, but there are risks for U.S. dollar bulls as well. The United States is still in the cyclical downward stage. Unlike most G10 central banks that have ended or are about to end their interest rate cutting cycles, the Federal Reserve may continue to cut interest rates next year. Although the market has priced in a large number of easing expectations, if the market believes that the www.xmasseuse.committee will become more politicized next year, it may weaken the Fed's credibility and affect investor sentiment in the US dollar.
Other risks to the U.S. dollar include a new round of tariffs, a lagging rise in tariff-related inflation, and a sharp correction in AI-driven U.S. stock prices, which will have an impact on consumer wealth and spending. In addition, if the euro zone economy does not experience a significant downturn next year, the market may begin to prepare for a potential interest rate hike by the European Central Bank from late 2026 to early 2027. Based on the current judgment, we have adjusted our forecast for this currency pair, believing that range fluctuations will be the main tone in the next few months. As the risks related to the European Central Bank's policy unfold, the market in the second half of next year may show a slight upward trend.
UBS: The trend of the foreign exchange market next year will be stronger than expected, and the strategy needs to have an asymmetric return structure
The U.S. activity data released before the government shutdown performed better than expected, coupled with the solid corporate earnings season, making it more difficult to assess the true state of the economy during the data vacuum period. But we think the U.S. backlog data will show the economy is slowing when it is re-released. We expect subsequent data to be weak enough for the Fed to continue easing, which will weaken the dollar's yield advantage. The possibility that the new Fed chairman will be more dovish will also put pressure on the dollar in the www.xmasseuse.coming months and stabilize by mid-2026.
Weaker U.S. data is an important www.xmasseuse.component of our judgment on a weaker dollar, especially as the market has expected U.S. short-term yields to fall to 3% by the end of 2026. A weaker U.S. dollar does not necessarily require interest rates to fall below 3%, but if it falls to 3.25% or 3.00% sooner, it will strengthen our judgment. We also see several risks: If U.S. growth is stronger than expected, the U.S. dollar may still remain overvalued even in the context of high "twin deficits." In addition, global economic growth expectations for 2026 ex-U.S. have not improved since the second quarter of this year, especially the euro zone's disappointing performance, although German spending should increase.
For the Japanese yen, we expect the Bank of Japan to raise interest rates in December, and short-term yields may rise to above 1% in 2026. Coupled with recent stronger-than-expected activity data from Japan, spread changes support our baseline scenario of a stronger yen against the dollar on both a nominal and real basis. In South Korea, due to positive factors such as the improvement of the domestic environment, the trend may be reversed in 2026. Stronger Northeast Asian currencies could have wider spillover effects in global foreign exchange markets. If Northeast Asian currencies do not strengthen significantly against the US dollar, the space for European currencies to appreciate from a trade perspective will also be limited.
Based on the above judgment, we believe that the future foreign exchange marketThe directionality of the market will be stronger than the current pricing of the options market. Since the realized volatility in the first half of 2026 may be higher than currently expected, wave-selling strategies need to be more cautious, and the market will need more strategic configurations with asymmetric risk-return structures. We maintain the overall layout of a weak US dollar and a preference for high-yielding currencies, rather than relying on a range-bound strategy.
Mizuho Securities: If inflation is effectively controlled, will the Bank of Japan continue to raise interest rates?
Amid slow underlying inflation, year-on-year gains in the value of the yen and weakening base effects in food prices could push inflation below 2% into 2026. We believe that given Ms. Takai's tendency to adopt dovish monetary policy, it will be difficult for the conventional market BOJ to continue raising interest rates if the inflation rate is below 2%. Ultimately, we expect either one more rate hike (our baseline scenario calls for a December rate hike) or no rate hikes at all.
As speculation about the end of the current rate hike cycle intensifies, we expect conventional market JGB yields to face downward pressure across the curve. On the fiscal policy front, the currently reported economic package is much larger than last year's package, but we expect to avoid a significant increase in market issuance on a calendar basis - particularly in the ultra-long bond space.
We also see multiple factors leading to a decline in ultra-long rates over the medium term, including the gradual impact of lower issuance, a reversal of the upward trend in rates that rose in April due to position adjustments, and fading expectations for higher neutral rates as inflation cools and rate hikes are paused.
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