JAPAN DATA: Japan Tokyo Dec Core CPI +2.4% Y/Y; Energy Cost Up

The RBNZ decision is announced today and is widely expected, including by the market, to cut rates 50bp to 4.25% (see MNI RBNZ Preview). The MPC’s discussion could be around easing 25bp, 50bp or 75bp. The economy has developed broadly in line with its expectations. With policy still restrictive, inflation probably sustainably within the 1-3% band and persistent excess capacity, there seems no reason to reduce or increase the pace of easing in November.

• A 25bp cut would be hawkish but it’s a possibility. October’s discussion was between 25bp or 50bp of easing. The economy has developed broadly as the RBNZ expected in August when the Q4 2024 OCR forecast was 4.9%. Rates are below that and so the MPC may decide to slowdown. Also, some monthly data are stabilising.
• Another reason for 25bp would be mixed Q4 inflation expectations. Some household measures were unchanged and the mean 2-year ahead rose 0.6pp to 3.7%.
• We don’t think that the RBNZ will yet be factoring in the inflationary impact from US President-elect’s proposed trade and fiscal policies, apart from the weakening of the kiwi already seen since the election. It is unlikely to react to what might happen.
• 75bp would signal “panic”, especially as it is above market pricing. Such a move could be driven by the fact that the next meeting is almost three months out and that rates are still well above neutral. This could add to the urgency to ease if the economic outlook is downgraded.
• The RBNZ highlighted higher frequency indicators and the PSI/PMI remain weak. BNZ estimates they are consistent with growth below -1%.
• An OCR forecast implying 25bp rate cuts per quarter in 2025 reaching the current terminal of 3% would be more hawkish, but dovish if the trough is revised materially below.

• RES 3: 149.55 - High Mar 22 (cont)
• RES 2: 147.74 - High Jan 15 and bull trigger (cont)  
• RES 1: 146.53 - High Aug 6 
• PRICE: 142.84 @ 16:38 GMT Nov 26
• SUP 1: 142.51 - Low Nov 22
• SUP 2: 142.23 - Low Jul 02
• SUP 3: 140.21 - 1.236 proj of Mar 22 - Nov 1 ‘23 - Jan 15 price swing    

Prices fell again late last week, extending the recent pullback. Recent weakness has culminated in a break of 143.57, marking both the Jul 17 high on the continuation contract as well as the Oct 22 low. For now, the 50-dma tops out at 144.19, and marks first resistance. Any recovery would open 146.53, the Aug 6 high (cont) and a bull trigger. 

In post-Tokyo trade, JGB futures are weaker, -6 compared to settlement levels, after US tsys finished with a modest twist-steepening.

• The markets shook off the announcement aftermarket yesterday that President-elect Trump planned to impose 25% tariffs on Mexico and Canada, and an additional 10% on Chinese imports. There was also little impact on the announcement of a cease-fire between Israel and Hezbollah.
• The FOMC minutes were also taken in stride. The lack of a more overtly hawkish message potentially allowed bullish plays that were held back after a reasonable 5Y auction earlier.
• Today's US economic calendar will feature Q3 GDP revisions, October's monthly PCE data, and initial jobless claims, all released earlier due to the Thanksgiving holiday. Additionally, there will be a 7-year Treasury auction later in the day.
• Today, the local calendar is empty apart from 40-year supply.
• Yesterday, higher-than-expected services PPI along with wage comments from PM Ishiba likely weighed on the market. Focus has now turned to the December BoJ meeting, which is live per recent Ueda comments.
• The next major data point will be the Tokyo Nov CPI out this Friday.