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Nikkei 225 falls more than 2% as Bank of Japan widens yield target range, yen strengthens

Bank of Japan keeps interest rates steady, widens yield curve control band

The Bank of Japan kept its benchmark interest rates steady and announced it will change the control band of the yield curve, the central bank said in a statement.

The BOJ will widen the range of 10-year Japanese government bond yields from the current plus and minus 0.25 percentage points to plus and minus 0.5 percentage points, it said.

The adjustment is intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative economic conditions,”[ads1]; the BOJ said.

The Japanese yen strengthened nearly 2% to 134.33 against the US dollar shortly after the announcement.

– Jihye Lee

Minutes from the Reserve Bank of Australia show that a number of options were considered in December

Minutes from the Reserve Bank of Australia’s December meeting showed the central bank had considered a range of options for its cash rate decision, including a complete pause in increases.

“The board considered several options for the cash rate decision at the December meeting: an increase of 50 basis points; an increase of 25 basis points; or no change in the cash rate,” the minutes said.

RBA board members also noted the importance of “acting consistently”, adding that the central bank will continue to consider a range of options for the coming year as well.

– Jihye Lee

China keeps key lending rates unchanged

The People’s Bank of China kept its one-year and five-year prime rates unchanged in December, according to an announcement.

The central bank maintained its one-year prime rate at 3.65% and its 5-year prime rate at 4.30%, in line with expectations in a Reuters poll.

The Chinese yuan offshore and onshore were relatively flat at 6.9808 and 6.9783 respectively against the US dollar.

– Jihye Lee

CNBC Pro: Is China Poised for a 2023 Recovery? The Wall Street pros weigh in — and reveal how to trade it

What’s next for China after it rolled back a number of Covid-19 measures?

Market experts weigh in on the prospects for a recovery in the world’s second largest economy and reveal opportunities for investors.

CNBC Pro subscribers can read more here.

— Zavier Ong

The Bank of Japan expected to keep interest rates steady

The Bank of Japan is expected to keep interest rates steady at -0.10%, according to a Reuters poll of economists.

The interest rate decision is expected after the central bank’s two-day monetary policy ends on Tuesday.

Separately, Japan’s government and the BOJ aim to revise a statement committing to an inflation target of 2% at the earliest, according to Kyodo News, citing government sources.

Ji Hye Lee

Fed exaggerates rate hikes, says Evercore ISI

The Federal Reserve is likely overdoing its rate hikes to tame inflation and could end up tipping the U.S. economy into a recession, Ed Hyman of Evercore ISI wrote in a Sunday note.

The Federal Funds rate is now 6.5% versus a core PCE of 4.7% on the year and bond yields at 3.5%, Hyman wrote.

“And it’s not just the Fed tightening: the ECB, BoE, Mexico, Switzerland and Norway also tightened last week,” he said. “Perhaps more profoundly, the money supply is contracting.”

In addition, Evercore’s economic dispersion index is approaching recession territory along with other indicators such as business surveys, inflation data and layoff announcements. And wage growth has begun to slow and high rents are showing early signs of easing, signaling that inflation is likely to have run its course.

“In any case, 87 percent of American voters are worried about a recession,” Hyman said.

—Carmen Reinicke

The S&P 500 is headed for its worst December in four years

The S&P 500 has fallen more than 6% this month as Wall Street struggles toward the end of the year. That marks the worst monthly performance since September. It would also be the biggest December decline since 2018, when it fell 9.18%.

Shares close lower for the fourth day in a row

Recession fears and dashed hopes of a year-end rally weighed on stocks on Monday, sending them to their fourth consecutive negative close.

The Dow Jones Industrial Average fell 163.85 points, or 0.50%, to close at 32,756.61. The S&P 500 fell 0.91% to 3,817.47, and the Nasdaq Composite fell 1.49% to 10,546.03 weighed down by shares of Amazon, which fell 3%.

—Carmen Reinicke

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