The next 48 hours are crucial as the Bank of Japan and the Federal Reserve meet to decide on the year-end interest rates. This year has been volatile in many ways over the duration but as the year ends near, the level of volatility seems to be under control for now.
The Bank of Japan in a July meeting decided to hike rates without much communication with investors. This resulted in shock within the community and led to a 25% fall in Nikkei 225 within four weeks. This time around though communication has been more open but the confusion remains to some level.
The Federal Reserve, on the other hand, started rate cuts from the September meeting and has been consistent with rate cuts and communication since then. The current meeting is unlikely to change this, as the Fed rate swap market has factored in 96% of the 25 bps cut. The main focus of all stakeholders would be the Chairman's speech, which might give some hints about next year's rate trajectory.
The financial markets face the low liquidity at the year end and having two large central banks taking rate decisions can create sudden volatility. The outcomes of each meeting would likely have strong reactions from stakeholders on either side. This might set up bonds , currency and stock market for the next year start before everyone goes for a holiday.
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