China Hikes for Sixth Time This Year; BoJ Holds

The People's Bank of China raised rates for a sixth time this calendar year to a nine-year high. Effective Friday, the benchmark lending rate will rise 0.18% to 7.47%, while the deposit rate will increase 0.27% to 4.14%. The PBoC is struggling to manage record-high inflation and prevent further speculation in real estate and equities. In spite of the rate hikes and ten reserve requirement hikes, inflation hit an 11-year high at 6.9% in November, pushed higher by continued double-digit increases in food prices. A Shanghai-based senior economist at Standard Chartered Bank believes the PBoC "will get even more aggressive from now on." Meanwhile, the Bank of Japan voted unanimously to keep its benchmark rate unchanged at 0.5%. The BoJ also lowered its assessment of the economy for the first time in three years, making a near-term rate hike increasingly unlikely. This was the BoJ's first unanimous decision since June. The BoJ has held rates at 0.5% since February.

The Shanghai Composite gained 2.1% to 5,043.54 ahead of the PBoC rate decision, while the Nikkei 225 was fractionally higher at 15,031.60, snapping a six-session losing streak. ETFs FXI, GXC and PGJ, as well as closed-end fund CAF, all offer U.S. investors broad exposure to Chinese equities. ETF EWJ and closed-end fund JOF are the most actively traded Japan funds, offering large-cap exposure in the former and featuring smaller-caps in the latter.

Sources: Bloomberg I, II
Additional Reading: Asia Flat Thursday, Except Red Hot China • Are Asian Markets Strong Enough to Withstand a Protracted U.S. Slowdown? • Yuan Hits New High as U.S./China Meetings End

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