Core Viewpoint - The latest UK economic data shows a surprising resilience with a 0.3% month-on-month GDP growth in November, reversing the previous month's decline and exceeding market expectations significantly [1] Economic Performance - The economic growth is attributed to improvements across multiple sectors, particularly the service sector which grew by 0.3% in November, reversing a 0.3% decline in October [1] - Key sectors contributing to this growth include professional, scientific, and technical activities (1.7% growth), and information and communication (1.5% growth), indicating a rebound in business spending [1] - Manufacturing output saw a substantial increase of 2.1%, surpassing the expected 0.5%, with transportation equipment manufacturing soaring by 10.7% and motor vehicle production increasing by 25.5% [1] Currency Dynamics - Despite positive economic data, the British pound has not maintained an upward trend due to the strong US dollar, influenced by robust US economic indicators and expectations of sustained high interest rates by the Federal Reserve [2] - Structural concerns within the UK economy persist, highlighted by a 1.3% decline in construction activity in November, which is worse than market expectations and reflects high financing costs and cooling real estate demand [2] Monetary Policy Outlook - The Bank of England remains focused on stabilizing inflation, and while the GDP growth alleviates some concerns, it is not sufficient to prompt immediate policy changes [2] - The current economic conditions suggest that the UK will likely maintain a cautious monetary policy stance, with the potential for continued tightness in the near term [2] Future Considerations - The ability of the pound to break out of its current trading range will depend on upcoming data regarding UK inflation and wages, as well as signals of slowing employment and inflation in the US [3] - Until decisive signals emerge, the pound is expected to continue fluctuating within its current range [3]

Core Viewpoint - The Japanese yen continues to weaken against the US dollar, driven by diverging monetary policies and political expectations, leading to a significant depreciation trend in the currency [1][2][3]. Group 1: Currency Exchange Dynamics - As of January 13, 2026, the USD/JPY exchange rate reached a new 18-month low of 158.90, reflecting a year-to-date depreciation of over 1.2% [1]. - The divergence in monetary policy between the US and Japan is a key driver of the exchange rate, with the Bank of Japan raising interest rates to 0.75% in December 2025, while the Federal Reserve has initiated a rate-cutting cycle [2]. Group 2: Political and Economic Influences - Political developments in Japan, particularly Prime Minister Kishi's consideration of dissolving the House of Representatives, have heightened expectations for aggressive fiscal policies and a low-interest-rate environment, further pressuring the yen [3]. - Concerns over fiscal sustainability have intensified, with Japan's government debt exceeding 260% of GDP, leading to increased selling pressure on the yen as long-term interest rates rise [3]. Group 3: Economic Fundamentals and Geopolitical Risks - Japan's economic fundamentals show mixed signals, with inflation above the Bank of Japan's target and weakening growth momentum, limiting support for the yen [4]. - Global geopolitical risks, including tensions in the Middle East and the ongoing Russia-Ukraine conflict, have created volatility in the currency market, affecting the yen's performance as a safe-haven asset [4].

Core Viewpoint - Despite the Bank of Japan initiating interest rate hikes, the USD/JPY exchange rate has risen, indicating that the market lacks clear guidance on the future pace and magnitude of these hikes [1] Group 1: Market Reactions - The rise in USD/JPY following the Bank of Japan's rate hike suggests that the market has not yet seen definitive signs regarding the pace or extent of future rate increases [1] - The upcoming press conference by Bank of Japan Governor Kazuo Ueda may provide further clarity on this issue [1] Group 2: Future Projections - ANZ forecasts that the Bank of Japan will continue to raise interest rates through 2026, but the yen is expected to lag behind G10 currencies over the next year due to unfavorable interest rate differentials [1] - ANZ maintains its prediction for the USD/JPY exchange rate to reach 153 by the end of 2026, indicating that even with gradual normalization of Japan's monetary policy, the yen's relative interest rate advantage will remain insufficient to support significant appreciation [1] Group 3: Broader Economic Context - The ongoing divergence in monetary policies among major global central banks suggests that the yen's traditional role as a funding currency may not fundamentally change in the short term [1]