Morning Bid: Dazed yen hogs limelight before Fed

A look at the day ahead in European and global markets from Rae Wee

Much of investors' attention for the week has been on the Federal Reserve's rate decision, but for a brief moment on Wednesday, focus in currency markets turned to the yen.

The yen looked punch-drunk in Asia after a sudden spill overnight that saw it fall to a record low against the euro and slide nearly 0.9% against the Aussie. The dollar also threatened to break the 157 yen level.

There was little to trigger the move, suggesting it was likely some positioning ahead of the Bank of Japan's (BOJ) policy meeting next week.

A 25-basis-point hike is almost fully priced in by markets, but what comes next remains a blur. With fiscal and growth concerns lingering in Japan, there is little case for further policy tightening beyond December.

So, should next week's expected hike be followed by yet another months-long wait, the trajectory for the yen is unlikely to change materially - meaning more downside risk for the currency.

Even at 0.75%, rates in Japan would remain among the lowest in the world. It also comes as policymakers in Australia and Europe have said that their next move could be a hike.

Elsewhere, markets reacted little to data that showed China's annual consumer inflation accelerated to a 21-month peak in November, while factory-gate deflation deepened.

The Politburo, a top decision-making body of the ruling Communist Party, said earlier this week that China will keep expanding domestic demand and support the broader economy with more proactive policies in 2026.

In Indonesia, the rupiah weakened slightly following news that its trade agreement with the United States is at risk of collapsing, according to a U.S. official, because Jakarta has backtracked on several commitments it made as part of the deal.

An Indonesian government official later said that the country's tariff negotiations with the United States are proceeding on track, as agreed by leaders on both sides.

Those aside, focus was squarely on the Fed, where Wednesday's outcome could potentially be one of the most fractious in years.

The weeks leading up to the meeting have been stressful for investors, with little data to parse during a record 43-day U.S. government shutdown, conflicting messages from Fed officials and the unrelenting push from President Donald Trump's administration for lower rates.

White House economic adviser Kevin Hassett, the frontrunner to be the Fed's next chair, told the WSJ CEO Council on Tuesday there is "plenty of room" to cut interest rates further, though he added that if inflation rises the calculation may change.

Ahead of the Fed, the Bank of Canada will also announce its policy decision later on Wednesday, where it is expected to stand pat on rates, with easing inflation and a robustly growing economy reducing the need to cut further.

Key developments that could influence markets on Wednesday:

- Federal Reserve rate decision

- Bank of Canada rate decision

(Reporting by Rae Wee; Editing by Muralikumar Anantharaman)