Key highlights of the week ended January 30

Source: Dukascopy Bank SA
Japan
The Bank of Japan surprised markets with a negative benchmark interest rate, a move aimed at boosting a faltering recovery in the world's third biggest economy in light of elevated volatility on financial markets and slowing global growth. In a 5-4 vote, the BoJ's policy makers decided to charge a 0.1% interest on current accounts that some commercial banks hold with it. The central bank hopes that the move will encourage banks to lend more and stimulate investment and growth. The BoJ said that it would divide bank's deposits into three tiers, with categories earning positive, zero and negative interest rates. The policy would continue as long as needed to achieve its inflation target. Meanwhile, the central bank pushed back its timeframe for reaching the goal from late 2016 to mid-2017. The BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen through aggressive purchases of Japanese government bonds and risky assets conducted under its QQE programme.

US
In line with expectations, the Fed kept interest rates on hold and said that it was closely following global economic and financial developments. Nevertheless, the US central bank gave no hints that it was changing course on its rate-hiking path ahead. Fed policy makers still argued that the world's number one economy was on track for moderate growth and a stronger labour market even with gradual rate lifts. However, Fed officials acknowledged inflation was estimated to stay "low in the near term" due to the further drops in energy prices, while the US economy's growth slowed late last year. The Fed kept its belief that the ongoing declines in energy prices was transitionary and would pass in the medium term. Yet, the central bank downgraded its view on household spending and business investment growth from "strong" to "moderate". The Fed hiked the federal funds rate in December for the first time in nine years and signalled it was determined to increase it by one percentage point in 2016. However, the actual path of rate hikes will depend on "the economic outlook as informed by incoming data".

UK
The UK economy gathered a little steam at the end of last year, thanks to a support of the services industry, while production and construction continued to drag the growth down. Britain's gross domestic product increased 0.5% in the December quarter from the preceding three-month period, when it rose 0.4%, according to the Office for National Statistics. On an annual basis, the UK economy expanded 1.9% in the final quarter of 2015 from a year earlier, compared with 2.1% in the third quarter and marking the smallest gain since early 2013. Services were again the main driver for growth. Accounting for 78.6% of Britain's economic output, the sector expanded 0.7% on the quarter and climbed 0.2% between October and November. The biggest contribution to growth in this sector came from business services and finance, which added to the output with 0.9 percentage points. At the same time, industrial production dropped 0.2%, whith manufacturing unchanged and utilities and mines cutting output. Construction output declined 0.1%. Overall, the UK growth slowed to 2.2% in 2015 from 2.9% in 2014, the ONS added. The International Monetary Fund estimates that it will expand 2.2% this year. 

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