Global markets stumbled Monday as Japan’s central bank signaled it might finally pull the trigger on another interest rate hike, sending ripples through trading floors already jittery about inflation and slowing growth.
The Nikkei 225 plunged nearly 2% to 49,303.28 after Bank of Japan Governor Kazuo Ueda indicated the central bank would discuss raising rates at its December 19 meeting. “BOJ Gov. Kazuo Ueda told reporters he expects the central bank to discuss a possible rate hike at its Dec. 19 meeting,” setting off a wave of selling in Tokyo.
The potential rate increase comes at a precarious moment for Japan’s economy. The country’s benchmark interest rate sits at just 0.5% — a legacy of years spent fighting deflation — but with inflation now running above the 2% target, policymakers face mounting pressure to tighten monetary policy despite worrying economic signals.
Those signals? Not great. Japan’s manufacturing sector has now contracted for five straight months, with November’s PMI reading of 48.7 still well below the expansion threshold of 50. “The latest PMI data showed that Japan’s manufacturing sector continued to struggle with weak demand conditions in November, with firms signaling another solid decline in overall business,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence, in a report.
Markets Slide Globally
The ripple effects were felt across global markets. S&P 500 futures dropped 0.6% and Dow futures lost 0.5%, while Europe’s major indexes also retreated — Germany’s DAX fell 1% to 23,589.90, and France’s CAC 40 declined 0.5% to 8,079.94. Britain’s FTSE 100 fared slightly better, edging down just 0.1% to 9,707.68.
China’s factory woes continued as well, with manufacturing activity contracting for an eighth consecutive month despite the recent trade truce with the United States. Still, Chinese equities bucked the trend — Hong Kong’s Hang Seng rose 0.7% to 26,033.26, while the Shanghai Composite also gained 0.7% to 3,914.01.
Elsewhere in Asia, South Korea’s Kospi slipped 0.2%, Australia’s S&P/ASX 200 fell 0.6%, and Taiwan’s Taiex lost 1%.
“Across Asia, PMI readings reflected weak factory activity for November, though exports from the region have been rebounding in recent months,” noted Shivaan Tandon, Asia economist for Capital Economics, in a commentary.
Oil Surges, U.S. Markets Recover from Outage
Oil markets moved in the opposite direction from stocks, with prices jumping more than a dollar per barrel. U.S. benchmark crude rose $1.14 to $59.69, while Brent crude, the international standard, also increased $1.14 to $63.52 per barrel.
The dollar weakened against the yen, falling to 155.25 from 156.14, while the euro strengthened to $1.1622 from $1.1596. Bitcoin, meanwhile, tumbled 4.3% to $87,115.
Friday’s session in the U.S. had ended on a positive note, with the S&P 500 rising 0.5%, the Dow gaining 0.6%, and the Nasdaq climbing 0.7% — though not before traders endured hours of halted trading due to a technical issue at the Chicago Mercantile Exchange, linked to an outage at a CyrusOne data center.
Tech’s Turbulent Month
November proved especially volatile for tech stocks. Nvidia, the AI darling that has driven much of the market’s gains over the past two years, lost 1.8% on Friday and ended November with a double-digit decline. Oracle tumbled 23% for the month, and Palantir Technologies dropped 16%.
Was there a bright spot in tech? Alphabet emerged as one, rising nearly 14% in November as investors cheered the rollout of its new Gemini AI model.
U.S. consumers appeared resilient despite the market turbulence, with Black Friday and Cyber Monday spending expected to exceed forecasts, even as economic uncertainty persists.
Central Banks at Crossroads
The Bank of Japan isn’t the only central bank facing difficult decisions. The U.S. Federal Reserve is navigating its own policy dilemma as inflation ticks up while the job market cools. Minutes from October’s meeting revealed deep divisions among policymakers about the path forward.
U.S. stocks had rallied last week on renewed hopes for another Fed rate cut, following a mid-November slump driven by concerns that the AI-fueled market rally might be running out of steam.
For Japan, the stakes are particularly high. After decades of fighting deflation with ultra-loose monetary policy, the potential pivot to tightening comes at a moment when manufacturing is already struggling. The central bank’s December meeting now looms as a crucial moment not just for Japan, but for global markets still searching for direction as 2025 draws to a close.
