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On September 18, 2023, the Hong Kong Monetary Authority (HKMA) announced a reduction in its base interest rate by 25 basis points to 4.50%, aligning with the U.S. Federal Reserve’s recent decision. This marks the first rate cut by the HKMA since December 2022, when it last lowered rates by a similar margin. The adjustment, implemented through the overnight discount window, aims to maintain economic stability in Hong Kong, whose currency is pegged to the U.S. dollar within a narrow range of 7.75-7.85 per dollar. Major banks in Hong Kong, including HSBC and Bank of China (Hong Kong), partially followed suit, reducing their prime lending rates to 5.125% effective September 19. HSBC’s Hong Kong CEO, Luanne Lim, emphasized that the decision reflects both the U.S. rate cut and local market conditions, while HKMA Chief Executive Eddie Yue highlighted the potential positive impact on the city’s property market and broader economy. The Federal Reserve’s recent quarter-point rate cut and its indication of further reductions this year have influenced Hong Kong’s monetary policy, though Yue cautioned that the pace and extent of future U.S. rate cuts remain uncertain.

The Bank of Japan (BOJ) could proceed with an interest rate hike in October, even if Sanae Takaichi, a prominent advocate of aggressive monetary easing, wins the Liberal Democratic Party’s (LDP) leadership race and becomes Japan’s next prime minister, according to former BOJ executive Tomoyuki Shimoda. Takaichi, a leading candidate in the October 4 leadership race, has been vocal in her opposition to the BOJ’s rate hikes and has called for increased fiscal spending to stimulate the economy. However, Shimoda, who previously served in the BOJ’s monetary affairs department, believes that Takaichi’s potential victory would have a limited impact on monetary policy. He expressed skepticism about her ability to implement policies that could weaken the yen, which has been a concern for policymakers due to its inflationary effects. A weak yen boosts exports but raises import costs, contributing to inflation that has remained above the BOJ’s 2% target. Shimoda noted that a yen fall below 150 to the dollar could also draw complaints from the U.S. administration, which is pursuing a weak-dollar policy to support U.S. exports. The BOJ is likely to raise rates at its October 29-30 meeting if stock prices remain stable and the upcoming ‘tankan’ business sentiment survey, due on October 1, does not show significant deterioration. Shimoda highlighted that solid corporate profits, wage hikes, and persistent rises in food costs are creating a favorable environment for a rate increase. The BOJ is widely expected to maintain its current interest rate of 0.5% at its upcoming meeting, but a Reuters poll indicates that a majority of economists anticipate another 25-basis-point hike by year-end, with bets centered on October and January. Takaichi is known for her support of an ‘Abenomics’-style mix of fiscal and monetary stimulus, while her main rival, Shinjiro Koizumi, has less clear views on BOJ policy. The BOJ exited its decade-long ultra-loose monetary policy last year and raised short-term rates to 0.5% in January, signaling its readiness to continue hiking rates as inflation remains above 2%. The yen’s movements have historically influenced BOJ decisions, and its recent stabilization around 146 per dollar follows a plunge to near two-decade lows last year.

Despite the optimistic developments in US-China trade negotiations, global investors have largely failed to recognize the potential upside. The world’s two largest economies are steadily moving toward a trade settlement that could yield significant benefits for both nations. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have been engaged in ongoing discussions with Beijing, with the latest round of talks set to take place in Spain. A reciprocal-tariff truce has been extended to November, and sensitive issues such as technology transfers, industrial overcapacity, and data rules are now being addressed in detail. The US trade deficit with China, which stood at $300 billion last year, has narrowed to $128 billion through July, with officials forecasting a 30% decline by 2025. However, investors remain cautious, holding cash and safe-haven assets as if confrontation is inevitable. This overlooks the mutual incentives driving Washington and Beijing toward accommodation. For the US, easing tariff threats helps contain inflation and provides clarity for American companies. For China, securing reliable access to the US market stabilizes employment and supports tax revenues. A credible trade agreement would offer tangible economic wins for both nations, yet markets have yet to price in the potential benefits. Reduced tariff risks could lower global shipping costs, ease inflationary pressures, and encourage capital spending. Industries such as advanced manufacturing, semiconductors, and rare-earth mining could see positive re-ratings, while Asian economies integrated into China-plus-one supply chains would benefit from increased investment. The cautious response from investors reflects years of confrontation rather than current realities. Evidence on the ground suggests a shift, with rising US core capital goods orders and multinationals planning for a more stable trade environment. ASEAN nations are attracting record foreign investment as production diversifies but remains linked to China. The political symbolism of a deal is also significant, demonstrating pragmatic leadership and competence for both governments. While verification and enforcement of any agreement will be critical, waiting for perfection before reallocating capital is a speculative bet. The next phase of global growth could be built on a pragmatic bargain between Washington and Beijing, offering mutual gains for the world’s two largest economies.