Yesterday (27th), the Bank of Canada announced a monetary policy decision to maintain the benchmark interest rate at 0.25% and completely end QE bond purchases, with interest rate hikes expected to occur as early as the second quarter of next year. Today (28th), the Bank of Japan will also announce its interest rate resolution, and some analysts expect the bank to maintain policy unchanged, but may lower its economic outlook.

Bank of Canada President Mark Lin stated that quantitative easing is no longer needed as it is approaching a comprehensive recovery. In addition, the timing of interest rate hikes may be earlier than expected because there is no need to maintain low interest rates to stimulate the economy.

Doug Porter, Chief Economist at BMO Capital Markets, predicts that the Bank of Canada will start raising interest rates in mid-2022 and raise rates before the end of 2023.

It is worth mentioning that the Bank of Canada believes that the surge in inflation is temporary, but the situation of supply chain bottlenecks and rising energy prices may be stronger and more durable than expected.

In terms of economic prospects, the central bank lowered its expected GDP growth for Canada from 6% to 5.1%, while its 2022 growth forecast was lowered from 4.5% to 4.25%; In terms of inflation, it is expected that the inflation rate will reach as high as 4.8% this year, but it will moderate to 2.1% by the fourth quarter of next year.

After the Bank of Canada announced this heavyweight news, the Canadian dollar rose strongly. Canada's two-year treasury bond bond yield soared 24 basis points.

The US dollar/Canadian dollar fell by over 130 points, breaking below the 1.23 mark for the first time since October 21st. Gold, priced in Canadian dollars, also fell by 20 Canadian dollars in the short term.

In terms of spot gold, it was traded near parity in the US market. After Canada announced a reduction, it fell more than $10 at one point, reaching a minimum of $1783.37.

Analysts say that the Bank of Canada has some unexpected hawks, reflecting its focus on the labor market and high inflation issues, while the implementation of some policies has pushed the Canadian dollar higher.

Analysis: It is expected that the Bank of Japan will maintain interest rates unchanged

The Bank of Japan will also announce its interest rate decision later today. Some analysts believe that the domestic economic recovery in Japan is still fragile, and inflation remains weak. It is expected that the central bank will maintain its negative interest rate of -0.1%.

Hiroshi Ugai, Chief Japanese Economic Analyst at JPMorgan Securities, said that Japan cannot achieve the 2% target of inflation solely driven by costs, making it difficult for the Bank of Japan to turn to hawks.

There is widespread speculation in the market that the Bank of Japan will lower its economic and price outlook. At a recent briefing, Bank of Japan deliberative committee member Asahi Noguchi expressed the hope that Japan's pent up demand will be released by the end of this year or early next year.

However, recent data shows that both output and prices are soaring, which may lead to inflation reaching the 2% target earlier than expected. Some analysts believe that if the rebound in the Japanese economy exceeds expectations, it may lead to an earlier arrival of the hawkish stance of the Bank of Japan.

However, in terms of today's interest rate resolution alone, two-thirds of economists said they do not expect the Bank of Japan's policies to be adjusted due to the new policies, and expect the bank to lower its economic growth forecast for this year and raise its forecast for next year.

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