Next Week Outlook: Trump Returns to Davos, BOJ Rate Decision Looms

President Donald Trump is set to deliver a major address at the World Economic Forum in Davos, Switzerland, where he will announce a plan to let 401(k) savers use retirement funds for home down payments. The move, described by National Economic Council Director Kevin Hassett, aims to boost home affordability in the U.S. Trump has also introduced a broader housing affordability agenda, including a ban on large institutional investors purchasing single-family homes and directing Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds. The proposal aligns with ongoing efforts to reduce mortgage rates and support the housing market, which has seen mixed signals this year.

Separately, U.S. Treasury Secretary Scott Bessent has urged the Bank of Japan (BOJ) to adopt a more aggressive monetary policy to address excessive yen volatility. Bessent emphasized the importance of sound policy formulation and communication during a meeting with Japanese Finance Minister Satsuki Katayama. The yen has weakened to an 18-month low, raising concerns among officials and investors about the impact on import prices and inflation.

Trump has also taken a firm stance on international trade, announcing new tariffs on several European countries over disagreements regarding Greenland. The proposed tariffs, set to begin at 10% and escalate to 25% in June, are framed as leverage to pressure Denmark to cede control of the territory. This move has sparked concerns among European leaders and has raised questions about the future of U.S. trade relations.

Why Did This Happen?

The 401(k) plan for home purchases reflects Trump's focus on making housing more affordable, a key priority in the 2026 legislative agenda. Hassett explained that the plan would allow individuals to take money from their retirement accounts for down payments, with the potential to later reinvest a portion of their home equity back into their 401(k)s. This approach aims to stimulate home ownership and reduce barriers for first-time buyers. Critics, however, have expressed concerns about the long-term implications of using retirement funds for housing investments.

The BOJ has been cautious in its rate-hiking approach, with Governor Kazuo Ueda reaffirming the central bank's commitment to gradually increasing rates while monitoring inflation. The BOJ raised its benchmark rate to 0.75% in December, a move seen as a step toward normalizing monetary policy. Ueda emphasized the need for continued adjustments to monetary easing as inflation remains above the central bank's 2% target. However, the slow pace of rate hikes has contributed to the yen's depreciation, prompting calls for a more aggressive policy shift.

The proposed tariffs on European countries were announced in response to Trump's claims that the U.S. has been subsidizing Denmark and the EU through non-tariff policies. He has argued that Greenland, a Danish territory, is at risk of being claimed by China or Russia, and that stronger U.S. influence is necessary. The tariffs, set to take effect in early February, are part of Trump's broader strategy to use trade policy as a diplomatic tool. European leaders, including the UK and Denmark, have already expressed concerns about the potential economic and political fallout.

How Did Markets React?

The announcement of Trump's 401(k) housing plan has been met with mixed reactions in financial markets. While the plan has been praised for its potential to boost home ownership, some investors have raised concerns about the risks of using retirement funds for real estate. Freddie Mac reported that the average 30-year fixed mortgage rate had fallen to 6.06% as of Jan. 15, its lowest in about three years. This decline has been attributed to a combination of policy support and broader market conditions.

The yen's recent rebound has provided some relief to Japanese exporters, who have benefited from the weaker currency. However, the volatility has also raised concerns about inflationary pressures and the impact on import prices. Katayama's verbal warnings about potential intervention have helped stabilize the currency in the short term, but the long-term outlook remains uncertain as BOJ policy evolves.

The threat of new tariffs on European goods has created uncertainty in global markets. The proposed 10% tariff on imports from Denmark, the UK, and other European countries has raised concerns about potential retaliatory measures and the impact on bilateral trade relations. Analysts have highlighted the risk of further trade tensions, particularly as the U.S. continues to leverage tariffs in diplomatic negotiations.

What Are Analysts Watching Next?

Analysts will be closely monitoring the implementation of Trump's 401(k) housing plan and its impact on the U.S. housing market. The plan's success will depend on the mechanics of how funds are transferred and whether they can be reinvested in the form of home equity. Experts are also watching for further policy announcements at the Davos meeting, including potential agreements on housing affordability and financial regulation.

The Bank of Japan's upcoming rate decision on Jan. 23 is another key event to watch. Most economists expect the BOJ to maintain its current policy stance, with a potential rate hike expected in June. The central bank's communication on inflation and wage growth will be closely analyzed for clues about the timing and magnitude of future rate increases. Market participants are also watching for any signs of political pressure, particularly as Prime Minister Sanae Takaichi is expected to call for a snap election soon.

The response from European leaders to the proposed tariffs will also be a focal point. European officials have already expressed strong opposition to the tariffs, with UK leaders warning of potential consequences for the U.S.-UK relationship. The outcome of diplomatic negotiations and whether the tariffs are implemented as planned will have significant implications for global trade and economic policy in the coming months.

OPEC's forecast of steady oil demand growth through 2027 provides a positive outlook for the energy sector, particularly for major oil producers. The organization's monthly report indicated that demand growth is expected to remain at a similar pace to 2026. Analysts will be watching for any changes in OPEC's production policy as the year progresses.

Overall, the coming weeks will be pivotal for financial markets as key policy decisions and geopolitical developments unfold. Investors are advised to monitor the outcome of the Davos meeting, the BOJ's rate decision, and the potential impact of new U.S. tariffs on global trade relations.