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BoJ’s Ueda elaborates on inflation and wages, hinting at future policy shifts

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    ActionForex.com
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    During his post-meeting news conference, BoJ Governor Kazuo Ueda confirmed that the economy is aligning with the central bank’s inflation projections, adding “our core-core inflation forecast is at 1.9%, very close to our 2% target”. This closeness, he explained, significantly contributes to BoJ’s growing confidence in sustainably achieving its price target.

    However, Ueda acknowledged the challenges in quantifying the exact progress towards this goal. He pointed out that recent movements in service prices have been influenced by several one-off factors and that consumption weakness is impacting these prices. BoJ is analyzing these trends by separating such factors, and Ueda believes that, despite these complexities, “service inflation is gradually accelerating as a trend.”

    Ueda also addressed the timing of monetary policy adjustments in relation to wage negotiations. He suggested that waiting for the outcome of wage talks across all firms, including smaller ones, would be impractical due to the extended timeframe this would require. BoJ, therefore, intends to use various economic indicators and data from hearings to predict wage trends. Ueda emphasized the influence of larger firms’ wage negotiations on smaller firms and the availability of data on smaller firms’ profit outlooks as potential early indicators.

    BoJ holds steady, with CPI core-core projected at 1.9% in next two fiscal years

      By
      ActionForex.com
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      BoJ left monetary policy unchanged as widely expected. The forecast for fiscal 2024 CPI core was downgraded, whereas fiscal 2025 CPI core forecast saw a slight upgrade. Notably, CPI core-core forecasts for fiscal 2024 and 2025 were left unchanged at 1.9%, indicating a steady path towards achieving Japan’s 2% inflation target sustainably.

      Under Yield Curve Control, BoJ kept short-term policy interest rate unchanged at -0.1%. Additionally, target for 10-year JGB yield remains around 0%, with an allowance for fluctuation below 1.0% upper bound. These decisions were made by unanimous vote.

      BoJ noted, “Consumer inflation is likely to increase gradually toward the BoJ’s target as the output gap turns positive, and as medium- to long-term inflation expectations and wage growth heighten.” The central bank also acknowledged the growing “likelihood” of realizing this outlook, albeit with an emphasis on the continued “high uncertainties” surrounding future developments.

      In the median economic projections:

      • Fiscal 2023 GDP growth at 1.8% (down from October’s 2.0%).
      • Fiscal 2024 GDP growth at 1.2% (up from 1.0%).
      • Fiscal 2025 GDP growth at 1.0% (unchanged).

      On the inflation front:

      • Fiscal 2023 CPI core at 2.8% (unchanged).
      • Fiscal 2024 CPI core at 2.4% (down from 2.8%).
      • Fiscal 2025 CPI core at 1.8% (up from 1.7%).
      • Fiscal 2023 CPI core-core at 3.8% (unchanged).
      • Fiscal 2024 CPI core-core at 1.9% (unchanged).
      • Fiscal 2025 CPI core-core at 1.9% (unchanged).

      Full BoJ statement here.

      Full BoJ Outlook for Economic Activity and Prices here.

      Australia’s NAB business confidence rises to -1 amidst slowing price growth

        By
        ActionForex.com
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        Australia NAB Business Confidence fell rose from -8 to -1 in December. However, Business Conditions fell from 9 to 7. The decline was observed across several key areas: Trading conditions dropped from 13 to 10, while Employment conditions also decreased slightly from 8 to 7. Profitability conditions remained steady at 6.

        NAB Chief Economist Alan Oster noted that “confidence and conditions are softest in manufacturing, retail and wholesale,” attributing this to consumers cutting back on spending over time. Although there was a pickup in confidence within the retail sector in December, Oster expressed caution, stating that “it remains to be seen if this will be maintained.”

        Another significant development was the sharp decline in price and cost growth. Labor cost growth eased to 1.8% in quarterly equivalent terms, down from 2.3%. Purchase cost growth also declined from 2.5% to 1.6%. Overall price growth slowed from 1.2% to 0.9%, with notable decrease in retail price growth from 1.8% to 0.6%.

        Oster highlighted the significance of this decline in retail price growth, attributing it in part to the sales periods around Black Friday and Christmas. He remarked, “The marked fall in retail price growth in December… is nonetheless an encouraging sign that inflation may have eased at the end of the quarter.”

        Full Australia NAB business confidence release here.

        New Zealand BNZ services falls to 48.8, back in contraction

          By
          ActionForex.com
          -

          New Zealand BusinessNZ Performance of Services Index fell from 51.1 to 48.8 in December, back into contraction territory. This downturn also brings the index below long-term average of 53.4. The increase in negative sentiment is evident, with the proportion of negative comments rising from 54.0% to 58.7%. The primary concerns expressed by businesses revolve around seasonal factors, increasing costs of living, and an overall economic slowdown.

          Breaking down the PSI, several key components showed declines. Activity and sales dropped from 48.7 to 47.1, employment fell from 50.6 to 47.5, and new orders/business dipped from 52.2 to 51.2. Additionally, stocks and inventories decreased from 55.0 to 51.5, while supplier deliveries also saw a reduction from 52.8 to 50.5.

          Stephen Toplis, BNZ’s Head of Research noted that the softening in PSI, combined with the previously reported weakness in Performance of Manufacturing Index, paints a concerning picture for New Zealand’s near-term economic growth and employment. While tourism has been a critical driver for the services sector and is expected to continue supporting the economy, Toplis emphasized that it cannot solely bear the burden of economic revitalization.

          Full NZ BNZ PSI release here.

          Silver tumbles amid rate cut expectation adjustments

            By
            ActionForex.com
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            Silver falls steeply today as the decline from 25.91 resumes. This steep selloff in the precious metal is interpreted, at least partly, as a reaction to the recent market adjustments in global central bank rate cut expectations. With the anticipation of prolonged high interest rates, the opportunity cost of holding precious metals like Gold and Silver remains elevated, putting additional pressure on their prices.

            Technically, near term outlook in Silver will stay bearish as long as 22.83 resistance holds. Next target is 100% projection of 25.91 to 22.50 from 24.59 at 21.18.

            Price actions from 26.12 are seen as a sideway consolidation pattern from with decline 25.91 as the third leg. While break of 20.67 cannot be ruled out, strong support should be seen 19.88 and 20.67 to conclude the fall from 25.91, as well as the sideway pattern.

            PBoC holds 1-yr and 5-yr LPR steady

              By
              ActionForex.com
              -

              People’s Bank of China announced today that it would maintain one-year loan prime rate at 3.45%, a level unchanged since August last year. Similarly, five-year rate, critical for mortgage financing, remains steady at 4.2%, consistent since its last reduction in June. This decision follows PBoC’s unexpected move last week to keep its medium-term lending facility rate stable.

              PBoC’s decision to hold rates steady comes amid a sluggish economic environment in China, coupled with increasing deflationary pressures. Despite these challenges, the central bank appears reluctant to employ interest rate reductions as a tool to stimulate the economy, primarily due to concerns over the depreciating Yuan. PBoC might continue to avoid further rate cuts until Yuan regains some stability, to prevent exacerbating the currency’s depreciation.

              USD/CNH’s break of 55 D EMA last week suggests that the corrective pull back from 7.3679 has completed at 7.0870 already. That came after drawing support from 38.2% retracement of 6.6971 to 7.3679 at 7.1117. Further rise is now mildly in favor as long as 7.1589 minor support holds, back to retest 7.3679 high.

              Canada’s retail sales falls -0.2% mom in Nov, ex-auto sales down -0.5% mom

                By
                ActionForex.com
                -

                Canada’s retail sales fell -0.2% mom to CAD 66.6B in November, worse than expectation of 0.0% mom. Sales declined in four of nine subsectors, led by contraction in food and beverage at -1.4% mom. Excluding autos, sales were down -0.5% mom, much worse than expectation of -0.1% mom.

                Advance estimate suggests that sales rose 0.8% mom in December.

                Full Canada retail sales release here.

                UK retail sales volume down -3.2% mom in Dec, sales value falls -3.6% mom

                  By
                  ActionForex.com
                  -

                  UK retail sales volume fell -3.2% mom in December, much worse than expectation of -0.5% mom. That’s also the largest monthly fall since January 2021. Excluding fuel, sales volume fell -3.3% mom. Automotive fuel sales volumes fell by -1.9% mom. On an annual basis, sales volumes fell by 2.8% in 2023 and were their lowest level since 2018.

                  In value term, Retail sales value fell -3.6% mom. Ex-fuel sales value fell -3.6% mom.

                  Full UK retail sales release here.

                   

                  NZ BNZ manufacturing falls to 43.1, 10th month of contraction

                    By
                    ActionForex.com
                    -

                    New Zealand’s BusinessNZ Performance of Manufacturing Index fell from 46.5 to 43.1 in December. This latest figure marks a continued contraction in the manufacturing sector, which has now been shrinking for ten consecutive months.

                    The index components reveal a widespread decline across various manufacturing activities. Production fell from 43.5 to 40.5. Employment decreased from 47.9 to 46.7. New orders dropped from 47.4 to 44.0. Similarly, finished stocks and deliveries both saw declines, from 50.4 to 45.9 and 47.8 to 43.4, respectively.

                    Manufacturers’ feedback further underscored the industry’s challenges, with 61% of the comments in December being negative. This is a slight increase from 58.7% in November, though an improvement from 65.1% in October. The predominant concerns revolved around a lack of demand and sales, which have been significant hurdles for many manufacturers.

                    Stephen Toplis, BNZ’s Head of Research, echoed these sentiments in his assessment of the PMI data. “The December PMI reaffirms our view that economic conditions remain very difficult,” he stated. Toplis anticipates that while the economy and the manufacturing sector might gain some momentum by the end of 2024, the immediate future appears challenging, particularly with pressures in retail spending and construction activity.

                    Full NZ BNZ PMI release here.

                    Japan’s CPI core dips to 2.3%, remains above BoJ’s target for 21st month

                      By
                      ActionForex.com
                      -

                      Japan’s CPI core, excluding fresh food, decelerated slightly in December, moving from 2.5% yoy to 2.3% yoy, aligning with market expectations. This slowdown brings core inflation rate to its lowest since June 2022, yet it notably remains above BoJ’s 2% target for the 21st consecutive month.

                      Overall headline CPI also showed a slowdown, decreasing from 2.8% yoy to 2.6% yoy. Additionally, CPI core-core, which excludes both food and energy, saw a modest decline, moving from 3.8% yoy to 3.7% yoy.

                      A notable aspect of CPI data is the stability of services prices, which rose by 2.3% yoy, maintaining the pace from the previous month. This rate marks the fastest increase in services prices in three decades when periods affected by sales tax hikes are excluded.

                      A significant factor contributing to the slowdown in inflation was the substantial drop in energy prices, which decreased by -11.6% yoy. This decline was driven by reductions in electricity and city gas prices, which fell by -20.5% yoy and -20.6% yoy, respectively, largely due to government subsidies.

                      Fed’s Bostic foresees rate cuts in Q3, sets high bar for earlier action

                        By
                        ActionForex.com
                        -

                        Atlanta Fed Raphael Bostic said overnight that he now projects Fed to begin cutting interest rates in the third quarter of this year, a shift in timing from his previous expectation of the fourth quarter.

                        This adjustment is a response to the recent economic data, as he explained, “Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter.”

                        While Bostic does not entirely dismiss the possibility of an earlier rate cut, potentially as soon as July, he emphasizes that the criteria for such a decision would be stringent. “The bar will be high,” he stated, indicating that any move to cut rates before the third quarter would require substantial and convincing evidence.

                        He elaborated on this point, saying, “If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalization sooner than the third quarter.” However, he stresses that the evidence supporting such a decision would need to be compelling.

                        US initial jobless claims fell to 187k, lowest since Sep 2022

                          By
                          ActionForex.com
                          -

                          US initial jobless claims fell -16k to 187k in the week ending January 13, below expectation of 207k, marking the lowest level since September 24, 2022. Four-week moving average of initial claims fell -5k to 203k.

                          Continuing claims fell -26k to 1806k in the week ending January 6. Four-week moving average of continuing claims fell -14k to 1848k.

                          Full US jobless claims release here.

                          ECB minutes reveal growing confidence in inflation control, but clear wage turnaround awaited

                            By
                            ActionForex.com
                            -

                            ECB’s meeting minutes for the December 13-14 session indicate that officials believe monetary policy is “working as intended”, with disinflationary processes “proceeding well and probably more strongly than had been anticipated”. The decline in November’s inflation was described as “encouraging” and “broad-based,” encompassing core inflation components, which bolstered confidence in bringing inflation back to target in a timely manner.

                            One significant observation was that services inflation had begun to ease, suggesting that inflationary pressures across various components were diminishing. This trend was attributed in part to weak demand influenced by monetary policy measures.

                            However, ECB officials highlighted the uncertainty surrounding future wage dynamics, noting that “convincing evidence of a sustained turnaround in wages had yet to emerge.” This is a crucial factor for ECB, as a more definitive shift in wage trends is necessary to ensure confidence in inflation’s return to the 2% target.

                            In their decision-making, ECB officials chose to keep the three key interest rates unchanged, emphasizing the importance of their data-dependent approach. This approach focuses on the three elements of ECB’s reaction function, providing a structured framework for monetary policy decision-making and communication. The meeting minutes underscored that this approach is central to the Governing Council’s meeting-by-meeting orientation, allowing for the flexibility required in the current economic context.

                            Full ECB accounts here.

                            Japan’s core machinery orders decline -4.9% mom in Nov

                              By
                              ActionForex.com
                              -

                              Japan’s core private-sector machinery orders fell notably by -4.9% mom in November, significantly below expectation of -0.8% mom. This decline marks the first downturn in three months and points to a potential slowdown in business investment. On a year-on-year basis, core machinery orders decreased -4.0% yoy, falling short of the anticipated 0.2% yoy increase.

                              The Japanese government has maintained its assessment that machinery orders have “stalled” for 13 consecutive months. This continued stagnation in machinery orders is particularly concerning as they are often regarded as a leading indicator of capital spending over the next six to nine months. The implication is that businesses might be exercising caution in their investment decisions, possibly due to uncertainty in the economic outlook or other external factors impacting their spending plans.

                              Breaking down the orders by sector, manufacturing industry saw substantial reduction in orders, with -7.8% mom drop. Service sector also recorded a slip in orders, down -0.4% mom.

                              Full Japan machine order release here.

                              Australia’s employment drops by 65.1K in Dec, following two months of robust growth

                                By
                                ActionForex.com
                                -

                                Australia had an unexpected contraction in employment in December, with a decrease of -65.1k jobs, significantly deviating from expectation of 15.4k. This decline was marked by a substantial drop in full-time employment by -106.6k, which was only partially offset by 41.4k increase in part-time jobs.

                                Despite this downturn in job creation, unemployment rate remained steady at 3.9%, aligning with expectations. Participation rate declined -0.4% to 66.8%. Additionally, there was -0.5% mom decrease in the total monthly hours worked.

                                David Taylor, ABS head of labour statistics, noted combined strong growth of 117k in October and November, and the fall in large contraction in December, “reflected changes in the timing of employment growth in the last few months of 2023, compared with earlier years.”

                                Over the past twelve months, employment grew an average of 32k. Also, both the unemployment and underemployment rates remained relatively low and the participation rate and employment-to-population ratio relatively high. Taylor noted that suggests “the labour market remains tight.”

                                Full Australia employment release here.

                                Fed’s Beige Book: Widespread signs of slowing job market

                                  By
                                  ActionForex.com
                                  -

                                  Fed’s Beige Book noted a majority of the 12 Districts observed “little to no change in economic activity”. Of the districts that reported varying trends, three experienced “modest growth”, while one district encountered a “moderate decline”.

                                  The Beige Book also noted positive consumer activity during the holiday season. Most districts met retail expectations, with three districts exceeding them.

                                  In terms of employment, the report presents a mixed picture. Seven districts reported “little or no net change” in employment levels, while four districts experienced “modest to moderate” job growth. Importantly, “nearly all districts” cited signs of a “cooling labor market”, signaling a potential shift or slowdown in hiring and employment growth across the country.

                                  Price dynamics also varied among the districts. Six districts noted “slight or modest price increases”, and two reported “moderate increases”. Five districts observed that the rate of price increases had “subsided” somewhat compared to the previous period. Three other districts did not report any significant change in price pressures.

                                  Full Fed’s Beige Book here.

                                  SNB’s Jordan highlights challenges for Swiss firms due to Franc’s real appreciation

                                    By
                                    ActionForex.com
                                    -

                                    In an interview with Bloomberg TV, SNB President Thomas Jordan noted that for a prolonged period, the Swiss economy experienced primarily a nominal appreciation of its currency. He described that as “very helpful” as it helped shield Switzerland from external inflationary pressures, providing a buffer against global economic fluctuations.

                                    However, the situation evolved in the latter part of the year with Swiss Franc experiencing real appreciation. “That makes the situation for some of our firms more difficult,” Jordan added.

                                    The SNB President also indicated that these recent currency movements would be a critical factor in the central bank’s next quarterly decision. The shift from nominal to real appreciation in Swiss Franc will be a key consideration, as it alters the economic context within which SNB makes its policy decisions.

                                     

                                    US retail sales grows 0.6% mom in Dec, ex-auto sales up 0.4% mom

                                      By
                                      ActionForex.com
                                      -

                                      US retail sales rose 0.6% mom to USD 709.9B in December, above expectation of 0.4% mom. Ex-auto sales rose 0.4% mom to USD 573.4B, above expectation of 0.2% mom. Ex-gasoline sales rose 0.7% mom to USD 656.7B. Ex-auto, gasoline sales rose 0.6% mom to USD 520.2B.

                                      Full US retail sales release here.

                                      Eurozone CPI finalized at 2.9% yoy in Dec, core CPI at 3.4% yoy

                                        By
                                        ActionForex.com
                                        -

                                        Eurozone CPI was finalized at 2.9% yoy in December, up from November’s 2.4% yoy. CPI core (ex-energy, food, alcohol & tobacco) was finalized at 3.4% yoy, down from prior month’s 3.6% yoy. The highest contribution to the annual euro area inflation rate came from services (+1.74 percentage points, pp), followed by food, alcohol & tobacco (+1.21 pp), non-energy industrial goods (+0.66 pp) and energy (-0.68 pp).

                                        EU CPI was finalized at 3.4% yoy, up from November’s 3.1%. The lowest annual rates were registered in Denmark (0.4%), Italy and Belgium (both 0.5%). The highest annual rates were recorded in Czechia (7.6%), Romania (7.0%) and Slovakia (6.6%). Compared with November, annual inflation fell in fifteen Member States, remained stable in one and rose in eleven.

                                        Full Eurozone CPI release here.

                                        ECB’s Lagarde suggests potential summer rate cut, but maintains reserved stance

                                          By
                                          ActionForex.com
                                          -

                                          In an interview at Bloomberg House in Davos, ECB President Christine Lagarde said “it’s likely” for a rate cut in the summer, but added that she has to be “reserved”. She emphasized ECB’s data-dependent approach and acknowledged the prevailing uncertainty and certain indicators that are yet to reach desired levels.

                                          Lagarde expressed concern regarding market expectations for aggressive rate cuts, labeling them as a “distraction” from the ECB’s primary goal of combating inflation. She expressed concern that if market anticipations are misaligned with reality, they could hinder ECB’s inflation control efforts.

                                          Reiterating the ECB’s commitment to achieving sustainable inflation of 2% over the medium term, Lagarde asserted, “We are on the right path, we are directionally towards the 2%, but unless and until we are confident that it is sustainably at 2% — medium term — and we have the data to support it, I’m not going to shout victory.”

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