Price puzzles in the land of the rising sun

Japan producer prices unexpectedly flatten

Producer prices in Japan defied market expectations, exhibiting no year-on-year growth in December 2023. This surprising outcome surpassed predictions of a 0.3% decline, following a 0.3% expansion the previous month. The monthly trajectory revealed a 0.3% increase in December, aligning with the upwardly revised figure observed in November.

Eiji Maeda, a former official, anticipates positive developments in wage negotiations that could provide impetus for the Bank of Japan (BOJ) to conclude its era of negative interest rates by spring. Maeda projects a potential 4% pay increase, marking the most substantial growth since 1992.

Gold eases as dollar, yields advance

Gold prices experienced a dip below the $2,050-per-ounce threshold on Tuesday, relinquishing gains amassed over the preceding three days. This reversal coincided with a resurgence in both the US dollar and Treasury yields, as investors tempered expectations for early interest rate cuts by the US Federal Reserve at the commencement of the year.

Despite this retracement, market sentiment continues to project a roughly 70% likelihood of the central bank initiating rate cuts in March, a prospect considered by many analysts as overly assertive. The upcoming release of US retail sales data on Wednesday, coupled with insights from Federal Reserve officials throughout the week, will play a pivotal role in shaping the monetary policy landscape.

In a cautionary note, a European Central Bank official emphasized on Monday that it might be premature to consider rate cuts this year, citing persistent inflationary pressures and geopolitical uncertainties. As the market awaits further cues, the delicate balance between economic indicators and policy considerations remains in focus.