Economy

Japan’s output gap, which measures the difference between an economy’s actual and potential output, is likely to stand at +0.4% in the fiscal year starting in April, according to an estimate released by the Cabinet Office.A positive output gap occurs when actual output exceeds the economy’s full capacity, and it is considered a sign of strong demand.With Japan’s labour force at a plateau of about 69 million workers, labour shortages are likely to restrict supply, the Cabinet Office said.Japan’s output gap slipped into the negative territory in fiscal 2019, falling to as low as -4.5% in fiscal year 2020 during the pandemic.It is among data the Bank of Japan watches closely in determining whether the economy is expanding strongly enough to propel a demand-driven rise in inflation.The Cabinet Office expects growth in the overall consumer price index, which includes fresh food prices, to slow to 2% in the next fiscal year from 2.5% this year. More

This data follows the central bank’s unexpected decision last week to maintain its key interest rate at 21%. The regulator said recent tightening has created conditions conducive to reducing inflation towards its target of 4%.The agency indicated that seasonally volatile prices for fruit and vegetables contributed significantly to the overall increase, with cucumber prices rising by 8.3% and tomato prices by 1.9% in just one week.Among less seasonally sensitive foods, the price of eggs increased by 1.7%, and frozen fish by 1.4%. The central bank had initially estimated this year’s inflation at a maximum of 8.5%.The central bank’s monetary policy department’s head Andrei Gangan told the Interfax news agency on Dec. 24 that full-year inflation will be between 9.6% and 9.8%.Inflationary expectations among households for the coming year also reached 13.9% in December, the highest level since the beginning of the year.In a report on its inflationary expectations survey, the central bank said respondents were most concerned about rising prices for milk, dairy products, eggs, meat, and fish. It also said respondents have begun to notice increases in the prices of home appliances and electronic devices. More

Sanctions have complicated Russia’s trade with its major partners such as China or Turkey, as local banks are extremely cautious with Russia-related transactions to avoid scrutiny from Western regulators. This year, Russia permitted the use of cryptocurrencies in foreign trade and has taken steps to make it legal to mine cryptocurrencies, including bitcoin. Russia is one of the global leaders in bitcoin mining. “As part of the experimental regime, it is possible to use bitcoins, which we had mined here in Russia (in foreign trade transactions),” Siluanov told Russia 24 television channel. “Such transactions are already occurring. We believe they should be expanded and developed further. I am confident this will happen next year,” he said, adding that international payments in digital currencies represent the future.Earlier this month, President Vladimir Putin said that the current U.S. administration was undermining the role of the U.S dollar as the reserve currency by using it for political purposes, forcing many countries to turn to alternative assets.He singled out bitcoin as an example of such assets, saying that no-one in the world could regulate bitcoin. Putin’s remarks indicated that the Russian leader backs the extensive use of cryptocurrencies. More

Analysts at BofA Securities indicate that Trump’s calls for NATO members to ramp up defense spending to 5% of GDP.As per BofA Securities, NATO’s focus on strengthening capabilities in air defense, offensive weapons systems, and nuclear deterrents, combined with rising budget commitments, underscores a favorable outlook for European defense firms. The alliance’s recent moves to boost spending targets to 3% of GDP, alongside Trump’s push for more robust commitments, signal a shift that is likely to sustain higher valuations for the industry. The increased expenditure demands come amid a backdrop of rising geopolitical tensions, particularly in Eastern Europe and the Arctic regions.Currently, European defense companies are trading at a modest premium to their U.S. counterparts, a shift from historical norms when they typically lagged behind. Analysts attribute this change to an improved growth trajectory and the rising recognition of Europe’s key role in global security dynamics. The higher valuations reflect optimism about the sector’s earnings potential and its ability to capitalize on expanding budgets across NATO countries.Additionally, the emergence of new defense technology firms is altering the competitive landscape on both sides of the Atlantic. Companies like Helsing in Europe and Anduril in the U.S. are increasingly challenging traditional defense contractors with innovative offerings, such as drone swarm technologies and precision munitions systems. The analysts at BofA flag this trend as an important dimension of future industry dynamics, with new entrants injecting fresh momentum into the sector.Overall, the combination of geopolitical pressures, policy shifts within NATO, and disruptive technological advancements sets a supportive stage for the European defense industry. BofA Securities projects that the sector’s strong premium valuation will persist through 2025, supported by both strategic imperatives and market confidence in the industry’s resilience and adaptability. More

ANKARA (Reuters) – Expectations of a Turkish central bank rate cut strengthened on Wednesday after a less-than-requested minimum wage hike, economists said, as it showed the government’s determination to reach disinflation targets.The 30% rise will test the government’s efforts to fight years of chronic high inflation as it could pressure prices.Turkey’s net monthly minimum wage will be 22,104 Turkish lira ($627) in 2025. The government said the level was set to maintain fiscal discipline and continue the fight against inflation. The workers union had requested an increase around 70%.Economists said the wage rise, impacting some 9 million workers, made it certain the central bank will start policy easing later this week.”Expectations for a rate cut have risen, and I’ve revised my own forecast from a 150 basis point cut to 200 basis points. However, a 250 basis point cut wouldn’t be a surprise,” said Filiz Eryılmaz, chief economist at ALB Yatırım.According to a Reuters poll published last week, the central bank is expected to start an easing cycle after eight months of steady policy. Economists expected the first rate cut to be between 150-250 basis points from the current policy rate of 50%.”This (minimum wage) increase, which is at the lower end of expectations, is expected to have an additional CPI impact of less than 1 point, and we believe it has eased the central bank’s hand in initiating interest rate cuts,” said Haluk Burumcekci, founding partner at Burumcekci Consulting.According to previous central bank research, a one percentage point increase in the minimum wage contributes 0.06 to 0.2 points to inflation. It is estimated that the new hike, which could impact inflation between 1.8-6 points, is mostly taken into account in its year-end inflation forecast of 21%.Turkish inflation declined to 47.09% in November from an annual high of 75% in May, mainly due to tight monetary and fiscal policies. However, the improvement in the print was slower than previously forecast according to the central bank.The bank will announce its policy rate decision at 1100 GMT on Thursday. ($1 = 35.2599 liras) More

TOKYO (Reuters) -Japan’s government is set to compile a record $735 billion budget for the fiscal year from April due to larger social security and debt-servicing costs, adding to the industrial world’s heaviest debt, a draft seen by Reuters showed.The 115.5 trillion yen draft budget is being compiled as the Bank of Japan shifts away from its decade-long stimulus programme, putting more burden on the government to stimulate the economy.In an attempt to improve public finances, however, the government plans to trim new bond issuance next fiscal year to 28.6 trillion yen from this fiscal year’s initially planned 35.4 trillion yen, helped by tax revenue growth, the draft showed.It is the first time in 17 years that new bond issuance will drop below 30 trillion yen.Decades of stop-start fiscal spending and reform have left Japan with the industrial world’s heaviest public debt burden – more than double the size of its annual economic output.The BOJ’s retreat from a decade of radical stimulus adds to pressure on Japan’s fiscal health, as the government can no longer count on the central bank to effectively bankroll debt. The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. Governor Kazuo Ueda signalled on Wednesday that the next rate hike is nearing, saying wage and price developments indicate the economy will move closer to sustainably achieving the central bank’s 2% inflation target next year.The draft budget, up from this fiscal year’s 112.6 trillion yen, is expected to be approved by Prime Minister Shigeru Ishiba’s cabinet on Friday for submission to parliament for deliberation early next year.Tax revenue is projected to rise 8.8 trillion yen from this year’s initial estimate to a record 78.4 trillion yen, thanks in part to a recovery in corporate profits, according to the draft.The primary budget balance, which excludes new bond sales and debt servicing costs, will be in deficit of less than 1 trillion yen, keeping alive the possibility of achieving the government’s goal of delivering a primary budget surplus by the next fiscal year.The budget draft assumes the yield on the benchmark 10-year government bond rises to 2% next fiscal year from this year’s 1.9%, topping 2% for the first time in 13 years.That would boost debt-servicing costs for interest payments and debt redemption to 28.2 trillion yen from 27 trillion yen for this fiscal year.The government on Wednesday revised its economic outlook, estimating the real economic growth rate for the current fiscal year at 0.4%, down from 0.7% projected in November as a Chinese economic slowdown weighed on exports.The growth projection for the next fiscal year was kept at 1.2%.($1 = 157.2200 yen) More

The probe, which was launched on Jan. 5 and due to be completed in a year, will be extended to April 5 due to the “complexity” of the investigation, the ministry said in a brief statement, without elaborating. The ministry previously said the probe could be extended by six months under special circumstances.Preliminary findings from the probe have shown dumping of EU brandy threatens to damage China’s sector, the ministry said in October as it imposed temporary measures on EU brandy imports, hitting French brands including Hennessy and Remy Martin. The probe was widely seen as the outcome of France’s support of EU tariffs on China-made electric vehicles. French President Emmanuel Macron previously called the probe “pure retaliation”.The Chinese measures require China’s importers to pay security deposits of nearly 40% if they wish to import brandy from the bloc, making it more costly upfront to ship brandy from the EU. France’s trade ministry previously called the Chinese measures “incomprehensible”, and that they had violated free trade. Last month, the EU Commission said it had formally brought the provisional Chinese anti-dumping measures to the World Trade Organization.French brandy shipments to China reached $1.7 billion last year and accounted for 99% of the country’s imports of the spirit. More