Prolonged inflation has eroded consumer purchasing power in Japan, causing the economy to contract 2.9% in Q3, exceeding initial estimates. Weak wage growth means the Bank of Japan wants to see 2% inflation before considering policy changes, though currency traders expect imminent rate hikes. With consumption accounting for over half of GDP, persistent spending weakness poses risks to Japan's growth and the central bank's plans to gradually withdraw stimulus. The stronger yen that could accompany tighter policy may hurt exporters and the Nikkei, highlighting the difficult balancing act the BoJ faces between lowering inflation and protecting growth.
EQUITY
Wall Street closed higher Thursday as investors cheered Alphabet's launch of an advanced AI model and looked ahead to Friday's jobs report for clues on the labour market and interest rate trajectory. Alphabet rallied over 5% on its unveiling of "Gemini" AI system to compete with Microsoft, and AMD shares soared nearly 10% after estimating a $45 billion total addressable market for its new data centre AI chips.
GOLD
Gold prices steadied ahead of the key U.S. jobs report after a week of declines, as cautious traders hoped for signs of economic weakness while bracing for dollar strength. Strategists predict worrying markets in 2024 if softened inflation data shows the Fed's interest rate shocks negatively impacting activity, potentially spurring investors to panic.
OIL
Crude prices sank to six-month lows as China imported 9% less crude in November, while India's demand eased after a brief festive peak. However, a first export rise in six months suggests stabilising trade. US production topped 13 million barrels per day last week, and gasoline stocks rose sharply, though OPEC+ recently announced 1 million barrels of voluntary output cuts for early 2024 to prop up prices.
CURRENCY
Japanese yen soared as Nikkei dropped sharply this week as GDP turns negative. The dollar index traded sideways early Friday, awaiting US job data after retreating against surging yen. Chinese yuan edged up though economic outlook remains fragile after Moody’s warned of downgrades of state firms on debt concerns despite signs of trade recovery in November export data.
