By Satoshi Sugiyama

TOKYO (Reuters) -Japan's exports surged to record highs in December, with shipments to the U.S. soaring to their strongest-ever level while those to China were also robust, logging their first rise in more than a year.

The better-than-expected data comes at a time of heightened concern about a faltering economic recovery in China and its potential to drag on the global economy.

Exports from the world's third-largest economy climbed 9.8% to 9.65 trillion yen ($65.1 billion) last month from the same period a year earlier, finance ministry data showed on Wednesday.

That beat a consensus estimate of 9.1% from economists in a Reuters poll and followed a 0.2% contraction in November.

Economists said, however, that it was unclear whether Japan's lacklustre economy - which has seen factory activity shrink for eight straight months - could bank on a sustainable boost from a recovery in exports.

"Exports were strong but it might only be a bounceback after the fall in November. The pace of economic growth in the U.S. and Europe seems to be slowing a bit and China has only just bottomed out so any recovery in exports is likely to be a weak one," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Exports to China - Japan's biggest trading partner - climbed 9.6% to 1.77 trillion yen ($12 billion) in December, the second-largest amount on record. Shipments of semiconductor manufacturing equipment and cars led the expansion but exports of chip and other electronic components tumbled 22%.

Exports to the United States surged 20.4%, marking 27 consecutive months of growth. Shipments of cars and auto parts as well as construction and mining equipment propelled the increase.

Japan's imports fell 6.8% in December, more than the median estimate for a 5.3% decrease. That helped the trade balance come to a surplus of 62.1 billion yen, trumping the median estimate for a 122.1 billion yen deficit.

For the whole of 2023, Japan logged a trade deficit of 9.29 trillion yen, marking three consecutive years of deficit but shrinking by 54.3% compared to the previous year.

($1 = 148.12 yen)

BRUSSELS (Reuters) - The European Union faces a risk of consumer prices surging and growth slowing due to disruptions to shipping through the Red Sea, though it has yet to feel an economic impact, a top EU official said on Tuesday.

European Commission Vice President Valdis Dombrovskis, who oversees the 27-nation bloc's economy, said shipping traffic through the Red Sea had decreased by 22% in one month in the face of attacks by Yemen's Iran-aligned Houthis.

However, the decline will accelerate as shipping companies are re-routing vessels around the Africa continent, he said, adding that the Commission was monitoring the situation very closely.

"So far there has not been visible impact on energy prices and more generally impact on goods prices. But we already see impact on transport prices, which have increased," Dombrovskis told reporters after a meeting of EU trade ministers that addressed the issue. "Certainly, it's a risk factor".

"The broader economic impact on consumer prices and the EU economy in general will depend very much on the length of this crisis," he said. "Hence, swift action is necessary."

In the latest international response to Houthi attacks, U.S. and British forces carried out air strikes on Monday at eight different locations in Yemen, targeting a Houthi underground storage site as well as missile and surveillance capabilities.

Dombrovskis said the international community was acting, and that the European Commission would update its economic forecasts in February when it might need to factor in Red Sea disruptions.

The Suez Canal, at the north end of the Red Sea, carries 12-15% of global goods trade and 25-30% of shipping containers. For the EU, 23% of all goods imports came by ship from Asia in 2022, the vast majority of it travelling through the canal.

The EU economy is skirting a mild recession with high inflation, and prolonged disruptions of trade through the Red Sea could prevent central banks from cutting interest rates this year.

Dutch Trade Minister Geoffrey van Leeuwen said shipping costs for the Shanghai-Rotterdam route via the Suez Canal had in some cases risen 200% since the Houthis began hitting shipping in professed solidarity with Palestinians as Israel pounds Gaza.

"That obviously will feed into inflation ... Coming out of inflation, that's the last thing we need," he said.

By Marc Frank

HAVANA (Reuters) - Cubans are preparing for a new wave of inflation after the government last week rolled out details of an austerity plan that economists say will touch nearly every facet of the communist-run island's already flailing economy.

The measures - which include price and tax increases and cuts in subsidies - will slow a soaring budget deficit forecast to exceed 18% of gross domestic product and set the stage for growth, according to Prime Minister Manuel Marrero.

Authorities have already announced gas at the pump will jump nearly five-fold on Feb. 1. But some economists say less visible government price increases such as on wholesale fuel and moving freight, as well as sales and import taxes, are sure to ignite substantial hikes on most products and services at the retail level.

"In economics, such prices are not increased in one area without affecting others," Cuban economist Omar Everleny said in an interview in Havana. "And in general they are passed on to consumers. I think they will increase 400% to 500%."

Reuters spoke with several Cubans in Havana who said prices were already rising following the announcements and in anticipation of the price hikes - and were set to soar further in the coming weeks.

Luis Moreno, who has worked for 14 years as a taxi driver in Havana, said he has no choice but to keep hiking his fares.

"If you raise prices on one thing, it's bound to affect another," he said. "It's not just fuel, it's food... Everything is very expensive."

Inflation was 30% last year, cooling slightly from 38% in 2022, according to the government. Many economists say those rates fall short of reality as the government does not adequately monitor a booming informal market pegged to an informal exchange rate much higher than the official one.

Government officials have announced wholesale fuel prices will double next month, freight transportation will jump between 40% and 60% in March and for the private sector import duties will increase five-fold. Private companies will also be charged a new 10% sales tax on wholesale transactions.

Some Cuban economists say reducing the deficit and subsidies is essential.

"I think that the adjustment of prices ... are necessary measures to rein in the fiscal deficit," said economist Pavel Vidal, a former Cuban central bank employee who currently teaches in Colombia.

But most economists, including Vidal, say it is also necessary to further open the economy - now dominated by state-owned enterprises - to private business and investment to boost production and the tax base, while also reforming state enterprises.

"Nowhere do I see emphasis dedicated to increasing manufacturing, or increasing agriculture," Everleny said.

The new measures are a ticking "inflation bomb," said Havana University economist and small business owner Oscar Fernandez in a Facebook (NASDAQ:META) post, calling on the government to loosen regulations on the private sector and close bankrupt state companies that weigh on the economy.

By Richa Naidu

LONDON (Reuters) -Consumer goods companies are likely to post stronger fourth-quarter sales growth in Europe than in the United States, monthly data indicates, boosted by persistently higher prices in countries like Britain, France and Germany even as Americans paid less.

Companies like Procter & Gamble (NYSE:PG) and Nestle began hiking prices in the United States at the end of 2021, driven initially by a pandemic-led freight and input cost crisis.

The hikes, which ramped up following Russia's invasion of Ukraine, were easier to take in the United States than Europe because contracts with companies like Walmart (NYSE:WMT) and Target are a lot more flexible than highly regulated deals in Europe.

As the increases came early in the United States, the worst of it is over, analysts said, while European prices will take longer to ease.

"Sales growth in Europe is higher ... but that is just a matter of time. In six months' time, pricing in Europe will normalise, just like in the United States, and they will have similarly low growth," Bernstein analyst Bruno Monteyne said.

P&G, the world's biggest personal goods company, will kick off reporting the sector's fourth-quarter earnings on Tuesday.

Price hikes likely drove strong store sales growth in Europe at companies including Nestle, Danone, Kraft Heinz (NASDAQ:KHC) and Reckitt, according to monthly estimates by information and market measurement group Nielsen, even as growth in the United States was weaker.

For instance, in the four weeks ended Dec. 2, Reckitt's U.S. store sales were down 4.2%, according to Nielsen, but up 8.1% in the four weeks ended Dec. 3 in Europe. The data showed Nestle's U.S. store sales fell 2.5% in that period, while its European sales rose 5.2%. Nielsen data does not cover every possible sales channel.

Pepsico (NASDAQ:PEP), which is in acrimonious pricing negotiations with French supermarket operator Carrefour (EPA:CARR), is estimated to have generated only 1.1% store sales growth in the United States in the four weeks to Dec. 2. Meanwhile, P&G is estimated to have had 3.4% U.S. store sales growth in that period versus 6.1% in Europe in the four weeks to Dec. 3.

COMPETITIVE PRICING

The easing of prices came as U.S. consumer confidence increased during the quarter after months of decline, with Americans growing more optimistic about current and future business conditions as well as the labour market. The consumer confidence index jumped to a five-month high in December.

In Europe, however, economic sentiment rose only slightly during the final quarter of the year, in line with expectations, as a modest up-tick of the mood in services, retail and amongst consumers outweighed a decline in manufacturers' confidence.

Analysts and investors have for months warned that continuing to raise prices in Europe could alienate cash-strapped shoppers who have been turning to retailers' own brands, which are widely available.

"Some companies will have lost market share and may want to price more competitively to win some share back," said Tineke Frikkee, a portfolio manager at Waverton Investment Management, which invests in Unilever (LON:ULVR) and Reckitt. "Pricing decisions will vary per product, per country, per company."

Nestle, Danone and Kraft Heinz and Reckitt declined to comment. Pepsico and P&G did not respond to requests for comment.

TOKYO - In a move that sets it apart from the global trend of monetary tightening, the Bank of Japan (BoJ) today reaffirmed its commitment to ultra-loose monetary policies. The central bank has decided to maintain negative interest rates at -0.1% and continue its yield curve control strategy for 10-year government bonds.

The BoJ's stance comes at a time when central banks around the world are generally moving in the opposite direction, increasing interest rates to combat inflationary pressures. Despite these global shifts, the BoJ has held its ground, a decision that has been a key factor in the yen's recent depreciation against the dollar.

Market watchers are now closely observing any signs that might indicate a shift in Japan's monetary policy. The central bank's persistent adherence to negative interest rates and yield curve control is fueling speculation about the future direction of its monetary strategy. The outcomes of these policies are being closely scrutinized as Japan navigates its unique economic challenges while being out of step with the broader global monetary policy landscape.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Veronica Dudei Maia Khongwir

BENGALURU (Reuters) - South Korea's economy expanded at a slightly slower pace in the final three months of 2023 compared to Q3 as elevated interest rates held back domestic demand despite higher exports, according to economists polled by Reuters.

Households in Asia's fourth largest economy, among the most indebted globally, are feeling the stress of a cumulative 300 basis points of interest rate hikes by the Bank of Korea since mid-2021, leading to a slowdown in spending.

Gross domestic product (GDP) for the Oct-Dec period grew 0.5% quarter-on-quarter on a seasonally adjusted basis, according to the median forecast of 25 economists in the Jan. 15-22 poll, slightly slower than 0.6% in the previous quarter.

Forecasts ranged from 0.1% to 0.9%, highlighting uncertainties facing the economy. The data will be released on Jan. 25.

"Growth in the fourth quarter is expected to be at a similar pace as in the third quarter. Private consumption was likely sluggish amid high interest rates," said Ha Keon-hyeong, an economist at Shinhan Securities.

"But, growth will stay robust, despite weak domestic demand, on growing exports of main products such as semiconductors and automobiles."

After a downturn in most of 2023, exports in the trade reliant economy - a closely watched gauge for global trade - picked up pace towards the end of the year thanks to a surge in chip exports.

But weak demand in China, South Korea's biggest trading partner and a key driver of the global economy, could disrupt the recent recovery.

On a year-on-year basis, GDP was expected to have expanded 2.1% in the fourth quarter, according to the median forecast of 27 economists, faster than 1.4% in the preceding quarter.

If realised, that would be the fastest growth rate since Q3 2022.

Economic growth was forecast at 2.1% this year, in line with the central bank's projection, a separate Reuters poll showed.

"In 2024 we foresee a more balanced condition between exports and domestic demand, as the pace of semiconductor recovery normalises and consumption is supported by the utilisation of excess savings," said Oh Suk-tae, economist at Societe Generale (OTC:SCGLY).

By Stella Qiu

SYDNEY (Reuters) - Japanese shares surged to fresh 34-year highs and the yen steadied on Tuesday, hoping the Bank of Japan will not rock the boat by pivoting away from its super easy policy any time soon, while Chinese stocks extended declines after a brutal session.

Japan's Nikkei rose 0.6% to the highest level since February 1990, bringing the year-to-date gains to 9.9%. Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.2% higher, but were down more than 6% this year due to the tumble in Chinese shares.

The yen languished at 148.12 per dollar, having slid 5% this year. [FRX/]

The BOJ is expected to retain its ultra-easy monetary settings later in the day, as policymakers assess the progress made by the economy towards meeting the conditions for phasing out the decade-long accommodative policy.

None of the economists polled by Reuters expect the central bank to end its negative rate policy this time, though many see it happening in April. Governor Kazuo Ueda will hold a press conference after the decision, with traders focusing on the inflation outlook and any signs of imminent policy change.

"The market will probably be disappointed again because we don't believe that Ueda will give a clear signal of policy normalisation in the near future," said Robert Carnell, regional head of research, Asia-Pacific, at ING.

"He may, however, sound more dovish than in the past, given the recent slowdown in inflation."

Yields on Japanese government bonds were flat at 0.65% in early Asia, down from a peak of 0.97% in November.

Most Asian sharemarkets were up, tracking the overnight rally on Wall Street which sent the benchmark S&P 500 to another record high amid little market-moving data and events.

China again proved to be the outlier, with relentless foreign selling and weak confidence pushing the bluechips to five-year lows.

China's bluechips fell 0.7% after sliding 1.6% a day earlier to close at the lowest level in five years. Hong Kong's Hang Seng index rebounded 0.4%, having fallen 2.3% on Monday.[.N].

Investors are waiting for earnings from Netflix (NASDAQ:NFLX) after the close and expectations are generally upbeat. Also due is GE, with JPMorgan looking for earnings to beat the Street and a constructive for the year ahead, with investors looking for aero margins above 19%.

Coming into the new year, traders have pared back the timing of the first interest rate cut from the Federal Reserve, with the probability for March just at 40% now. However, they still see about five rate cuts this year.

The European Central Bank (ECB) meets on Thursday and is expected to hold monetary policy steady.

Currency markets were broadly steady ahead of the BOJ decision. The dollar has held up better this year, up 2% against its major peers, but recent movements were rangebound, holding at 103.35.

U.S. Treasury yields were little changed after dipping overnight as investors took advantage of a decline in bond prices to enter the market. The 10-year were little changed at 4.0995%, while the two-year yield held at 4.3868%.

Oil prices held up gains on Tuesday after surging 2% overnight as a Ukrainian drone strike on Russia's Novatek fuel terminal caused supply disruption. [O/R]

U.S. crude futures were flat at $74.72 per barrel after climbing 2.4% overnight to a one-month top of $75.75 and Brent futures slipped 0.1% to $79.79.

Spot gold were steady at $2,022.19 an ounce.

Japan shares hit 34-yr highs, yen steady ahead of BOJ decision

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WASHINGTON (Reuters) - The U.S. Treasury said on Monday it had approved more than $228 million in funding for high-speed internet projects in New York state from the COVID-era American Rescue Plan's $10 billion Capital Projects Fund, aimed at connecting rural and underserved communities.

THE TAKE

With Tuesday's New Hampshire primary possibly cementing former president Donald Trump as the inevitable Republican nominee, the Biden administration is gearing up to sell voters on the tangible results of its economic policies, including the $1.9 trillion in COVID relief funding approved by Democrats in Congress.

The funds were awarded to New York's Municipal Infrastructure Program, which provides competitive grants to local governments and internet service providers in an effort to build "last-mile" high-speed internet connections to tens of thousands of homes and businesses in underserved and rural communities.

U.S. Treasury Secretary Janet Yellen plans to head to Chicago and Milwaukee later this week to make the case that the investments from Biden's COVID relief, infrastructure, semiconductor and clean energy legislation are delivering more economic benefits than Trump's 2017 tax cuts did.

KEY QUOTES

"This $228 million in federal funding, made possible by the American Rescue Plan, which I was proud to help pass in Congress, will allow our state to take a big step toward closing the digital divide and ensuring reliable internet access for New Yorkers in underserved communities," said Representative Nydia Velazquez, a New York City Democrat.

BY THE NUMBERS

The Treasury has approved over $9 billion in Capital Projects Fund awards since June, 2022, including $100 million last year for New York to connect over 100,000 low-income housing units to high-speed infrastructure. The department said states estimate that the funding so far will provide expanded internet access to over 2 million locations.

By Aditya Kalra and Nishit Navin

NEW DELHI/BENGALURU (Reuters) -Japan's Sony (NYSE:SONY) Group said on Monday it has sent a termination notice to Zee Entertainment to call off a $10 billion merger of their Indian operations, following an impasse over who will lead the combined entity.

The deal, announced more than two years ago, was perceived as crucial for the survival of the companies in a highly competitive market, given the impending merger between Disney's Indian businesses and the media assets of billionaire Mukesh Ambani's Reliance Industries.

Sony said it had been "engaged in discussions in good faith to extend the end date but the discussion period had expired without an agreement upon an extension of the end date".

It cited unmet conditions of the merger agreement as the reason for the termination.

Although Sony did not specify on Monday what conditions were unfulfilled, a stalemate over who will lead the combined company had put the merger in danger.

Zee proposed CEO Punit Goenka, but Sony disagreed in light of a market regulator probe into Goenka.

Sony said it did not expect any material impact on its fiscal 2024 results from the termination as it did factor in the deal to its outlook.

Zee did not immediately respond to Reuters' request for comment.

On Friday, Zee had said it was committed to the merger and was working to close the deal through "good faith negotiations". It was seeking to discuss an extension to a Jan. 20 deadline to close the deal.

"A deal collapse will have a negative impact on both parties as they were looking at scaling up in the Indian market which is going through a digital disruption and a potential threat of increased competition intensity if the Reliance-Disney deal goes through," said Karan Taurani, an analyst at Elara Capital.

The cash-strapped local broadcaster is also contending with declining profits, advertising revenue and cash reserves in a market where global streaming giants such as Netflix (NASDAQ:NFLX) and Amazon.com (NASDAQ:AMZN) are also jostling for share.

Zee's four-year pact with Disney's Star for TV broadcasting rights of certain cricket events will also be at risk if the deal collapses, as Zee would have to pay $1.32 billion to $1.44 billion over the tenure of the agreement, analysts have said.

The broadcaster missed an early-January deadline to pay $200 million, Bloomberg News reported on Jan. 9.

Zee shares closed 1.5% lower in a Saturday trading session in Mumbai. The market is closed on Monday for a public holiday in Maharashtra state.

(Reuters) - The U.S economy should avoid a recession in the coming year, according to an increasingly large majority of economists polled by the National Association of Business Economics.

Some 91% of respondents to the latest NABE survey, published on Monday, assigned a probability of 50% or less to the U.S. entering a recession over the next 12 months.

That was up from 79% in the October survey, and a far cry from the view a year ago, when a majority of economists expected a recession as the Federal Reserve raised interest rates to fight high inflation.

The rising optimism apparent in the survey is in line with much of the latest economic data, including a measure of consumer sentiment that last week rose to a 2 1/2-year high. Also, inflation has been falling faster than expected, and the labor market is cooling but not collapsing.

Fed policymakers, who have held the policy rate in its current 5.25%-5.5% range since July, have signaled they are likely to cut rates this year as long as inflation continues to drop.

Economists polled by NABE expect corporate sales and profit margins to rise this year, and say supply chain problems and labor shortages are easing, potentially positive news for the inflation outlook.

Some 63% of respondents in the latest survey reported no shortages of input materials, up from 46% three months ago; and just over half of respondents reported no labor shortages, up from 38% from the prior report. Both are among the best readings since the pandemic began, NABE said.

Higher interest rates, increased geopolitical instability, and higher costs pose the biggest risks to that picture of broadly healthy business conditions in the new year, according to the survey of 57 NABE members, conducted Dec. 28-Jan. 9.

At the same time economists cited lower interest rates, along with lower costs and better labor availability, as presenting the biggest upside risks to the outlook.