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.

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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.

Investing.com-- Traders were seen pricing in a greater chance that the Federal Reserve will keep interest rates on hold in March, the CME Fedwatch tool showed on Monday, signaling a drastic shift from earlier expectations for a rate cut.

The tool showed Fed Fund futures pricing in a 50.7% chance the central bank will keep its benchmark interest rate in a band of 5.25% to 5.50%, up sharply from a 19% chance seen last week.

Expectations for a chance of a 25 basis point cut- which were running high for nearly two months- now stood at 48.1%, down sharply from the 76.9% probability seen a week ago.

The shift in expectations for a rate cut came amid a slew of strong U.S. economic readings, with retail spending remaining strong, inflation inching higher and the labor market continuing to run hot.

A chorus of Fed officials also downplayed expectations for an early rate cut, stating that resilience in the U.S. economy gave the bank more impetus to keep rates higher for longer. They also noted that consumer inflation remained well above the Fed’s 2% annual target, and that rate cuts would only come when inflation was moving closer to the target.

"While I think it’s appropriate for us to look forward and ask when would policy adjustments be necessary, so we don’t put a stranglehold on the economy, it’s really premature to think that that’s around the corner," San Francisco Fed President Mary Daly said in an interview on Friday.

Atlanta Fed President Ralph Bostic also said last week that he expects rate cuts to begin only from the third quarter. Both Bostic and Daly are part of the rate-setting committee this year.

Comments from Fed officials came just ahead of the media blackout period before the central bank’s January meeting. The Fed is widely expected to keep rates steady at 23-year highs when it meets next week, with the CME tool pointing to a 97.4% chance for a hold.

Expectations of early interest rate cuts by the Fed had driven a stellar rally in global financial markets towards the end of 2023. But this rally had somewhat slowed in recent weeks, in the face of higher-for-longer rates.

The dollar had surged to an over one-month high last week on the shifting expectations, while 10-year Treasury yields broke back above the 4% level.

While the Fed signaled in its December meeting that it will consider cutting interest rates in 2024, it gave scant cues on the timing and scale of the potential cuts. The central bank had also warned that any signs of sticky inflation and labor market strength will keep rates higher for longer.

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Investing.com-- The People’s Bank of China kept its benchmark loan prime rate at record lows on Monday as widely expected, indicating that the central bank has limited headroom to further loosen monetary conditions and buoy an economic recovery.

The PBOC left its one-year LPR at 3.45%, while the five-year LPR, which is used to determine mortgage rates, was left unchanged at 4.20% in the PBOC's first rate decision of 2024.

Both LPR rates were at historic lows after a series of cuts over the past four years, as the PBOC loosened monetary policy in the face of slowing economic growth.

Monday's move was largely in line with market expectations after the central bank unexpectedly kept its medium-term lending rates on hold earlier in January, although it also maintained its near record-high pace of liquidity injections.

The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.

The PBOC had cut the rate further into record-low territory over the past two years, as it struggled to further stimulate Chinese lending conditions and support an economic rebound. But its measures have had little effect so far, with recent data confirming that a post-COVID economic rebound largely failed to materialize in 2023.

China’s gross domestic product grew less than expected in the fourth quarter, and also barely edged past a 5% government target for the year, as weakening export demand added to economic pressure from sluggish domestic spending and investment.

The PBOC has also repeatedly signaled reluctance towards cutting the LPR further, stating that such a move could cause more weakness in the yuan and also destabilize the banking sector.

With the central bank’s liquidity measures providing little support to the economy, investors have ramped up calls for more targeted, fiscal measures from Beijing. But such measures also appear unlikely as China grapples with high levels of government debt.

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Investing.com -- Earnings season ramps up, big central banks kick off their first meetings of 2024 and PMI data is set to show how the global economy is faring at the start of the year. Here's what you need to know to start your week.

US data

While slowing inflation has fueled expectations for the Federal Reserve to start cutting rates this year some policymakers have pushed back on rate cut bets. A key US inflation reading on Thursday will be closely watched for fresh insights on the future path of interest rates.

December's personal consumption expenditures data comes after the price index increased 2.6% in the 12 months to November and monthly prices fell for the first time in more than three and a half years.

The government is to release data on fourth quarter GDP on Wednesday, which is expected to come in at 2.0% after a 4.9% increase in the prior quarter.

Fed officials will be observing the traditional blackout period ahead of their upcoming policy meeting on Jan. 30-31.

Earnings ramp up

Earnings season is ramping up with investors looking ahead to results from some big names including Netflix (NASDAQ:NFLX), which reports on Tuesday, followed by Tesla (NASDAQ:TSLA) on Wednesday, as well as 3M (NYSE:MMM) and Intel (NASDAQ:INTC).

The S&P 500 posted a record high close on Friday for the first time in two years, fueled by a rally in chipmakers and other big tech stocks but could lose momentum if earnings results over the next few weeks fail to justify relatively high valuations.

"This new record level of the S&P 500 is sustainable as long as earnings meet expectations," Steve Sosnick, Chief Strategist at Interactive Brokers told Reuters.

"If, on the other hand, we find out that the market has either gotten ahead of itself ... or we get guidance from some of these companies that doesn't match the bullish sentiment that's being priced into them, that can be a real risk.”

It’s also set to be a big week for European tech, with ASML (AS:ASML), Logitech (NASDAQ:LOGI) and SAP (NYSE:SAP) reporting, as well as luxury powerhouse LVMH (EPA:LVMH).

Central bank meetings

The European Central Bank holds its first policy meeting of 2024 on Thursday against a background of rate cut speculation, with markets pricing in five rate cuts this year.

Some policymakers say markets are getting ahead of themselves and President Christine Lagarde has warned that pricing too many cuts would not help the bank fight inflation.

The Bank of Japan is to conclude its latest policy meeting on Tuesday with markets expecting no change but with investors on the lookout for any indications on a possible exit from negative interest rates later in the year.

Meanwhile, the Bank of Canada is widely expected to keep interest rates on hold at 5% on Wednesday for what would be a fourth straight meeting.

PMIs

Investors are betting heavily on a so-called soft landing for the global economy, along with rate cuts later this year.

Wednesday’s flash Purchasing Managers' Index readings for the Eurozone, UK and US will give a sense of how business activity, in contraction territory across much of the world, has held up at the start of the year.

New orders and hiring intentions will come under scrutiny as they are two of the more forward-looking components. New orders have trends lower everywhere, often a sign of firms preparing for tough times ahead - at odds with the rosy outlook in financial markets.

Oil prices

Oil prices settled slightly lower on Friday but recorded a weekly gain as Middle East tensions and disruptions to oil output offset concerns about the Chinese and global economies.

For the week, Brent gained about 0.5% while U.S. crude rose over 1%.

The International Energy Agency last week raised its 2024 global demand forecast, but its projection is half that of producer group OPEC. The Paris-based agency also said that - barring significant disruptions to flows - the market looked reasonably well supplied in 2024.

"The forecast for global oil demand growth remains unclear, with stakeholders and research institutions providing widely differing projections," analyst Bjarne Schieldrop of SEB told Reuters.

--Reuters contributed to this report

By Jonathan Saul

LONDON (Reuters) - Countries in the Red Sea region need to enhance security to protect seafarers at risk as attacks on merchant shipping worsen, industry officials said on Thursday.

Attacks on ships by Yemen's Iran-allied Houthi militia since November have slowed trade between Asia and Europe and alarmed major powers in an escalation of the war between Israel and Palestinian Hamas militants in Gaza.

Seafarers were innocent victims, Arsenio Dominguez, Secretary-General of UN shipping agency the International Maritime Organization, told a meeting with shipping industry officials on Thursday, adding that freedom of navigation must be upheld, to guarantee the flow of goods by sea.

Stephen Cotton, General Secretary of the International Transport Workers' Federation (ITF), the leading union organisation for seafarers, said the body was "very concerned", adding "seafarers' safety must be the number one priority".

The Houthis are holding 25 crew members from the Galaxy Leader, which was hijacked by the militant group on Nov. 19.

Cotton said the Galaxy Leader's crew must be unconditionally released.

In a positive step, the Indian Navy said on Thursday it had rescued the crew of a U.S.-owned vessel in the Gulf of Aden after a Houthi attack.

In December areas deemed warlike and high risk were extended into the southern area of the Red Sea as part of negotiated arrangements between seafarers and commercial shipping companies, known as the IBF.

Lawyers said the measure increased protection for seafarers.

"This designation triggers increased costs for shipowners, as seafarers covered by IBF agreements are entitled to double their basic pay, along with double compensation for death or disability," David Ashmore, employment lawyer at global law firm Reed Smith, said.

Some 12% of global trade is estimated to pass through the Red Sea.