Gold Prices Slide Below $5,000 as Strong Dollar and Central Bank Outlook Weigh on Metals 
Global Markets Slide as AI, Crypto, and Precious Metals Face Heightened Volatility 
Gold and Silver Prices Rebound After Volatile Week Triggered by Fed Nomination 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
South Africa Eyes ECB Repo Lines as Inflation Eases and Rate Cuts Loom 
ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
Bank of Japan Signals Readiness for Near-Term Rate Hike as Inflation Nears Target 
Vietnam’s Trade Surplus With US Jumps as Exports Surge and China Imports Hit Record 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
RBI Holds Repo Rate at 5.25% as India’s Growth Outlook Strengthens After U.S. Trade Deal 
Dollar Near Two-Week High as Stock Rout, AI Concerns and Global Events Drive Market Volatility 
The Bank of Japan has signalled that it would not loosen policy in response to a temporary slowdown in demand as long as capacity shortages remained pronounced, according to the latest research report from Capital Economics.
Data released this week show that this was indeed the case on the eve of the tax hike: the Bank’s estimate put output 1 percent above its sustainable level in Q3, unchanged from Q2. A small fall in “capital utilisation” was offset by a renewed rise in “labour utilisation”.
GDP is expected to have fallen by 0.7 percent q/q in the fourth quarter as domestic demand slumped after the sales tax hike. However, we suspect that the Bank’s output gap estimate won’t fall as much. Manufacturing capacity utilisation slumped as output in the sector plunged by around 4 percent q/q in Q4.
But the latest Tankan survey showed that capacity utilisation in non-manufacturing actually rose in Q4 even as consumption fell. So capacity utilisation across the whole economy may only have fallen marginally, the report added.
Similarly, with the employment rate climbing to a fresh high, there is no sign of slack emerging in the labour market, which is the other factor that feeds into the Bank’s output gap estimate.
Looking ahead, the labour market is expected to loosen a little: the unemployment rate is likely to rise to 2.7 percent by the end of this year. But the rebound in the global manufacturing PMI since last July suggests that the manufacturing sector will soon turn a corner.
"All told, we think that the Bank’s output gap measure will fall a bit but continue to show capacity shortages throughout 2020. In these circumstances, the Bank of Japan will leave policy settings unchanged," Capital Economics further commented in the report.
