Global Macro Highlights, December 2025 – Japanese bond yields hit 17-year high on rate hike bets

Global Macro Highlights, December 2025 – Japanese bond yields hit 17-year high on rate hike bets

Trade & Tariff Implications

China’s Exports Hit November Low: China’s exports unexpectedly shrank 1.1% in October (reversing an 8.3% rise in September), marking the worst performance since February and missing a forecast for 3.0% growth. This signals the fading of front-loading effects ahead of U.S. tariffs. Shipments to the U.S. tumbled 25.17% year-on-year, while those to the EU and Southeast Asia grew by just 0.9% and 11.0%, respectively. Imports also expanded at their slowest pace in five months (up 1.0% vs 7.4% in September), highlighting weak domestic demand. China’s trade surplus with the U.S. rose to $24.76 billion in October, up from $22.82 billion a month prior.

 Global Growth Projections

S&P Global Upgrades China Forecasts, Warns on U.S. Data Volatility: The end of the longest U.S. government shutdown leaves the economic outlook clouded by uncertainty and potential volatility in upcoming data releases. S&P Global’s PMIs suggest U.S. economic conditions have remained solid, with the U.S. continuing to lead major developed economies in output growth. S&P Global slightly lifted its global real GDP growth forecasts for 2025 and 2026. The major change is a more positive assessment of mainland China’s growth prospects: annual real GDP growth forecasts for 2025–27 have been raised to 5.0%, 4.6%, and 4.5%, respectively, about a quarter of a percentage point higher than October projections.

Geopolitical Landscape

 China Retail Sales Slow, Beats Forecast: China’s retail sales grew 2.9% year-on-year (YoY) in October 2025, easing slightly from the 3.0% increase in September, marking the slowest growth since August 2024. Despite this, the result beat market expectations of 2.7%. Sales slowed for cars (-6.6% vs 1.6% in September) and household appliances (-14.6% vs 3.3%), but saw sharp gains in categories like gold, silver, and jewelry (37.6% vs 9.7%) and communication equipment (23.2% vs 16.2%). For the first ten months of 2025, retail trade increased 4.3% from a year earlier.

China’s Trade Surplus Narrows on Unexpected Export Decline: China’s trade surplus narrowed to USD 90.07 billion in October 2025, falling from USD 95.72 billion in the same month last year. This was driven by an unexpected decline in exports, which fell 1.1% YoY to an eight-month low of USD 305.4 billion (reversing the 8.3% gain in September). Specifically, shipments to the U.S. plunged 25.0% YoY. Meanwhile, imports rose 1.0% YoY to USD 215.3 billion in October (slowing sharply from a 7.4% surge in September and missing the 3.2% forecast), with this weak pace highlighting subdued domestic demand. Despite the October slump, year-to-date exports still showed a 5.3% YoY increase totaling USD 3.08 trillion.

Bank of England Holds Rates, Cut Bets Rise: The Bank of England (BoE) kept its benchmark Bank Rate at 4.0% on November 6, 2025, following a narrow 5-4 vote by the Monetary Policy Committee (MPC). This marks the first pause in rate cuts since August 2024. Governor Andrew Bailey, though voting to hold, was the only one of the five to feel that overall inflation risks (which remain high at 3.8%) had moved down. The BoE expects inflation to fall from its peak and remains above its 2% target until Q2 2027 (forecasting 1.9% then). Economic growth forecasts were raised to 1.5% for 2025 (up from 1.25%) and kept at 1.2% for 2026 (little changed from August).

Monetary Strategies & Inflationary Pressures

Japan’s Bond Yield Hits 17-Year High on Rate Hike Bets: Japan’s 10-year, 30Y and 2Y government bond yield touched 1.8%, 3.35% and 1% respectively, its highest level since 2008, reflecting surging market expectations for a policy shift by the Bank of Japan (BOJ). Swap markets now price a 76% chance of a BOJ rate hike at the December 19 meeting, a sharp jump from only 30% two weeks ago, with the probability rising to over 90% for January. This surge follows comments from Governor Kazuo Ueda hinting at a more flexible tightening stance, which has also caused the yen to strengthen by 0.4% against the dollar despite the currency having dropped roughly 5% this quarter. The central bank continues to face pressure as Japan’s inflation remains above the 2% target.

Japan’s Annual Inflation Rises to 3.0%: Japan’s annual inflation rate edged up to 3.0% in October 2025 from 2.9% in September, marking the highest reading since July. This was primarily driven by electricity costs, which rose at the fastest pace in four months (3.5% vs 3.2% in September), even as gas prices slowed (0.7% vs 1.6%). Food prices rose 6.4% YoY, the softest gain since December 2024, due to the smallest rise in rice prices in 14 months (40.2%). Core inflation also came in at 3.0%, matching forecasts. Monthly, the CPI rose 0.4%, recording the highest level since January.

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Source: HDFC Tru (www.hdfc-tru.com) Email: tru@hdfcsec.com Ph: 9930203944

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