Aurelia Butler

According to Goldman Sachs economists, Powell’s comments “suggest the bar is not very high” for a September cut.The Fed Chair described recent labor market changes, including the rise in the unemployment rate, as signs of normalization rather than significant weakening. He emphasized that the FOMC is closely monitoring the data and is well-prepared to act if necessary.”We continue to expect that the July inflation data will be favorable (we forecast 21bp for core CPI and 19bp for core PCE) and think that even acceptable news would likely clinch a September cut,” Goldman economists commented.After this, they anticipate the FOMC will adopt a pattern of cutting rates every other meeting, equating to a once-per-quarter pace.Separately, Citi economists said the labor market data will be key in determining the Fed’s next steps.Powell noted that while inflation is running “somewhat” above target, the upside risks have diminished, and downside risks to the labor market are building.He referred to the Sahm rule—where a 0.5 percentage point rise in the three-month moving average unemployment rate has historically indicated a downturn—as a “statistical regularity” rather than an “economic rule.”He also highlighted the unemployment rate as a useful summary statistic, meaning that markets will continue to be sensitive to that indicator.Citi pointed out two minor adjustments in FOMC’s statement to reflect rising unemployment and slowing inflation. The FOMC stated that the unemployment rate “has moved up but remains low,” while progress toward 2% inflation was described as “some further progress.”The most significant update was the Committee’s attention to “risks on both sides of its dual mandate.”“This formalizes in the Committee statement that risks to the employment and price stability mandates have come into balance – something Chair Powell has stated multiple times,” Citi economists said.They continue to expect that the Fed will impose a rate cut in September and at each subsequent meeting, aiming for a terminal rate of 3.25-3.50% by 2025. Citi also notes that a further decline in front-end Treasury yields signals that the market is now close to pricing in the three 25 basis point rate reductions they project for the rest of the year. More

TOKYO (Reuters) -The Bank of Japan said on Thursday there was a chance wage and price growth could overshoot expectations as labour markets tighten.In a full version of its quarterly outlook report, the central bank also said service-sector firms were becoming more keen to pass on rising labour costs through price increases.”There is a possibility that wage growth and inflation may overshoot, accompanied by heightening medium- and long-term inflation expectations, amid a tight job market,” the BOJ said in the report.Japanese firms typically review prices for their services in April, which is the start of a new fiscal year, and October.In April, an increasing number of service-sector firms raised prices to make up for higher labour costs, the BOJ said.The key would be whether such changes in price-setting behaviour broaden among service-sector firms in October, and whether the moves will be sustained, it said.The BOJ raised interest rates on Wednesday, taking another step towards phasing out its radical stimulus due to a growing conviction that Japan is making progress towards durably achieving its 2% inflation target.In a summary of the outlook report released on Wednesday, the BOJ maintained its projection from April that inflation would stay around its 2% target in coming years. More

TOKYO (Reuters) – Once seen as a cautious policy dove, Bank of Japan Governor Kazuo Ueda is now presenting himself as a determined hawk who’s not afraid to lift interest rates a few more times, even in the face of a weakening economy.A change in Ueda’s commentary comes as the central bank grows more confident that steady wage gains will revive consumption, and reflects concerns that leaving rates low for too long could keep the yen weak and lead to a painful, unpopular inflation overshoot.Recent calls from politicians to combat yen falls with hawkish policy, including from Prime Minister Fumio Kishida, are also emboldening the BOJ to drop signs of future hikes, analysts say.Ueda’s latest hawkish hints and Japan’s still-low real interest rates mean the BOJ has its eyes set on hiking rates at least to around 0.75%, notwithstanding economic shocks, sources and analysts say.”Ueda’s remarks suggest that even if the economy’s momentum is somewhat weak, the BOJ will raise rates further unless its projection of an economic expansion is derailed,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.In a press conference explaining the BOJ’s decision to raise short-term rates to 0.25% on Wednesday, Ueda said there was “still quite some distance” before its policy rate reaches a neutral level that neither cools nor overheats the economy.Ueda also said 0.5%, a level Japan has not seen since 2008, posed no barrier to rates going even higher.While he declined to specify Japan’s neutral rate level, three sources familiar with the BOJ’s thinking said the dominant view within the central bank is for it to be around 1-1.5%.That suggests the BOJ is pencilling in at least two more 25 basis point hikes to 0.75%.Hikes that big would help remove excessive monetary support but wouldn’t create restrictive monetary conditions, and would only need inflation data to move roughly in line with BOJ forecasts.Only when short-term rates approach levels deemed neutral would the BOJ’s policy decision become sensitive to more subtle signs of weakness in the economy, the sources said.”The March policy change was an extraordinary move. After that, it’s business as usual,” one of the sources said on how rates can follow a steady trajectory without much advance hints from the central bank on the specific timing of a change.MORE TO COMEWhen the BOJ ended negative interest rates and other remnants of its massive stimulus in March, the focus of its communication was to avoid jolting markets with too-hawkish signs on the policy outlook.With markets having digested the impact of the March move, the BOJ is now shifting towards sending clearer signals on the prospect of a full-fledged rate hike cycle, the sources said.Underscoring the BOJ’s hawkish bent, the BOJ said in a quarterly outlook report on Wednesday that it will “continue to raise its policy rate” as long as the economy and inflation move in line with its forecast.That compared with the previous report’s language pledging to “keep financial conditions loose,” even if the BOJ were to fine-tune the degree of monetary support.The BOJ’s decision to hike rates on Wednesday also came despite recent weak signs in consumption, which led many economists to bet it will stand pat to gauge more data. Two dovish members of the board dissented to the rate decision.Ueda escalated his warning on the demerits of the weak yen, saying there was “quite a significant risk” the boost it gives to import costs may push up inflation more than expected.His remarks on Wednesday more explicitly linked the inflationary threat to the yen’s declines than his previous comments on the currency’s impact have.The BOJ’s hawkish determination is finally getting across to markets. JPMorgan now expects the BOJ to hike rates to 0.5% in December, followed by two more hikes to 1% by end of 2025.Former BOJ board member Takahide Kiuchi, who is currently an economist at Nomura Research Institute, thinks the BOJ will aim to push up rates near 1% including through two hikes by early next year.”Ueda hiked rates this month on the view that inflation was on track to meeting the BOJ’s projections,” said former BOJ official Nobuyasu Atago, currently chief economist at Rakuten Securities Economic Research Institute.”Judging from the statement’s language, one might need to guard against the possibility of another rate hike when the BOJ issues its next outlook report in October,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Rejoicing in its busiest ever year of visitors, Japan has begun to fret about overtourism. It is tangled on whether two-tier pricing, with one price for foreign visitors and a lower one for locals, is desirable, discriminatory or self-destructive. Rather than escaping it all, a once-footloose nation is opting to stay put, anchoring Japanese overseas travel at a mere 60 per cent of pre-Covid levels.But somewhere in all this, the right crisis — one of negative terms of trade and currency vulnerability — has at last been identified. The run-up to this week’s Bank of Japan monetary policy meeting was messy; but the message the central bank transmitted on the yen was clearer and more honest than it has been for a long time. For all the BoJ’s reference to an intensifying virtuous cycle between wages and prices and its previous commitment to moving only if the data justified it, the decision to raise the benchmark interest rate to 0.25 per cent was hardly a no-brainer. Two members of the monetary policy committee dissented, with one directly questioning whether the economic data yet supported an increase. Some analysts have already suggested Wednesday’s move may be remembered as one of the BoJ’s most controversial in recent times; the chief Japan economist at UBS described it as “very disappointing”, warning that it made the already precarious normalisation of Japan’s economy even more so.Both the doves and the wrongfooted have a point. Why seek to cool something that is, at best, tepid? The economy, as measured by GDP, is looking decidedly soft; pay increases have not been universal or large enough to excite; demand-driven inflation is stubbornly not ablaze; industrial production is looking heavily off-colour.And there are other, less neatly quantifiable signals of fragility — the tourism-related phenomena mentioned above prominent among them. On the collapse in Japanese overseas travel, many have identified the weak yen (the worst-performing major currency in 2024 and at a 37-year low in June) as the central cause. Well, maybe. A weak currency can make a foreign trip uncomfortable, but that would not matter so much if Japanese households felt more fully swept up in the virtuous cycle the BoJ is so keen on declaring. If they felt this year’s wage increases were a portent of much larger, inflation-surpassing rises next year, they would accept the currency pain and hop on a plane. That is not happening because confidence remains elusive.Similarly, the debate on two-tier pricing highlights another piece of unfinished economic business. Japan’s multi-decade battle with deflation may be over, but pricing power in goods and services remains anaemic. Japan talks of higher costs for tourists as a policy issue because it still has not recovered the habit of pricing as the natural function of the market and, again, of confidence.Finally, on overtourism, the Japanese grumbling is partially related to the weak yen — there is a humiliation in hearing visitors from smaller economies revelling in how cheap everything feels. But there is also frustration with the economics: if the Japanese had the money and security to enjoy their own country as freely as the visitors, the overcrowding would rankle less.Whatever the BoJ says, Japanese households know that their finances are up against cost-push inflation rather than the demand-led version that would induce a genuine, bankable virtuous cycle. For many months, it has been obvious that the weak yen is the culprit, and that the negative terms of trade shock it causes are especially painful to a country that imports almost all its energy, the majority of its food and most of the raw materials on which its manufacturing industries rely.The yen’s weakness derives from a number of factors, but the differential between Japan’s almost zero rates and the much higher yield in the US is overwhelmingly the most powerful. Until now, the BoJ has held back from adjusting rates to support the yen, forcing the Ministry of Finance to order direct intervention in markets to engineer a temporary change in direction. It has done so in the credo that developed economies do not use monetary policy to affect their currency, however pressing the need or agonising the circumstances. The central bank’s language is not yet explicit, but what happened on Wednesday marked a clear break with the past. For better or worse, the BoJ has tacitly admitted, on behalf of a nation enduring a terms of trade crisis, that currency is everything to this economy. The message is big, the bet is even [email protected] More

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SINGAPORE (Reuters) – The U.S. dollar was soft on Thursday after the Federal Reserve opened the door for an interest rate cut in September, helping keep the yen pinned near its highest since March in the wake of a hawkish pivot from the Bank of Japan. An action-packed Wednesday started with the BOJ raising Japan rates to levels not seen in 15 years, leading to traders reassessing popular carry trades before the Fed held rates steady but put rate cuts on the table as US inflation cools.”If we were to see inflation moving down … more or less in line with expectations, growth remains reasonably strong, and the labour market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” Fed Chair Jerome Powell said.Markets have been fully pricing in a 25 basis points (bps) of rate cut in September for some time and added to wagers of the Fed going big even after Powell said policymakers are not thinking about a 50-basis-point interest rate cut “right now.” Traders are now anticipating 72 bps of easing this year.Goldman Sachs strategists said Powell comments suggest the bar is not very high for a rate cut in September. “We continue to expect that the July inflation data will be favourable and think that even acceptable news would likely clinch a September cut,” they said in a note. July inflation report is due to be released on Aug. 14. But before that, the focus will be on Friday’s government jobs report for July. It is expected to show that employers added 175,000 jobs during the month, according to the median estimate of economists polled by Reuters.The dollar index, which measures the U.S. currency against six peers, was little changed at 104.02, having dropped 0.38% on Wednesday. The index fell 1.7% in July, its weakest monthly performance this year. The euro last fetched $1.0825 after rising 1% in July, while sterling was at $1.2852 ahead of the policy decision from the Bank of England, where the central bank could cut rates but markets and economists remain far from certain. The yen rose to 149.515 per dollar in early trading, its highest since mid-March after a 1% jump on Wednesday as the BOJ Governor Kazuo Ueda did not rule out another hike this year. The central bank also announced plans to halve its monthly Japanese government bond (JGB) purchases to 3 trillion yen as of January-March 2026.”I was surprised how hawkish the move was,” Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management. “I thought the recent yen rebound had reduced the pressure to hike. But the BOJ seem keen to get interest rates up and normalise policy. It probably leads to more yen strength, but it could weigh on the local economy and equity markets.”The yen surged 7% in July, its strongest monthly performance since November 2022, after starting the month rooted near 38 year lows in large part lifted by bouts interventions by Japanese authorities that totalled $36.8 billion. More

SEOUL (Reuters) – South Korea’s factory activity expanded for the third straight month in July, but at a slower pace as weak domestic demand crimped output and new orders, a private-sector survey showed on Thursday.The purchasing managers index (PMI) for manufacturers in Asia’s fourth-largest economy, compiled by S&P Global, stood at 51.4 in July on a seasonally adjusted basis, after racing to a 26-month high of 52.0 in June.The index remained above the 50-mark, which separates expansion from contraction, for a third consecutive month. “Both output and new order volumes rose, but at softer rates as firms mentioned that muted domestic demand had held back a stronger expansion,” said Usamah Bhatti, economist, S&P Global Market Intelligence.”Firms were more optimistic regarding the year-ahead outlook for output, as they were hopeful that the current uplift in demand from international markets would feed into the domestic economy and provide further boosts to demand.”Output and new orders grew for the fourth consecutive month albeit their pace slowed to three-month lows, the survey showed, with respondents noting that a subdued domestic economy partially dented overall client demand.New export orders rose for the seventh straight month, with the growth rate only marginally weakening from a five-month high hit in the previous month. There was evidence suggesting improved export order volumes in key markets, most notably the United States, Japan and South East Asia, according to the survey.South Korea’s economy unexpectedly shrank in the second quarter, after growing in the first quarter at the fastest pace in more than two years, as weak consumer spending undermined an export boom. Yet, consumer sentiment was seen turning brighter this month, relieving some worries about the economy’s uneven recovery. Moreover, the PMI survey showed manufacturers’ optimism for the year ahead rebounded in July from June, when it was the weakest in six months, as firms expected that demand growth would accelerate. More

(Reuters) -Chipmaker Qualcomm (NASDAQ:QCOM) forecast fourth-quarter revenue above Wall Street estimates on Wednesday, betting on strong demand for high-end Android devices and the need for more chips in smartphones that are getting AI upgrades.Shares of San Diego, California-based Qualcomm rose more than 5% in extended trading after it reported results, but pared gains to trade down 1.4% after the firm flagged a revenue hit from the U.S. revoking one of its export licenses for sanctioned Chinese telecom firm Huawei. Tighter export curbs on sharing high-end chip technology with China and mounting Sino-U.S. trade tensions are hindering chipmakers from serving one of the largest markets for semiconductors.      “This change will impact our revenues in both the current quarter and the first quarter of fiscal 2025,” CFO Akash Palkhiwala said on a post-earnings call, without detailing the impact. Qualcomm will continue to negotiate with Huawei, said Alex Rogers (NYSE:ROG), president of the company’s licensing segment.The company said early in May that it did not expect any chip revenue from Huawei beyond 2024, but was pursuing licensing negotiations with the Chinese firm.The warning on trade curbs overshadowed Qualcomm’s optimistic forecast. The addition of AI capabilities to smartphones has driven a resurgence in end-market demand, lifting orders for Qualcomm, after the industry slumped to its lowest level in years.The chipmaker could benefit from higher sales of Apple (NASDAQ:AAPL) iPhones in China, for instance, where the world’s most valuable company slashed iPhone prices to compete better against a resurgent Huawei.”While the smartphone market end-demand has remained somewhat muted, Qualcomm is benefiting from the stronger share position in the premium-tier segment where end-market demand has been more resilient as (smartphone makers) have been slashing prices to spur demand,” said Kinngai Chan, analyst at Summit Insights.Analysts expect Apple to return to revenue growth when the iPhone maker reports results for its fiscal third quarter on Thursday. Qualcomm forecast a fourth-quarter revenue range with a midpoint of $9.9 billion, compared with analysts’ average estimate of $9.71 billion, according to LSEG data. The addition of AI features have also led to smartphone providers using more of Qualcomm’s chips in their devices to help support advanced processing requirements. For its core business that sells chips to customers, the company forecast a fiscal fourth-quarter sales just above analyst estimates of $8.33 billion, according to Visible Alpha.”We believe Apple and ARM-based PCs are driving Qualcomm’s handset outlook. We think the premium tier smartphone market, which Qualcomm has more market share in, is faring better than the mainstream segment,” Chan said.Qualcomm may also benefit significantly from the rebounding personal computer market where its Arm-based processors used in Microsoft (NASDAQ:MSFT)’s latest AI PCs threaten Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD)’s longstanding stronghold over the industry.   More