Aurelia Butler

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The Bank of Japan is likely to hold off from raising interest rates next week but investors expect the central bank to outline its response to rising inflationary pressures caused by the yen’s decline.UBS, Morgan Stanley, Goldman Sachs and Barclays all predict that the BoJ will hold steady following a historic shift last month when it ended its negative interest rate policy and removed its cap on the 10-year Japanese government bond yield.Governor Kazuo Ueda has signalled that future rate hikes will be gradual, saying more evidence is needed to ensure that rises in prices and wages are sustainable. Most analysts predict the next rate increase will be in either July or October. But the yen has weakened to a fresh 34-year-low against the dollar following the BoJ’s most recent rate move, raising the risk that inflationary pressures caused by the increasing cost of imported goods will force the BoJ to tighten its policy at a faster pace than it would like.“If the impact [of the weaker yen] becomes too big to ignore, it might lead to a change in monetary policy,” Ueda said on Thursday following a meeting of G20 finance ministers in Washington. On Thursday the IMF said Asian central banks should reach policy decisions based on domestic inflation, rather than making them “overly dependent on anticipated moves by the Federal Reserve”.Ueda may face “his first big challenge” if the yen keeps weakening while stock prices also fall, said Takahide Kiuchi, executive economist at Nomura Research Institute, noting the sharp slide in the Nikkei 225 equity index on Friday.“The BoJ’s policy decision will become extremely difficult if it needs to keep an eye on both the risk of rising inflation due to the weaker yen and the risk of destabilisation in the economy and the financial system due to a decline in shares,” Kiuchi said. Kana InagakiDid US growth slow in the first quarter?The US economy is expected to have expanded in the first three months of this year, albeit at a slower rate than the previous two quarters, as growth remains resilient even with interest rates at a 23-year high.Data on Thursday is expected to show that the US economy grew by 2.3 per cent on an annualized basis, according to economists polled by Reuters, compared with 3.4 per cent in the previous quarter.  However, economists’ estimates are far lower than the Atlanta Fed’s GDP nowcast, which incorporates new data releases into its forecast in real time and which suggests GDP for the first quarter could be 2.9 per cent.That estimate has increased significantly since blowout retail sales data for March, which sent bond yields higher and rattled currency markets as investors bet that a strong US economy would keep inflation — and therefore interest rates — high.Also due next week is personal consumption expenditures data, the Fed’s preferred measure of price rises. The data is expected to show that headline inflation rose slightly to 2.6 per cent in March, year on year, from a rate of 2.5 per cent in February.The core figure, which strips out the volatile food and energy components, is expected to fall to 2.7 per cent from 2.8 per cent. Both rates still remain far above the Fed’s 2 per cent target and represent a slowdown in progress on inflation, driven in part by a buoyant US economy.New York Fed president John Williams at a conference on Thursday said he did not feel any “urgency” to cut interest rates because of current levels of inflation. The market is now expecting between one and two quarter-point cuts this year, compared with the six or seven cuts predicted in January. Kate DuguidWill European business activity continue to rebound? Investors will be looking out for signals on the strength of business activity in the UK and Europe on Tuesday, when the latest surveys of purchasing managers are published.Economists polled by Reuters expect S&P Global’s composite purchasing managers’ index for the eurozone —  a closely watched measure of business activity — to rise to 50.7 in April, up from the previous reading of 50.3. The index climbed above 50 in March, indicating an expansion, for the first time since May 2023.Analysts expect the services sector to be buoyant while manufacturing activity is set to lag. “Manufacturing activity is improving but it’s still not positive,” said Tomasz Wieladek, an economist at investor T Rowe Price.Economists also expect continued divergence between eurozone member states. Activity is expected to remain contracted in Germany and France, the largest economies in the bloc, but expand elsewhere.The data will be closely scrutinised by the European Central Bank, which is expected to begin cutting interest rates in June as inflation falls close to target while growth remains sluggish. The IMF on Tuesday downgraded its forecast for growth in the eurozone this year to 0.8 per cent in 2024, from 0.9 per cent in January.In the UK, where business activity has been more upbeat than in Europe, the pace of growth is expected to be little changed in April, with continued expansion in both the services and manufacturing sectors.Economists polled by Reuters predict the UK’s composite purchasing managers’ index to come in at 52.7, a slight decline from last month’s reading of 52.8. Stephanie Stacey More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The other night, I headed across town to the London School of Economics where I listened to one of the world’s most experienced climate diplomats say something unexpected about how business and political leaders are tackling global warming.Todd Stern was Barack Obama’s climate envoy and the chief US negotiator at the 2015 COP climate conference that delivered the Paris Agreement.He was giving the first annual memorial lecture in honour of another architect of the Paris accord, his friend Pete Betts, a former lead negotiator for the EU and UK who passed away in October.Stern had no qualms about naming the biggest obstacles to climate progress. “The main one is the fossil fuel industry,” he said, explaining that the “huge clout” of both state-owned and private companies could influence political leaders.But then he named another, less obvious culprit: “We are also slowed down by those who think of themselves as ‘grown-ups’.” By this he meant the politicians and business leaders who say that yes, global warming is real and yes, it must be addressed, but no, it is unrealistic to cut carbon emissions at the pace climate experts say is needed.His words struck home because it was the latest complaint I have heard this year about the “adults in the room” or “very serious people” who bog down climate action.In some ways this criticism is curious. Not that long ago, western capitals were banking on seasoned military and civilian officials in the Trump administration to temper the unpredictable president’s term in office. The prospect of a second Trump term at a time of deepening geopolitical turbulence makes the orthodox views of respected centrists look more valuable than ever.But an unwavering faith in orthodoxy, no matter the evidence, is what makes such experts a menace, says Paul Krugman, the US economist who has popularised the concept of the very serious person.He has railed against the economic variant of the species, the policy elites on both sides of the Atlantic who pushed for austerity measures after the 2008 financial crisis despite warnings of the risks these posed to long-term growth. The grown-ups holding back efforts to cut greenhouse gas emissions are not necessarily the same people, but they share the same aversion to radically unorthodox ideas.“They’re the avatars of the establishment,” a US climate policy veteran told me the other week. He was describing the voices of centrist reason he heard from Wall Street to Whitehall who said calls for net zero emissions by 2050 were financially impractical, politically impossible and naive.This is a seductive argument. It is obviously true that the bulk of emissions come from fossil fuels — the oil, gas and coal that still make up around 80 per cent of the global energy mix. It is also true that these fuels support tens of thousands of jobs and account for as much as 60 per cent of export revenues in dozens of countries. So decarbonising the global economy at speed is hard to imagine, let alone accomplish. Yet so is the prospect of business as usual prevailing — not least in a week when record rains caused chaos at the world’s busiest international airport in Dubai, while an unusually granular study showed climate damages could reach $38tn a year by 2050. We live in a world that is already at least 1.1°C warmer than it was in the late 1800s, where unnerving levels of heat, drought, flooding and ice loss are ever more evident.Scientists have shown for years that it would be wise to hold global warming to 1.5°C, as outlined in the Paris Agreement. But this would require a breathtaking rate of decarbonisation: emissions would have to nearly halve by 2030 and reach net zero by 2050. So far, global emissions are not even falling, let alone halving, and 2030 is just six years away.Is it fair to lay all the blame on serious grown-ups in successive governments and boardrooms who have spent years failing to do enough to fix the problem? Probably not. But it is fair to ask them a question that Stern posed the other night about how dangerous it would be to take more radical, unorthodox climate action: “compared to what?”We know that unthinkable action, like sudden mass lockdowns, can be launched in the face of a problem with the frightening immediacy of a global pandemic. Climate change is a different, slower-moving type of disaster. But it is a disaster nonetheless, and one that no truly serious person can continue to [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Singapore has given international banks an unusual series of top-level briefings on geopolitics as it seeks to reassure them that the financial hub can remain stable and neutral at a time of rising tension between China and the west. In meetings organised by Prime Minister Lee Hsien Loong’s office, officials discussed US-China rivalry, the Middle East conflict, the Ukraine war and the $2.2bn money-laundering scandal that rocked the city-state in August, according to four people with knowledge of the talks. The meetings have been held over the past six months with US and European financial institutions including Citigroup and Standard Chartered as well as some local banks, they said.Co-ordinating minister for national security Teo Chee Hean, a top public official, led many of the discussions. Foreign minister Vivian Balakrishnan, trade and industry minister Gan Kim Yong and minister for home affairs R Shanmugam, were also involved in some of the briefings, the people said. The city-state has plotted a careful path as a neutral financial centre at a time of rising tensions between Beijing and Washington and the briefings show Singapore’s determination to reinforce its neutrality after large inflows of people and capital from mainland China.One attendee said the US-China tensions “featured heavily” in the talks and officials sought to correct a “misperception” that Singapore is tilting towards China. “They were trying to explain that Singapore is not neutral but is friendly with both and chooses according to its own interests depending on the situation,” they said.Another person who attended a briefing said that the government sought to reassure those present that financial institutions were not going to face unnecessary regulation in the wake of a $2.2bn money laundering investigation, the largest in the city-state’s history. Ten foreigners linked to China have been charged with money laundering and the financial regulator is probing whether lenders and other institutions took necessary steps to mitigate risks as part of the probe. Banks have since significantly tightened up scrutiny of clients, with approvals for setting up private banking accounts and new family offices in the city-state now stretching into months and in some cases more than one year. Ministers overall sought to emphasise Singapore’s safety, reliability and trustworthiness amid geopolitical uncertainty. “While Singapore regularly holds meetings with business groups, briefings by such senior ministers are not routine. The government [being] proactive, especially after the money laundering episode and the current global political and economic uncertainty,” one person familiar with the briefings said. “Singapore’s global stock as a financial hub is rising and the risks of being misunderstood and bad actors operating here have become greater.”The prime minister’s office said public officials have been engaging with various groups, including banks and finance institutions, for decades. “We engage on a variety of issues — not only on international developments but also economic and social issues . . . Participants appreciate the opportunity to engage with ministers and public officials,” Lee’s office said.A US bank executive said the meetings had been well received by local employees, though senior leadership were surprised that the prime minister’s office was contacting the business on geopolitical matters. The inclusion of ministers such as Teo, a former two-star rear-admiral who has been serving as co-ordinating minister for national security since 2015, “raised eyebrows”, they said.“The ministers attending are among the top in Singapore, it is not something you say no to but it was surprising,” the person said. “The overall message we got was they want to make clearer that Singapore is still the safest, most reliable financial hub in the region.”Standard Chartered and Citigroup declined to comment. More

The United States is Taiwan’s most important international supporter and arms supplier despite the absence of formal diplomatic ties.Democratically governed Taiwan has faced increased military pressure from China, which views the island as its own territory. Taiwan’s government rejects those claims.The defence ministry expressed thanks to the U.S. House of Representatives for passing the package on Saturday, saying it demonstrated the “rock solid” U.S. support for Taiwan.The ministry added it “will coordinate the relevant budget uses with the United States through existing exchange mechanisms, and work hard to strengthen combat readiness capabilities to ensure national security and peace and stability in the Taiwan Strait”.Taiwan has since 2022 complained of delays in deliveries of U.S. weapons such as Stinger anti-aircraft missiles, as manufacturers focussed on supplying Ukraine to help the country battle invading Russian forces.Underscoring the pressure Taiwan faces from China, the ministry said on Sunday morning that over the previous 24 hours 14 Chinese military aircraft had crossed the sensitive median line of the Taiwan Strait.The median line once served as an unofficial border between the two sides over which neither sides’ military crossed, but China’s air force now regularly sends aircraft over it. China says it does not recognise the line’s existence.On Saturday, Taiwan’s defence ministry said China had again carried out “joint combat readiness patrols” with Chinese warships and warplanes around Taiwan.China’s defence ministry did not answer calls seeking comment outside of office hours on Sunday.The island’s armed forces are dwarfed by those of China’s, especially the navy and air force. More

WASHINGTON (Reuters) – South Africa faces upside risks to its inflation outlook, Central Bank Governor Lesetja Kganyago said, but the latest data has not shown evidence of price pressures from food despite adverse El Nino weather wreaking havoc across Africa. Data out on Wednesday had shown headline inflation fell to 5.3% year-on-year, down from 5.6% in February and coming in a touch below analyst expectations. In its March decision, the South African Reserve Bank (SARB) said headline inflation was expected to reach 4.5% – the midpoint of its target range – only at the end of 2025, later than previously forecast.”There are upside risks to the inflation outlook,” Kganyago told Reuters on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington. Those risks stemmed from higher oil prices on the back of heightened tensions in the Middle East, but also the prospect of tight global financial conditions amid the prospect of interest rates at the U.S. Federal Reserve staying higher for longer. This would likely suck capital out of emerging markets and into advanced economies, which could lead to a realignment of exchange rates, he said. “And we are in that category,” said Kganyago. South Africa’s rand has weakened more than 4% against the dollar since the start of the year. Price pressures from food stuffs has been in focus across the continent, with droughts and adverse weather in much of the region wreaking havoc. However, Kganyago said the latest inflation data had not shown signs of those pressures in South Africa. “There are El Nino conditions… but the El Nino effect has not been felt yet.”Africa’s most industrialised nation is grappling with an ailing economy and high debt ahead of a general election on May 29 that could see the governing African National Congress party lose its parliamentary majority for the first time since the end of apartheid 30 years ago.Asked about the election uncertainty, Kganyago said this was a global phenomenon with a record number of countries around the globe holding elections. “That is what you face – that uncertainty manifests itself in the foreign exchange market, it manifests itself in the bond market, in the equities market.” More