Aurelia Butler

TOKYO (Reuters) – Japan’s monetary base, or the amount of cash circulating in the economy, grew at the slowest annual pace in seven months in March, a sign the central bank was phasing out remnants of former Governor Haruhiko Kuroda’s massive stimulus programme.The Bank of Japan (BOJ) is likely to allow cash circulation to continue to slow after it last month abandoned a commitment to keep increasing monetary base until inflation stably exceeds its 2% inflation target, analysts say.The 1.6% year-on-year increase in March marked the fifth straight month of slowdown and the smallest rise since August last year, BOJ data showed. It followed a 2.4% gain in February.Separate data, released on Monday, also showed the BOJ bought 5.9 trillion yen ($39 billion) worth of government bonds outright in March, about half the amount bought in the same month of the previous year.The readings follow an official end to the radical stimulus deployed by former BOJ chief Kuroda that sought to eradicate Japan’s deflationary mindset with huge money printing and asset purchases.The BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy last month, making a historic shift away from its focus on reflating growth with decades of massive monetary stimulus.While the central bank also ditched its bond yield control, it pledged to maintain its monthly pace of bond purchases at roughly 6 trillion yen for the time being.”The BOJ is still conducting the most powerful monetary easing policy in the world. It’s also very cautious about raising interest rates or moving to quantitative tightening (QT),” said Izuru Kato, chief economist at Totan Research.”The footprints that the BOJ left in markets through its ultra-easy policy will remain huge for the time being.”Governor Kazuo Ueda has said the BOJ will eventually scale back bond purchases and allow market forces to set long-term interest rates, though offering few clues on the timing.But reducing the BOJ’s balance sheet which, at 687 trillion yen exceeds the size of Japan’s economy, won’t be easy.Trimming the BOJ’s bond buying could trigger an abrupt spike in yields that pushes up the cost of financing the country’s massive public debt.If the BOJ were to maintain the current pace of buying, it would still be purchasing roughly 54% of long-term bonds sold by the government in the fiscal year that began in April, according to estimates by Totan Research.While that is lower than 98% in fiscal 2022, it would still be much higher than the average 24% during the era of Governor Masaaki Shirakawa, who served before Kuroda, the estimates showed.($1 = 151.7700 yen) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Beijing-based Asian Infrastructure Investment Bank is in talks to provide a second loan guarantee deal to the World Bank, a move that would deepen the lenders’ partnership and allow the Washington-based institution to increase lending.The talks follow a similar deal last year, when the AIIB agreed to issue $1bn in credit guarantees against sovereign-backed loans made by the International Bank for Reconstruction and Development, the World Bank’s lending arm. That deal was intended to enable the IBRD to squeeze more out of its cash-constrained balance sheet.The increasing co-operation comes as the World Bank and other multilateral development banks are being urged to overcome tight capital constraints and mobilise financial resources to help countries deal with challenges such as climate change. The AIIB is also in discussions with the Asian Development Bank and Inter-American Development Bank about similar projects, AIIB president Jin Liqun told the Financial Times. “[The] World Bank has the need and we, our two teams, are working to see if it’s possible to have another guarantee project. And my position is: we are supportive,” Jin said in an interview.The AIIB, established in 2016 as Beijing’s answer to the World Bank, has scope to disburse more loans, with a triple A rating and capitalisation of $100bn against lending of just $50bn. This allows it to guarantee loans for other institutions while it expands its own portfolio.The World Bank loans backed by the AIIB usually had a maturity of less than eight years, Jin said. He added the World Bank and other lenders could also be overexposed to individual countries, raising risks that AIIB guarantees could help reduce.“This is I think one aspect of the MDBs [multilateral development banks] working as a system,” Jin said, naming direct co-financing as another option.The World Bank did not immediately respond to a request for comment. Stephen O’Leary, the ADB’s head of the office of risk management, said the bank had entered three “sovereign exposure exchange” deals since 2020 for a total of $3.5bn — two with the IDB and one with the African Development Bank. Under these deals, the two sides reduce their risk concentration related to certain countries by exchanging guarantees.“Given the success of these exposure exchanges in lowering used capital, ADB is actively pursuing additional exchanges with MDBs,” he said. “ADB is also in discussion with other MDBs regarding potential guarantee solutions, whereby another MDB would guarantee a portion of ADB exposure for a fee.”The IDB told the FT it was exploring options to maximise “the value scale and impact of the Bank’s capital”, including partnerships with other multilateral development banks such as the AIIB, to “improve diversification or address specific capital constraints”.“We’ve had preliminary discussions on possible risk-sharing transactions, including guarantees,” the IDB said.The AIIB has 109 members, including G7 countries, but not the US. China holds the biggest voting share, with 27 per cent.The bank was shaken last year by the resignation of former communications head Bob Pickard, who alleged the lender had been infiltrated by the Chinese Communist party.The AIIB conducted an internal investigation that it said found no evidence to support the claims, but Canada issued a statement in December saying it was conducting a “further review” of the allegations.The lender is expected to also confront a delicate transition process next year. Jin, 74, is set to step down in January 2026 after completing his second five-year term.Jin said his successor would be chosen by an election, with the winning candidate requiring the support of a “supermajority” of two-thirds of the bank’s members and three-quarters of its voting power.“If China wants to propose a candidate — I’m sure it will — the Chinese candidate would have to compete with the candidates maybe proposed by India and Korea . . . Australia, New Zealand, Singapore . . . it’s open for competition,” he said.Jin added that the aim of the transition would be to maintain the bank’s multilateral spirit, which he said was “patterned on the Bretton Woods institutions”.The AIIB has faced criticism from environmental groups over climate-related lending, which it has pledged to triple by 2030, and for continuing to finance gas-related projects. Jin said while the AIIB had ruled out funding coal-fired projects, it could not completely prohibit gas for client countries that were transitioning to cleaner energy.“Only when we can ascertain, can verify, that the gas project we financed would replace coal-fired power plants could we possibly consider financing,” he said. “That’s the conditionality. But we don’t have any projects in the pipeline even for gas projects. We focus on renewables.” More

TOKYO (Reuters) – The U.S. dollar hovered near a 4-1/2-month high against major peers on Tuesday as traders rushed to push back bets for the Federal Reserve’s first interest rate cut this year.The dollar held close to a six-week peak versus the euro and sterling reached on Monday, after U.S. data unexpectedly showed the first expansion in manufacturing since September 2022.Fears of intervention by Japanese officials limited dollar gains against the yen, even as long-term U.S. Treasury yields – which the currency pair tends to track – jumped more than 14 basis points to a two-week top at 4.337% overnight.Gold, which performs best when yields are falling, was knocked back from a record peak.The U.S. rate futures market now factors in 61.3% odds of a Fed rate cut in June, down from about 70.1% probability a week ago, according to the CME’s FedWatch tool.”The divergence of solid growth dynamics for the U.S. and waning Fed rate cut risk against sluggish growth for other FX majors suggests that any DXY dips should be seen as buying opportunities,” said Westpac’s head of currency strategy, Richard Franulovich, referring to the dollar index.The dollar index, which measures the currency against the yen, euro, sterling and three other peers, edged 0.02% higher to 105.02, following a 0.51% rally to as high as 105.07 on Monday.The euro slipped 0.08% to $1.0733, sticking close to the overnight low of 1.0731. Sterling was 0.04% lower at $1.25455 after sliding to $1.2540 in the prior session.The Japanese yen firmed slightly on Tuesday to 151.565 per dollar, after dipping to 151.77 the previous day.It reached a 34-year trough of 151.975 last week, spurring Japan to step up warnings of intervention. On Tuesday, Finance Minister Shunichi Suzuki reiterated that he wouldn’t rule out any options to respond to disorderly currency moves.Japanese authorities intervened in 2022 when the yen slid toward a 32-year low of 152 to the dollar.The yen’s slide has come despite the Bank of Japan’s first interest rate hike since 2007 last month, with officials cautious about further tightening amid a fragile exit from decades of deflation.”Despite heightened risk of intervention, the BOJ’s policy stance remains very accommodative and Japanese data continue to show the fragility of their ‘virtuous cycle’ economic recovery,” said Westpac’s Franulovich.”If intervention occurs, resultant flushes in USD/JPY below 150.00 could be relatively deep given the recent surge in leveraged shorts in JPY. However, they are still likely to be seen as buying opportunities once positioning has become more balanced.”Elsewhere, the Australian dollar was flat at $0.6489, after skidding to a nearly one-month low of $0.64815 on Monday.New Zealand’s kiwi dollar eased 0.07% to $0.5949, edging back toward the 4-1/2-month trough at $0.59395 from overnight.Spot gold edged up 0.11% to $2,253.09, after dropping back from a record high at $2,265.49 in the previous session.Leading cryptocurrency bitcoin declined 0.87% to $69,158, but was well within its relatively narrow trading range of the past week. More

TOKYO (Reuters) – Japanese Finance Minister Shunichi Suzuki said on Tuesday that authorities were ready to take appropriate action against excessive currency market volatility, without ruling out any options.”We are carefully watching daily market moves,” Suzuki told a news conference after a regular cabinet meeting, when asked about the yen’s continued declines.”We are watching currency moves with a strong sense of urgency,” he said.The yen has been on a downtrend despite the Bank of Japan’s decision on March 19 to end eight years of negative interest rates, and hit a 34-year low against the dollar at 151.975 last week. It stood at 151.655 in Asia on Tuesday.With the BOJ’s policy rate still stuck around zero, expectations the gap between U.S. and Japanese interest rates will remain wide are giving traders an excuse to keep selling the yen, analysts said.Suzuki said monetary policy was only among many factors that affect currency moves, such as each country’s current account balance, price developments, geo-political risks, market sentiment and speculative moves.”It’s important for currency rates to move stably reflecting fundamentals. Excessive volatility is undesirable,” he said.Suzuki declined to comment when asked whether Japan would intervene heavily in a single blow to unwind speculative positions, or conduct intervention in several stages to smooth volatile moves. More

Economic activity in the world’s largest copper producer was up 4.5% in February from a year earlier, the central bank said, the most since May 2022, when it had risen 5.1%.All activities surveyed by the monetary authority had a positive performance in the month, with mining and services – especially transportation – among the highlights.A number of independent analysts had already pointed out last week that economic activity growth of more than 4% in February was on the cards after sectoral statistics confirmed a good start to the year for the Andean country.The result, however, still came in as a surprise for analysts polled by the central bank, whose median forecast for activity in February stood at a 1.5% expansion, according to a poll released last month.The data comes after Chile’s economic activity rose by a revised 2.3% year-on-year in January, overshooting market estimates.The Monthly Economic Activity Indicator (Imacec), which represents about 90% of gross domestic product (GDP), was also up 0.8% in February from the previous month.”In all, the momentum of both ex-mining and mining activity has clearly outpaced our expectations,” JPMorgan economist Diego Pereira said, noting that accommodative fiscal policy and less restrictive monetary policy have provided a boost.”The question is whether mining would be able to consolidate this level, gain further, or drop in a similar manner to what happened in the prior two years.”Chile faced a sharp economic downturn in 2023 after a rapid post-pandemic recovery. The economy struggled while consumer prices soared, leading the central bank to hike interest rates which it has now been cutting as inflation cooled.The latest rate cut came in January, when the bank reduced borrowing costs by 100 basis points. The monetary authority’s rate-setting committee will meet again this week and is expected to deliver a 75-basis-point rate cut to 6.50%. More