Aurelia Butler

TOKYO (Reuters) -Business sentiment among big Japanese non-manufacturers improved to a more than three-decade high in the first quarter, a closely watched central bank survey showed, offering policymakers hope that domestic demand will underpin a fragile economic recovery.But big manufacturers’ sentiment soured for the first time in four quarters due in part to auto production disruptions, according to the tankan survey released on Monday.The outcome is among factors the Bank of Japan (BOJ) will scrutinise in its next meeting on April 25-26, when it issues fresh quarterly growth and inflation forecasts.The April projections will draw market attention for any clues on how soon the BOJ could raise interest rates again, after having exited its massive stimulus programme last month.The headline sentiment index for big manufacturers stood at +11 in March from +13 in December, the tankan survey showed, compared with a median market forecast for a +10 reading.The index gauging big non-manufacturers’ sentiment improved to +34 in March from +32 three months ago, the survey showed, slightly exceeding a market forecast of a reading of +33.It was the highest reading since August 1991, when Japan’s economy was booming from an asset-inflated bubble, and driven by a surge in inbound tourism and a boost to corporate profits from price hikes, a BOJ official told a briefing.”The BOJ probably remains confident about service sector sentiment,” said Takeshi Minami, chief economist at Norinchukin Research Institute.”I think the BOJ could raise interest rates one more time this year if wage hikes accelerate.”Big firms expect to increase capital expenditure by 4.0% in the fiscal year starting in April, against median forecasts of a 9.2% rise, the survey showed.Both big manufacturers and non-manufacturers expect conditions to worsen three months ahead, the survey showed.Some companies worried about global economic uncertainty and prospects of rising labour costs due to a tight job market, the BOJ official said.Japan’s economy expanded an annualised 0.4% in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption.Analysts expect the economy to have barely grown in the first quarter as rising living costs hurt consumption, and output disruptions at some auto factories weighed on industrial production.Business sentiment and corporate spending appetite are key to whether Japan’s economy can sustain a moderate recovery and allow the central bank to raise interest rates again.Despite the BOJ’s decision to end negative rates last month, expectations that any further rate hikes by the BOJ will be slow in forthcoming have pressured the yen and briefly pushed it to a 34-year low against the dollar. More

(Reuters) – A look at the day ahead in Asian markets.Asian markets are primed for a positive start to the new quarter following more evidence of the U.S. “soft landing” on Friday and figures on Sunday that showed manufacturing and service sector activity in China last month accelerated in tandem.Trading volume on Monday will be lighter than usual with much of Europe still closed for the Easter holiday, but U.S. stock and bond markets are open again. Asia’s economic calendar is packed with key indicators — manufacturing purchasing managers index reports from several countries including Japan; South Korean trade; Indonesian inflation; and Japan’s quarterly tankan business conditions surveys.The exchange rates of Asia’s two largest economies will once again be under the spotlight – Japan’s yen remains in “intervention” territory, and while China’s yuan is also under pressure against the dollar but is at a 30-year high against the yen.The yuan last week slipped in spot trading to its weakest level this year around 7.22 per dollar but the People’s Bank of China has kept the daily fixing rate virtually unchanged around 7.0950 for the past four days.This suggests the PBOC doesn’t want any volatility or abrupt weakness. But Beijing’s predicament is exacerbated by the yuan’s exchange rate with the yen — it is at 30-year high against the Japanese currency, giving Tokyo a competitive advantage on the world trade stage. But Beijing will have welcomed the latest earnings from tech giant Huawei, and official PMI figures that showed manufacturing activity expanding for the first time in six months.The manufacturing PMI rose to 50.8 from 49.1 a month earlier and export orders also picked up. The official services PMI rose to its highest since June and the composite PMI its highest since April — numbers that could give Chinese and global markets a lift on Monday. China’s unofficial Caixin manufacturing PMI figures will be released on Monday.Investors will also be looking to see whether Japan’s first quarter tankan business conditions surveys shows evidence of economic momentum and recovery in domestic demand. Capex plans of large firms could also signal whether Japan’s stock market boom has more upside.Another market-mover on Monday could be Indonesian consumer inflation. Rising meat and food prices are expected to lift the annual rate to 2.91% in March from 2.75%, which would be the highest since August although still within Bank Indonesia’s 1.5%-3.5% target.The central bank left its policy rate unchanged at 6% for the fourth consecutive meeting in February and is likely to wait for the Fed to cut rates before easing.Regional highlights later include more PMIs, inflation from South Korea and the Philippines, and the latest monetary policy decision and guidance from the Reserve Bank of India. Here are key developments that could provide more direction to markets on Monday:- China Caixin manufacturing PMI (March)- Japan tankan survey (Q1)- Indonesia inflation (March) (By Jamie McGeever; Editing by Lisa Shumaker) More

WASHINGTON (Reuters) -With efforts underway to clean up thousands of tons of steel debris from the collapsed bridge in Baltimore’s harbor, Maryland Governor Wes Moore on Sunday urged Republicans to work with Democrats to approve the federal funding needed for rebuilding the bridge and to get the port economy back on its feet.Baltimore’s Francis Scott Key bridge collapsed early on Tuesday morning, killing six road workers, when a container ship nearly the size of the Eiffel Tower lost power and crashed into a support pylon. Much of the span crashed into the Patapsco River, blocking the Port of Baltimore’s shipping channel.The Biden administration released $60 million in initial emergency aid on Thursday to assist in cleaning up the bridge debris and reopening the port, which is the largest in the U.S. for “roll-on, roll-off” vehicle imports and exports of farm and construction equipment. The port has been closed since Tuesday, leaving in limbo the jobs of some 15,000 people who rely on its daily operations.Federal officials have told Maryland lawmakers the final cost of rebuilding the bridge could soar to at least $2 billion, Roll Call reported, citing a source familiar with the discussions. Democratic President Joe Biden has pledged that the federal government will cover the cost, but that will depend on passage of legislation authorizing the funds by both the Republican-led House of Representatives and Democratic-led Senate. The divided Congress has been repeatedly riven by partisan battles over funding, with hardline Republicans often at odds even with members of their own party.Moore, a Democrat, said Republicans should be willing to approve the funding for the sake of not just the city of Baltimore, but for the national economy.”The reason that we need people to move in a bipartisan basis … is not because we need you to do Maryland a favor,” Moore told CNN on Sunday. “We need to make sure that we’re actually moving quickly to get the American economy going again, because the Port of Baltimore is instrumental in our larger economic growth.”Secretary of Transportation Pete Buttigieg expressed optimism on Sunday that Congress would approve the funds necessary for the cleanup and rebuild, noting that the divided legislative body had passed Biden’s $1 trillion infrastructure package in 2021. “If there’s anything left in this country that is more bipartisan than infrastructure, it should be emergency response. This is both, and I hope that Congress will be willing if and when we turn to them,” Buttigieg told CBS’s “Face the Nation.”Biden was expected to visit the bridge collapse site this week. An enormous crane began cutting up portions of the collapsed bridge to prepare them for removal on Saturday, which officials said was the first step of what will be a long and complicated cleanup. A spokesperson for the governor’s office said on Sunday that a 200-ton (180-metric ton) piece of the bridge had been removed and officials were working to determine the best strategy for pulling the ship off the wreckage. The wreckage in the water, as well as hazardous weather conditions, have made it impossible for divers to continue searching for the four remaining bodies of the deceased construction workers in recent days, Moore said. Moore and other officials have declined to give an estimated timeline for the reopening of the port and the rebuilding of the bridge. 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.Eurozone inflation is forecast to slow slightly to 2.5 per cent when March data is published on Wednesday, providing something for both sides in the debate about how soon the European Central Bank should cut interest rates.Most economists think consumer price growth will dip from 2.6 per cent the previous month. Smaller increases in goods and food prices are expected to be largely offset by higher oil prices and the impact of an earlier Easter period, which is expected to raise prices of package holidays and flights.“Steady core inflation should reflect ongoing disinflation in goods and a temporary reacceleration in service prices due to the early timing of Easter, which is expected to fuel an increase in prices for holiday-related items,” UniCredit economists wrote in a note.Deutsche Bank analysts predict the early timing of Easter will push up package holiday prices by 10 per cent in March from the previous month and lift European air fares by an annual rate of 4 per cent in March, before they drop 8 per cent in April.Despite this, national inflation data published this week suggested that overall price pressures still increased less than expected in March.Spanish inflation rose less than economists’ forecast to 3.2 per cent in March, despite reduced government subsidies pushing up electricity and fuel prices. French inflation slowed from 3.2 per cent to 2.4 per cent. In Italy price growth rose from 0.8 per cent to 1.3 per cent, but was below economists’ forecast of 1.5 per cent. The ECB next meets to decide policy on April 11. But senior policymakers have already signalled they are likely to wait until June to check if wage pressures are moderating enough for them to cut rates. If inflation slows only slightly in March, as widely forecast, it is unlikely to persuade rate-setters to change their plans. Martin ArnoldDid US hiring slow in March?US employers’ pace of hiring is expected to have slowed in March but it is not likely to persuade the Federal Reserve to cut interest rates early.The labour department is forecast to report on Friday that the US added 200,000 jobs in March, according to economists polled by Reuters. That is down from the 275,000 added in February. The unemployment rate is expected to be unchanged at 3.9 per cent.Growth in February and March still indicates that the labour market remains strong. The steady state of the unemployment rate also suggests it is unlikely that the figures will persuade the Fed to cut interest rates earlier or faster than the current forecast of three cuts this year beginning this summer.But continued weakness in the coming months, may help make the case for future rate cuts down the line, wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets. “While there is no degree of weakness . . . in the jobs data that would get the Fed to cut before June, investors have been very cognisant that the risk of a spike in the unemployment rate continues to provide a potential policy-accelerating impulse,” he said. Kate DuguidWill Chinese business confidence begin to rise?Investors will be closely watching a Chinese business confidence survey for indications that depressed sentiment is beginning to lift.Caixin is scheduled to release its March services purchasing managers’ index reading on Wednesday. In recent months the Caixin PMIs have outperformed their official counterparts from the National Bureau of Statistics, which focuses on larger and more state-owned businesses. In particular, the Caixin services PMI has expanded — meaning a reading above 50 — every month since December 2022, when China ended its long-standing zero-Covid policy. That has indicated some signs of a recovery in a moribund economy as restaurants, cinemas and shopping malls fully reopened after years of intermittent lockdowns.“The encouraging start to industrial data at the start of the year also raises the possibility of an upside surprise,” wrote analysts at ING in a recent note. Still, another month of business expansion is unlikely to spark an inflow into China’s depressed equity markets, or to significantly alter muted business and consumer sentiment.The bigger problem is that China’s current plan for achieving its 5 per cent growth target for 2024 is still highly reliant on exports rather than stimulating domestic consumption. But China’s economy is now so big, and overseas political opposition to some of its exports so high, that it is unclear if there is sufficient foreign demand to pull Asia’s largest economy out from its deflationary trajectory. William Sandlund More

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JERUSALEM (Reuters) – Israel’s central bank chief on Sunday called on the government to enact responsible fiscal policy by reining in non-defence spending to offset any further expansion in the military budget.Lawmakers this month approved an amended 2024 state budget that added tens of billions of shekels to fund Israel’s war against the Islamist Palestinian group Hamas in Gaza, as the conflict nears six months.Amir Yaron, governor at the Bank of Israel, said that in order to establish the size of the defence budget in an informed manner, a committee should be established soon, with the participation of defence and civilian functions.”It should delineate Israel’s defence needs in the coming years and formulate an appropriate multi-year budget program that will take into account all the ramifications on the economy,” he said in a letter to cabinet ministers and parliament members in the central bank’s 2023 annual report.”It is important that if there is an additional increase in that budget, beyond what was already decided, it should be accompanied by fiscal adjustments that will at least prevent an enduring increase in the public debt to GDP ratio.”Israel intends to add some 20 billion shekels ($5.4 billion) of spending towards defence a year going forward.The amended budget also allows for compensation payments to households and businesses hurt by the war, which was sparked by Hamas’ shock attack on Israel on Oct. 7.It sets a deficit of 6.6% of gross domestic product (GDP) in 2024, revised from a pre-war level of 2.25%. In February, the deficit rose to 5.6% over the previous 12 months from 4.8% in January.Yaron said Israel’s economy faces significant challenges, particularly low labour productivity and weak basic skills that prevent ultra-Orthodox Jewish men and Arab women from integrating into the labour market.Israel’s economy grew 2% in 2023, with zero per capita GDP. The governor said Israel’s economy entered the war with good economic fundamentals and has in the past rebounded rapidly from crises.”The implementation of responsible economic policy while dealing with current challenges, concurrently with handling the fundamental challenges to the economy and encouragement of its growth drivers, will help achieve sustainable growth,” Yaron said.($1 = 3.6831 shekels) More