Aurelia Butler

TOKYO (Reuters) – Japan’s core inflation accelerated in February but an index gauging the broader price trend slowed sharply, data showed, highlighting uncertainty on how soon the central bank will hike interest rates again.While rising wages and the boost to import costs from renewed yen declines could underpin price growth, some analysts expect inflation to slow below the Bank of Japan’s 2% target later this year as domestic demand remains tepid.Markets are seeking clues on when the BOJ will next raise rates after its decision on Tuesday to exit its radical stimulus programme, making a historic shift away from a focus on reflating growth through aggressive monetary easing.The core consumer price index (CPI), which excludes fresh foods but includes energy items, rose 2.8% in February from a year earlier, government data showed, matching median market forecasts.It accelerated from a 2.0% gain in January due largely to the base effect from the launch of energy subsidies last year.But inflation as measured by an index stripping away the effect of fuel, closely watched by the BOJ as an indicator of broader price trends, moderated to 3.2% in February from 3.5% in January, marking the slowest annual pace since January 2023.”There are no signs of the overshooting that BoJ Governor (Kazuo) Ueda has said would be needed for the Bank to tighten monetary policy any further,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.”Indeed, we still expect inflation to fall below the Bank’s target by the end of the year.”Core consumer inflation has exceeded the BOJ’s 2% target since April 2022, initially driven by a wave of price hikes from firms that passed on rising raw material costs to households. The central bank has described its decision to end negative rates on Tuesday as driven by signs that robust demand and prospects of higher wages were prodding firms to keep hiking prices not just for goods but services. BOJ Governor Ueda said on Tuesday the central bank could hike rates again if inflation overshoots expectations or upside risks to the price outlook heighten significantly. 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. But the BOJ revised down its economic assessment on Tuesday and warned of soft signs in consumption and output, casting doubt on the strength of Japan’s recovery. More

The GfK consumer confidence index remained at -21 in March, unchanged from February, and slightly below forecasts in a Reuters poll of economists which pointed to a reading of -19.GfK’s measures of households’ expectations for their personal finances rose to +2 from 0 in February.”The improved personal finance measure … is encouraging because it’s the first positive and the highest score since December 2021,” GfK client strategy director Joe Staton said.”This is welcome news given the challenges faced by Britons of fiscal drag, higher costs for fuel, rising council taxes and utilities eroding any increases in wages or other income.” British consumer price inflation slowed to 3.4% in February, and the Bank of England expects it to temporarily fall below its 2% target during the second quarter due to the impact of finance minister Jeremy Hunt’s decision to freeze fuel duty again.BoE Governor Andrew Bailey, who along with seven other members voted to hold interest rates at a 16-year high of 5.25% this week, said he was hopeful about the path for inflation, but needed to see further evidence before cutting interest rates.A decline in GfK’s sub-index of major purchases continued this month. Staton said Friday’s figures raised questions about Britain’s economy ahead of the election that Prime Minister Rishi Sunak is expected to call later this year.”Are we temporarily on pause, or are consumers about to press ‘reverse’? In the run-up to the next UK general election, these are important questions for the future health of the economy,” he said.   More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK consumers’ confidence about their personal finances has hit the highest level in more than two years, according to a closely watched survey.Research company GfK said on Friday that people’s outlook on their own financial situation for the year ahead — a sub-index of its overall consumer confidence index — rose two points month on month to 2 in March. The increase marked the first time since December 2021 that the measure has been above zero, and puts it well above its long-run average of minus 1.7.However, GfK said the overall index — a measure of how people view their personal finances and broader economic prospects — was unchanged from February at minus 21 after a year of near-persistent increases, suggesting consumers remain cautious about inflation. “The improved personal finance measure at +2 is encouraging,” said Joe Staton, client strategy director at GfK. “[Yet] it is clear the improvements in consumer confidence seen [in] most months since January 2023 have vanished.”Despite the overall index remaining flat, confidence in the outlook for the general economy improved by 1 point from February to minus 23, after falling between January and February.  But survey respondents downgraded their view of the economy over the past 12 months by 2 points to minus 45, in a sign that persistent inflation is causing consumers to re-evaluate the UK’s recent economic progress.Separate official figures on Wednesday showed that rents rose at a record pace of 9 per cent last month while headline inflation fell sharply to 3.4 per cent, the lowest since 2021. Prime Minister Rishi Sunak pointed to easing price growth as evidence that his economic plan was working, and the decline has encouraged Number 10 to believe inflation could dip below the Bank of England’s 2 per cent target before a general election expected in the autumn. A fall in inflation — and the boost to consumer confidence it could provide — are a key part of Sunak’s strategy as he attempts to narrow Labour’s 20-point opinion poll lead and convince voters the Conservatives are the best stewards of the economy. Households remain uncertain of the overall direction of travel, although some retailers have announced larger than expected profits spurred by the outlook for UK consumer confidence.Tomasz Wieladek, economist at investment company T Rowe Price, said it was “plausible that [economic] volatility . . . generated an environment of significant financial uncertainty and that this in turn continues to weigh negatively on overall consumer confidence”.The BoE cited the “broadly stable” consumer confidence index on Thursday as it said interest rates would stay at a 16-year high of 5.25 per cent after “further encouraging signs that inflation is coming down”.“Stability is a ultimately good sign,” added Staton. More

HONG KONG (Reuters) -Vague provisions in Hong Kong’s new national security law around state secrets and links to foreign entities have put on edge many global businesses in the financial hub, with some consultants and hedge funds updating contingency plans and seeking legal advice in a bid to counter this political risk.Several corporations, worried about data security, are now treating Hong Kong, once a major Asian base for multinationals, in the same way as mainland China and shielding information about the rest of the company from teams there, said an executive with decades of experience as an advisor to international firms.Another executive said his hedge fund was seeking legal advice on how to deal with regulators and other government officials because of the state secrets provisions.”It boils down to a lack of trust in the Hong Kong government, that is beholden to China,” said a foreign executive who attended a recent meeting with senior Hong Kong officials.The three executives, like the more than a dozen businesspeople Reuters spoke to, declined to be identified due to the sensitivity around security issues.On Tuesday, Hong Kong’s legislature unanimously approved the law, which updates a broader national security law imposed by China four years ago and comes with stiffer punishments for crimes including sedition and external interference. The law takes effect on Saturday, March 23. The Hong Kong General Chamber of Commerce, among other business associations, has said it would make Hong Kong “a safer destination for local and foreign businesses and professionals operating there.”Citing national stability, Hong Kong and Chinese government officials have also defended the law from foreign criticism, saying it was no more severe than legislations in other countries including the United States, Britain and Singapore.Some lawyers, however, said the sweeping definitions for several crimes around interference by so-called external forces, espionage and what constitutes a state secret, among others, had created uncertainty.CONCERNS ABOUT IMPLEMENTATIONThe businesspeople interviewed said the law potentially diminishes Hong Kong’s international role as it appears to hew closer to the tighter national security regime of Chinese President Xi Jinping.”For the international business community and financial investors, Hong Kong’s common law tradition and rule of equity are as important as the free information flow and currency convertibility,” said Weiheng Chen, senior partner at U.S-based law firm Wilson Sonsini.”So how this legislation will be implemented within the existing common law system shall be closely monitored and assessed,” said Chen, who also heads the Greater China practice.The lack of clarity around the terms and the implementation of the law was precisely what drove a hedge fund to update their contingency plans, an executive said.”We’re urgently seeking advice on two key points – does our research of companies and individuals stray into risky areas, and how can we safely manage any relationships with foreign government-linked wealth funds. That includes how we share and store that research,” the executive said.”We’d like to stay in Hong Kong, but Singapore is our back-up if need be,” they added.Last year, the Chinese authorities tightened access to information including what’s available on Chinese corporate databases, and clamped down on due diligence firms, arresting 5 executives at the Beijing office of U.S.-based Mintz Group. A corporate investigator in Hong Kong for around 20 years said work that might no longer be viable could include looking into fraud or due diligence cases, as these discreet probes often scrutinize assets and companies.These potential risks, three due diligence executives said, were already driving some consolidation in the sector, with some executives leaving the city.”China’s security reach will increasingly extend into Hong Kong, including data regulations,” said the corporate advisor.”And while Hong Kong is still more open, the broader direction is clear.” More

HOUSTON (Reuters) -The U.S. government needs to streamline permitting for renewable energy projects, including development of power transmission infrastructure and grid connectivity, to support needed growth, executives said on Thursday at a conference in Houston. “It’s a tremendous issue,” said NRG interim CEO Larry Coben, pointing to difficulties around interconnection, the rules that new electricity generators must follow to connect to the grid. It can take up to four years to move a project through the interconnection process, according to the American Clean Power Association.Coben lamented that it is much harder to move through permitting processes in places like California than in Texas. States with fewer regulatory restrictions are going to be the big winners in attracting renewable investment and growth, said Andrés Gluski, CEO of utility firm AES (NYSE:AES) Corporation. Hurdles around permitting have been discussed frequently among executives attending the annual CERAWeek energy conference in Houston Texas. Earlier in the week, U.S. Senator Joe Manchin told participants that permitting reform “will get done.”Former U.S. climate envoy John Kerry on Thursday agreed the need is critical for clean energy development. “We’ve got to break the gridlock of permitting. We cannot take five or 10 years to be able to deploy the things we need to do,” to meet climate goals. The call for faster permitting comes as renewable deployment is forecast to grow by as much as 17% to 42 gigawatts this year, representing about a quarter of electricity generation, consultancy Deloitte said in a report, citing U.S. government figures. “We’ve got to get infrastructure built, transmission lines built. We’ve got to work through these kind of political forums that are being used to stonewall and stop progress,” said Chris Womack, chief executive at utility firm Southern Company (NYSE:SO). More

(Reuters) – The United Nations General Assembly on Thursday unanimously adopted the first global resolution on artificial intelligence to encourage countries to safeguard human rights, protect personal data, and monitor AI for risks.The nonbinding resolution, proposed by the United States and co-sponsored by China and 122 other nations, took three months to negotiate and also advocates for strengthening privacy policies, senior U.S. administration officials said, briefing reporters before the resolution’s approval. “Today, all 193 members of the United Nations General Assembly have spoken in one voice, and together, chosen to govern artificial intelligence rather than let it govern us,” U.S. Ambassador to the United Nations Linda Thomas-Greenfield said. The resolution is the latest in a series of initiatives – few of which carry teeth – by governments around the world to shape AI’s development, amid fears it could be used to disrupt democratic processes, turbocharge fraud or lead to dramatic job losses, among other harms.”The improper or malicious design, development, deployment and use of artificial intelligence systems … pose risks that could … undercut the protection, promotion and enjoyment of human rights and fundamental freedoms,” the measure says. In November, the U.S., Britain and more than a dozen other countries unveiled the first detailed international agreement on how to keep artificial intelligence safe from rogue actors, pushing for companies to create AI systems that are “secure by design.” Europe is ahead of the United States, with EU lawmakers adopting a provisional agreement this month to oversee the technology. The Biden administration has been pressing lawmakers for AI regulation, but a polarized U.S. Congress has made little headway. In the meantime, the White House sought to reduce AI risks to consumers, workers, and minority groups while bolstering national security with a new executive order in October.Asked whether negotiators faced resistance from Russia or China, the officials conceded there were “lots of heated conversations. … But we actively engaged with China, Russia, Cuba, other countries that often don’t see eye to eye with us on issues.” “We believe the resolution strikes the appropriate balance between furthering development, while continuing to protect human rights,” said one of the officials, who spoke on condition of anonymity.Like governments around the world, Chinese and Russian officials are eagerly exploring the use of AI tools for a variety of purposes. Last month, Microsoft (NASDAQ:MSFT) said it had caught hackers from both countries using Microsoft-backed OpenAI software to hone their espionage skills. More

(Reuters) – A look at the day ahead in Asian markets.This week’s busy global central bank agenda was manna for stock market bulls who especially welcomed the Federal Reserve decision to stand dovishly pat, for now, and a surprise Swiss National Bank rate cut deemed a foreshadowing of where its peers were heading easing-wise this year. The question for Asia after stocks in Tokyo and Taiwan hit record highs Thursday is whether a breather is in store or another round of yet higher highs across timezones.European stock indexes stretched deeper into uncharted territory on Thursday. Wall Street was eager to retake the baton and continued to rally to closing all-time highs. The S&P 500, Dow and Nasdaq took off Wednesday with renewed vigor after Fed policymakers left its fed funds target at 5.25% to 5.50%, as expected. The Fed also kept its dot plot outlook for 75 basis points in cuts this year, despite recent concerns that the median estimate would be changed to only 50 basis points of easing due to recent stubborn inflation.Thursday’s drama was in Switzerland, where the Swiss National Bank cut its main interest rate by 25 basis points to 1.50%, a surprise that caused the currency to weaken and helped support the dollar.Market pricing currently reflects expectations that the Fed and the European Central Bank will start cutting rates at their June meetings.   Before Japanese investors can take another run at record highs Friday, after hoisting the Nikkei 225 to one on Thursday, traders will get a read on the inflation picture from national Consumer Price Index data from February.  The Bank of Japan on Tuesday abandoned eight years of negative interest rates, with inflation exceeding the BOJ’s 2% target for well over a year and wage pressures rising. But rates are still near zero. BOJ Governor Kazuo Ueda on Thursday vowed to keep supporting the economy with ultra-loose monetary policy but signaled confidence inflation was gaining momentum, a desirable trend in Japan because of its struggles with deflation and economic stagnation.Perhaps counter-intuitively, the yen has been on the ropes since the BOJ backed off its easy policy. With no sudden rate jump appearing in the offing and volatility low, the yen carry trade still looks comfortable. The dollar spent the U.S. trading day tucked right up under the November highs against the well-shorted yen, and within easy trading distance of the October 2022 peaks near 152 that brought BOJ intervention. Put another way, the dollar/yen pairing is only about one-quarter yen from levels last seen in mid 1990.South Korea’s KOSPI benchmark is at two-year highs, but likewise faces February producer inflation data on Friday.China shares, reflecting worries over the country’s property crisis, did not join the party Thursday. But Honk Kong shares rose smartly.    Here are key developments that could provide more direction to markets on Friday:- South Korea PPI (Feb)- Japan CPI (Feb)- India flash PMIs (March) (By Alden Bentley; Editing by Josie Kao) More

US rates have been above 5 per cent for nearly a year. And yet . . . services inflation is kind of high, the labour market remains strong, and financial markets seem to reflect no worry whatsoever. Is this how The Economy is supposed to work? Dario Perkins, TS Lombard global macro strategist and noted former gold BMW owner, tackles that question in a note today: Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exaggerated the dangers of higher rates.Central bankers have long argued that changes in interest rates affect global economies with “long and variable lags”. So the continued strength in markets (including labour markets) doesn’t necessarily conflict with orthodox views of monetary policy. Nor does it mean that the Fed’s current monetary policy won’t ever affect the broader US economy. It might just be taking a while, for whatever reason. But the issue is still important, Perkins writes: With monetary policy at a critical juncture, the evolving judgements central bankers make about the appropriateness of their policy stance will have powerful implications for how financial markets — and the global economy — perform in 2024/25. We provide a detailed assessment of the “monetary transmission mechanism”, together with markers that will help investors to navigate the current uncertainties.That’s because there are a few other possible explanations for the lack of any significant economic slowdown. One of them — certainly the funniest — is that monetary policy just doesn’t affect the global economy as much as we think, or the way that we think. But it’s tough to give too much credence this idea, especially for the US, where interest rates obviously affect mortgages, credit cards, car loans, consumer sentiment, and lots of other important things. Perkins and his colleagues don’t buy into that line of thinking either. But again, it’s very funny. Instead Perkins argues that all of the obvious effects can fit into one of two “transmission channels”, where Fed policy can have clear and direct effects on economic growth. The first is the “intertemporal substitution” channel, he says, which covers the factors that drive people’s decisions over whether to borrow money or save it. It might sound complicated, but it has been very obvious that Americans are changing their decisions about borrowing and saving! Financing the purchase of a new home or car is a much bigger burden now than it was five years ago. And returns on cash are much higher than normal, so investors spent last year crowding into money-market funds instead of YOLOing into risky markets (notwithstanding the recent crypto rally). The other channel is “income effects”. Higher Fed rates are supposed to boost income to lenders and reduce the income of borrowers. While these two dynamics could balance out, there’s pretty strong evidence that borrowers have a higher propensity to spend, and lenders have a higher propensity to save. (This is why the neo-Fisherian theory that higher rates boosts inflation doesn’t really work, as Perkins points out.) The broad “income effect” — less spending and more saving — normally works to slow economic growth by reducing spending and profit for businesses, which then translates into a decline in hiring and investment. But real incomes held up pretty well for households last year: This is partly because many US businesses and consumers rushed to lock in low long-term fixed interest rates in 2020 and 2021, when rates were near zero. So those businesses haven’t needed to cut jobs or investment just to manage their cost of debt.Government policy can also explain the resilient incomes — and that’s not just Covid relief, but policy moves that came after. From Perkins: The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze.It’s tough to tell just how much support fiscal policy has given the global economy, however, because data in general has been puzzling since Covid-19 relief, he adds. All of this means that the US economy (and global economy) could still be due for a recession driven by lay-offs and falling incomes at current interest rates. If the explanation is really that Fed policy is working but with a long lag, Perkins lists some “monetary canaries” that could show US policy is actually hurting growth. He’ll be watching residential property markets in Australia, Canada, the UK and Sweden; commercial real estate in the US and Germany; US corporate debt; and default rates from US consumers on credit cards and auto loans.Alternately, more economic strength could convince central bankers they need to raise rates further because R* is actually higher after Covid-19. This would also be very funny, though not in a “ha ha” way: The only scenario that might convince central banks that r* has increased is one in which the global economy is reaccelerating and this leads to a renewed tightening in labour markets. Rightly or wrongly, central banks believe higher interest rates have helped to address a fundamental imbalance in their economies by reducing labour demand relative to supply. If labour demand started to pick up again, owing either to faster employment growth or to a rebound in job vacancies, they might conclude that monetary policy is not as restrictive as it seemed. Although this scenario does not seem very likely and the hurdle for rate hikes remains high, the lesson of the past few years is not to take anything for granted. This is no ordinary business cycle.In other words, global central bankers might need to make a judgment call about a highly uncertain theoretical construct that’s basically useless in real-time policy decisions, based on the economic results of five years of highly unusual monetary and fiscal policies. What could go wrong? More