Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday and Saturday morningGood morning. News to start: The EU is preparing to levy tariffs on grain imports from Russia and Belarus, in its first restriction on food products since Moscow’s full-scale invasion of Ukraine. Today, I hear from Moldova’s EU accession chief on why the country is ready and waiting to start its gruelling reform path to joining the bloc, and our trade correspondent explains why EU trade regulators are under attack for their stance towards . . . puppies. Moving targetMoldova is pushing for progress on its path to EU membership after meeting a number of reform milestones, as accession countries worry about Brussels losing focus on enlargement.Context: After years of resistance, EU members embraced further enlargement of the bloc in response to Russia’s invasion of Ukraine. EU leaders in December agreed to open formal accession talks with Moldova and Ukraine, but progress has stalled since then on setting a start date for negotiations. “Moldova has fulfilled all the three recommendations set by the [European] Commission in November. And we would be very grateful for member states to acknowledge these efforts made so far,” said Cristina Gerasimov, Moldova’s deputy prime minister for European integration.The war in Ukraine has put intense economic strain on neighbouring Moldova and seen Russia launch hybrid attacks on the country. That has intensified efforts by its pro-western government to speed up reforms necessary to meet the demands of EU membership.EU leaders will discuss the bloc’s enlargement at a summit on Thursday. Some countries, including Austria, are pushing for Bosnia and Herzegovina’s membership bid — which was endorsed by the European Commission last week — to be linked to that of Moldova and Ukraine. Other officials, both in Brussels and in member state capitals, say the various prospective member states should be treated according to their own merits, pointing out that Bosnia’s reform progress during the past two years has been far less impressive than Moldova’s or Ukraine’s.Gerasimov thanked the commission for producing a draft negotiation framework — a document that sets out the rules and structure of a country’s accession talks — and said Chișinău “looks forward to its swift adoption” by the 27 EU members.“We would like to see a negotiation framework that allows us to accelerate our domestic reform agenda so that we can join the EU as soon as possible,” she added.In Moldova, public support for EU accession rose from around 55 per cent before the EU’s December decision to open accession talks, to 68 per cent afterwards, according to a poll released last month. “We need to sustain that support,” Gerasimov said.Chart du jour: Back on trackThe eurozone’s monthly trade surplus rose to a record high at the start of the year, as the price of energy imports dropped and exports increased. Paw patrolShould EU trade partners follow the same rules as EU producers?The EU’s trade chief Valdis Dombrovskis yesterday rebuked the idea of “mirror clauses” in trade deals — the idea of forcing imports to follow the same production methods as EU goods.But activists say his department’s zeal on the issue went too far with an attack on puppies and kittens last year, writes Andy Bounds.Context: As Brussels raises green standards, industry groups and some capitals increasingly want them applied to foreign competitors, too. But at a press conference on relaunching trade talks with the Philippines, Dombrovskis said they “cannot be something arbitrary from the EU side” under international rules. The power of the European Commission’s mighty trade department was put to the test in November, when it tried to throttle a plan to improve dog and cat welfare for animals, horrifying NGOs.Online sales by dubious sellers are growing, including of fluffy imports from Russia. The new rules would for the first time impose uniform requirements for the housing, breeding and care of dogs and cats in the EU, and compulsory microchipping to trace them.But an internal document obtained by the Financial Times shows the EU’s trade department opposed the plan, because it would impose the same conditions on imports.Trade officials said the conditions “will not be possible to enforce” in third countries. Animal rights activists slammed their stance: “One can only assume that [the directorate-general for] trade was happy to sacrifice animal welfare, consumer rights and veterinary-public health on the altar of untrammelled free trade,” said Joe Moran, director of charity Four Paws.But ultimately, the proposal was adopted in December. And for all of Dombrovskis’ clamouring against stricter trade rules, the EU last week agreed tougher standards on recycled plastic imports.The commission said it didn’t comment on internal decision making procedures.What to watch today EU general affairs ministers meet to prepare leaders’ summit.US defence secretary Lloyd Austin hosts Ukraine defence contact group meeting.Nato secretary-general Jens Stoltenberg travels to Armenia.Now read theseRecommended newsletters for you Britain after Brexit — Keep up to date with the latest developments as the UK economy adjusts to life outside the EU. 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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 Bank of Japan has ended an era of negative interest rates, raising borrowing costs for the first time since 2007 in a historic shift as the country puts decades of deflation behind it.Kazuo Ueda, the BoJ governor, brought an end to more than a decade of ultra-loose monetary policy, abandoning a swath of easing measures that were put in place to stimulate Asia’s most advanced economy.Following a 7-2 majority vote, the BoJ said it would guide the overnight interest rate to remain in a range of about zero to 0.1 per cent, making it the last central bank to end the use of negative rates as a monetary policy tool. Its benchmark rate was previously minus 0.1 per cent.The BoJ turned to negative interest rates in 2016 as it tried to encourage banks to lend more in order to generate spending and contain the risks of a global economic slowdown.Other central banks — in the eurozone, Nordic countries and Switzerland — also cut rates below zero, sometimes angering savers and breaking with hundreds of years of established policy.Negative rates helped stave off deflationary threats, but increased costs for the banking system and allowed zombie companies to survive but not thrive — making central banks keen to avoid a repeat of the experiment.Tuesday’s policy’s shift by the BoJ is likely over time to trigger shifts in global investment flows, and comes as signs emerge of broader change in the Japanese economy. Workers at some of Japan’s largest companies have secured their biggest pay rise since 1991, giving Ueda enough confidence that mild inflation will continue — a goal that has been central to the bank’s policies for years.More companies are also passing on inflation costs to consumers and labour shortages are contributing to higher wages.Investors have also grown more confident in the economy’s prospects. In February the Nikkei 225 stock index finally surpassed the level reached 34 years ago.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Despite the return to positive interest rates, Ueda signalled that borrowing costs would not increase sharply since inflation expectations have not yet been anchored at its 2 per cent target.With few signals of further rate rises, the yen weakened 0.8 per cent against the US dollar to ¥150.33 after the BoJ’s move. The Nikkei 225 stock index closed 0.7 per cent higher on the day while the broader Topix index closed up 1.1 per cent. The yield on 10-year JGBs fell to as low as 0.725 per cent.Inflation, which was sparked by a rise in imported energy and food prices, is past its peak. Core inflation, which excludes volatile fresh food prices, slowed in January for the third straight month.“It is important to maintain accommodative financial conditions even as we carry out a normal monetary policy,” Ueda said at a news conference.On Tuesday the central bank also removed its yield curve controls, another policy put in place in 2016 to reinforce its massive monetary easing measures by capping the yields of 10-year Japanese government bonds.The BoJ said it would maintain its policy of buying about ¥6tn ($40bn) a month in Japanese government bonds, a pledge that underscores continuing weakness in the economy as household consumption remains sluggish.But it will discontinue purchases of exchange traded funds and Japanese real estate investment trusts.As part of the new framework, the BoJ will apply an interest rate of 0.1 per cent to deposits held with the central bank, removing a complicated three-tier system of borrowing costs that was adopted to limit the negative rate policy’s hit to commercial banks’ earnings.“Now that large-scale monetary easing measures have fulfilled their roles, we will need to think about reducing our balance sheet. At some point in the future we will lower the amount of JGB purchases,” Ueda said.While the end to negative interest rates was widely expected, economists had been divided on how far the BoJ would go in scrapping other measures such as yield curve control and ETF purchases.Sayuri Shirai, a former BoJ board member who opposed the introduction of negative interest rates in 2016, said that because economic conditions were not yet in place for additional rate increases, the BoJ appeared to have decided it only had one chance to act.“We have to give credit to Mr Ueda for his resolve and boldness. Instead of doing it gradually, he just quit everything altogether and that also likely means that this is it,” she said. But UBS economist Masamichi Adachi said the BoJ’s new forward guidance gave Ueda flexibility to raise rates, since it did not lay out the conditions for maintaining its easy monetary policy stance. “Markets still reacted in a dovish way because they do not believe that inflation will stabilise in Japan and that the BoJ will be able to raise rates,” he added. Adachi expects the BoJ to raise its benchmark rate to 0.25 per cent in the autumn, and carry out another increase in the spring of 2025 if US economic conditions remain robust. Ueda’s decision was opposed by two BoJ board members, with one arguing that it should have avoided removing both negative interest rates and yield curve controls until the “virtuous cycle” between wages and prices had become more solid.Additional reporting by William Sandlund in Hong Kong 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.A second successive jump in the UK minimum wage will keep the Bank of England on high alert for signs of pay growth feeding inflation, even as broader price pressures in the economy start to ebb.Official figures last week showed UK wage growth finally slowing from record highs, with average earnings, excluding bonuses, rising at an annualised rate of just 3.5 per cent in the three months to January from the previous quarter.The BoE is expected on Thursday to hold interest rates at 5.25 per cent, as it waits for more evidence of cooling pay growth and inflation. New data on consumer prices will be published on Wednesday. In April, the main hourly rate of the statutory national living wage will rise 9.8 per cent to £11.44 — the sharpest increase since 2001, following a similar upwards move last year. Younger workers and apprentices will get an even bigger increase of up to 21 per cent in their hourly pay.The UK’s statutory wage floor is already one of the highest in the rich world. But economists said the effects of further increases on falling price growth were increasingly unpredictable, and could be one reason the BoE may wait longer than other central banks before cutting rates.“The fear is that the rise this year will contribute to stickier wage growth and inflation,” said Ashley Webb, UK economist at consultancy Capital Economics, noting that last year’s pay boost had coincided with the biggest monthly jump in consumer prices since 1991.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.In the past, changes in the wage floor have had a relatively limited impact on pay growth across the economy, with just one in 20 workers paid at the legal minimum, and about one in six receiving an hourly rate within £1 of the minimum.The BoE said last month that this year’s increase could push up aggregate wage growth by a manageable 0.3 percentage points, even after accounting for knock-on effects as employers also sought to compensate staff higher up their pay scales.But analysts warned that the NLW increase could have a bigger impact than usual on consumer prices — which rose at an annual rate of 4 per cent in January — because its effects will be concentrated in sectors where employers are competing fiercely for staff and many want to stay ahead of the statutory minimum. Since January, all the main food retailers — including Tesco, J Sainsbury and Asda — have said that store staff will receive at least £12 an hour from April, matching the higher voluntary rate set as a benchmark for good practice by the Living Wage Foundation charity. Discount supermarket Aldi, which claims it will “never be beaten on pay” by rivals, will set its starting rate at £12.40.But some businesses say they are running out of ways to absorb higher wages in their margins, following a long period of intense cost pressures.Tesco’s chief executive Ken Murphy told analysts in January that “in terms of profitability . . . clearly we’re expecting some headwinds from wages” in the year ahead.“Businesses want to pay their staff a good wage . . . but there is a limit to how much new cost firms can absorb, before they have to start passing it on,” said Jane Gratton, deputy director of public policy at the British Chambers of Commerce, a business lobby group.Clive Black, head of research at investment group Shore Capital, said wage pressures affecting food manufacturers and logistics providers, as well as supermarkets, would keep food inflation in the “mid-single digits” over the next year, although headline inflation was falling.Hospitality employers, facing higher business rates as well as wages, could also seek to recoup the increase from customers. Catherine Mann, a BoE rate-setter, warned last month that services inflation, a key concern for the central bank, could remain high because of a “lack of consumer discipline” among richer people spending freely on restaurants and travel.Research by the Low Pay Commission, which advises the government on how fast the minimum wage can rise without adverse effects, showed a higher share of businesses than usual expected to pass higher wage costs on to consumers in 2023, while worrying that they were “reaching a limit in what they could pass through without undermining demand”.Neil Carberry, chief executive of the Recruitment & Employment Confederation and a former LPC commissioner, said employers were increasingly worried about how to treat staff at all levels fairly, with a sense that a 10 per cent rise in the wage floor would “have a big effect on average wages as well”.This article has been amended to clarify that average earnings have grown at an annualised rate of 3.5 per cent in the latest three month period compared with the previous three months  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A new EU carbon tax on electricity will lead to increased CO₂ emissions in Europe and cause a jump in prices for consumers in the bloc, the energy industry has warned.The bloc’s Carbon Border Adjustment Mechanism (CBAM), which takes effect in 2026, will also reduce North Sea energy co-operation between Britain and Europe and deter investment in renewables infrastructure, according to an industry analysis of the tax.“CBAM is becoming a regulatory nightmare,” said Adam Berman, deputy director of the industry lobby group Energy UK. “Putting an unwarranted carbon price on electricity exports to the EU sends a clear negative investment signal for North Sea infrastructure.” Analysis by consultants AFRY warned that the CBAM risked reducing EU imports of green electricity from Britain, leading to additional carbon emissions in Europe equivalent to up to 8.3mn cars a year.The study also showed that the CBAM, which imposes a tax on a range of carbon-intensive products, will significantly drive up the price of electricity traded between the UK and the EU via interconnector cables. Energy UK warned that as currently designed the mechanism would in effect impose a 40 per cent tax on electricity flowing from the UK to the EU, leading to a jump in prices for European consumers. Since Brexit the UK and the EU have had separate carbon-pricing schemes, meaning that British exports to the EU will face taxes on the embedded carbon in a range of products, including steel, cement, fertiliser and electricity.Under the CBAM, countries that want to export to the EU must from 2026 show that they have an equivalent carbon price in place, or pay a tax to make up the difference. The aim is to level the playing field with countries that have less stringent emission controls.A specific issue arises with electricity exports, the energy industry says, because it is not possible to separate out power generated by green methods, like wind and solar, from power generated by traditional gas-fired stations. This means a flat tax will be imposed on UK electricity based on what critics say are outdated calculations of its carbon content. On current projections the EU tax will be based on an assumption of 463 grammes of CO₂ per kilowatt hour in 2026, despite UK electricity being generated at less than 80g CO₂/kWh for half the time and always less than 300g CO₂/kWh, according to the AFRY analysis.Simon Bradbury, senior principal at AFRY, said the effects were already visible in the futures market for electricity. “Action is needed now to address the issues identified,” he added. Rebecca Sedler, the managing director of National Grid Interconnectors, said the carbon tax could “significantly reduce” exports of British electricity to the EU, which would be “self-defeating” given the EU and UK’s shared ambitions on reaching net zero.  “The application of the CBAM on electricity exports could discourage future development of interconnectors and offshore hybrid assets in the North Sea, which are vital tools in the transition to a greener energy system,” she added. The Danish transmission system operator Energinet said that it expected electricity imports from the UK to “drop significantly” once the carbon border tax was imposed.“That will require the EU to rely more on domestic production, which could see prices increase as well as the use of gas for electricity generation,” it said, adding that in the long term co-operation with the UK on offshore energy in the North Sea “will be much less financially viable”.The industry is calling on both the EU and UK to take steps to avoid CBAM having the perverse consequence of deterring the export of UK green electricity to the EU, which would otherwise help the bloc reach its net zero targets.In the short term, the industry wants the CBAM on electricity to be calculated in a way that more accurately reflects its carbon content.Longer term, the industry has called on the UK and EU to open discussions on legally relinking their carbon markets, avoiding the need for CBAM on Britain’s exports to the EU.“We would like to see the UK and EU start discussions on linking their respective emissions trading systems,” said Sedler of National Grid Interconnectors.Bart Goethals, the chief commercial officer of Nemo Link Ltd, which operates the interconnector linking Belgium with the UK, warned that the CBAM risked creating “a very significant trade barrier”. “Political will is urgently called upon to get the identified issues addressed and an EU CBAM exemption for the UK, for example by relinking the EU and UK Emissions Trading Schemes,” he said. EU officials declined to comment on the AFRY study, but said that the European Commission would continue to engage with the UK while CBAM is on a trial phase ahead of it coming fully into force from 2026.The UK Treasury said it was seeking clarity from the Commission over the practical implementation of the EU CBAM for trade in electricity, “given the challenges involved”, adding it would continue to engage with Brussels.Climate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More

SINGAPORE (Reuters) – The yen dwindled near the 150 per dollar level on Tuesday but held its ground ahead of a pivotal policy decision from the Bank of Japan (BOJ), while the U.S. dollar towered over its peers as bets for early rate cuts there were trimmed.Rate decisions from the BOJ and the Reserve Bank of Australia (RBA) come under the spotlight in the Asia day, and currency moves were subdued early on Tuesday with traders hesitant to take on new positions ahead of the outcomes.The yen was last little changed at 149.14 per dollar, while the Australian dollar fell 0.06% $0.6556.The BOJ, in particular, takes centre stage, given swirling speculation that the dovish central bank could finally phase out years of uber-easy policy at the conclusion of its two-day policy meeting on Tuesday.Against the euro, the yen steadied at 162.18, with the Japanese currency likewise little changed against the Aussie at 97.78.The Nikkei newspaper reported on Monday the BOJ is set to decide on ending its negative interest rate policy and also call time on its yield curve control and purchase of risk assets at this month’s meeting.”If they do hike… I think we have to wait at least several more months for the subsequent hike into positive territory,” said Gareth Berry, FX and rates strategist at Macquarie.”It’s not going to be back-to-back March and April hikes. There will be grounds for pause… they’re not in a rush.”Japanese policymakers have been quick to caution that accommodative monetary conditions will likely remain even after the BOJ ends its negative interest rate policy, tempering any market expectations for a hawkish shift in the central bank’s policy stance.That would likely keep the yen under pressure in the near term as well, given still-stark interest rate differentials between Japan and the United States, and as bets the Federal Reserve is likely to keep rates higher for longer ramp up.”Anytime the Fed and the BOJ are moving policy settings at about the same time, it’s always the Fed that rules and dominates the price action, even in dollar/yen. So BOJ’s decisions generally are, as far as the yen is concerned, a matter of secondary importance,” said Berry.RATES OUTLOOKDown Under, expectations are for the RBA to keep rates on hold later on Tuesday, with major local banks in Australia forecasting no change in rates until at least end-August.”Holding policy rates steady and policy guidance broadly unchanged seems like a reasonably straightforward decision in the presence of high uncertainty,” said Carl Ang, fixed income research analyst at MFS Investment Management.”Overall, greater clarity on the outlook for inflation and its return to target seems like a necessary precursor to more dovish signalling and possibly lower rates by year-end.”The Aussie found some support at the start of the week from better-than-expected Chinese data, but due to a resurgent U.S. dollar, it was still some distance away from a roughly two-month high of $0.6667 hit earlier in the month.The New Zealand dollar was similarly pinned near Monday’s two-week low and last bought $0.6079.Elsewhere, the euro rose 0.02% to $1.08735, having touched a two-week trough of $1.0866 in the previous session.Sterling fell 0.05% to $1.2723.A rebound in the greenback – helped by a recent run of resilient U.S. economic data pointing to still-sticky inflation, has paused the dollar’s decline as investors adjust their expectations of the pace and scale of Fed cuts this year.That comes ahead of the Fed’s policy decision also due this week, where focus will be on any clues for how soon the central bank could commence its rate easing cycle.”We expect the FOMC to continue to show a three-cut baseline for 2024 at its March meeting and have lowered our own forecast to three cuts vs four previously in 2024,” said Goldman Sachs chief U.S. economist David Mericle in a client note.Against a basket of currencies, the dollar rose 0.02% to 103.60, after having touched a roughly two-week high of 103.65 in the previous session. More