Aurelia Butler

TOKYO (Reuters) – The Bank of Japan should gradually raise short-term interest rates and make its bond yield control policy more flexible, if inflation stays around its 2% target and is accompanied by sustained wage growth, the OECD said on Thursday.While the BOJ made tweaks to yield curve control (YCC) last year to loosen its tight grip on long-term interest rates, markets could challenge the policy again if inflation remains above its 2% target and global yields go up, it said.The central bank should thus continue efforts to make YCC more flexible, such as by raising the 10-year bond yield target or moving to a short-term yield target, the Organisation for Economic Cooperation and Development (OECD) said.The BOJ should also gradually raise short-term rates from early 2024 if inflation stays around its 2% target, wage growth accelerates and the output gap closes, the OECD said in its 2024 report on Japan.”Japan is at a turning point, with inflation more likely to settle durably around the 2% inflation target than at any time since its inception,” the report said on the prospects for achieving the BOJ’s price target that was introduced in 2013.”Greater flexibility in the conduct of yield curve control and a gradual modest increase in the short-term policy interest rate are warranted, based on projections of sustained inflation and wage dynamics,” it said.With inflation having exceeded 2% for well over a year, many market players expect the BOJ to pull short-term interest rates out of negative territory this year in a historic shift away from its prolonged ultra-loose monetary policy.Any such move would follow steps the BOJ took last year to phase out YCC, a policy that sets a 0% target for the 10-year government bond yield, such as by watering down a rigid 1% cap set for the yield to a loose reference.BOJ Governor Kazuo Ueda has stressed the bank’s resolve to keep ultra-loose policy settings intact until sustained achievement of 2% inflation, accompanied by durable wage rises, comes into sight.The OECD warned that uncertainty around Japan’s inflation outlook was “exceptionally large.” While a slowdown in the global economy could weigh on wages, a tighter labour market could lead to higher-than-projected wage growth, it said.”In this context, the key challenge facing the BOJ is how to durably achieve its inflation target without significantly overshooting” its inflation target, while safeguarding financial stability, the report said.In the event of a rate hike by the BOJ, policymakers must be vigilant to potential spillovers on domestic and global financial stability, the OECD said.”Communicating the current and future monetary stance clearly and in a timely manner is also key,” it added. More

BUENOS AIRES (Reuters) -Argentina and the International Monetary Fund (IMF) finalized the details of an agreement over the country’s embattled $44 billion loan program, unlocking a more-than-expected $4.7 billion, the fund said on Wednesday.”Understandings were reached on a strengthened set of policies to restore macroeconomic stability and bring the current program back on track,” the IMF said in a statement.Argentina, battling annual inflation heading toward 200% and net foreign currency reserves in negative territory, needed to revamp its huge IMF deal after the previous government missed various economic targets linked to the program.The new government of libertarian President Javier Milei had been locked in talks with IMF officials in Buenos Aires since late last week, aiming to unlock the seventh review of the program and new funds for debt repayments.The agreement announced on Wednesday will be brought forward for approval by the IMF’s executive board “in the coming weeks,” the lender said.Speaking after the deal’s announcement, Argentine Economy Minister Luis Caputo said the agreement did not represent a new deal, but that the IMF expressed openness to a new debt program and more funding. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF has agreed to disburse $4.7bn to Argentina despite the country’s failure to meet the terms of its $43bn loan in recent months, offering a crucial lifeline to new libertarian President Javier Milei as he pursues ambitious reforms.The money includes a $3.3bn tranche of the loan that had been due to be disbursed in November, which was delayed by Milei’s inauguration in December, and $1.4bn that the IMF agreed to disburse ahead of schedule.Argentina’s hard currency reserves have been virtually wiped out amid its most severe economic crisis in two decades. The government is relying on the IMF’s disbursements to pay the fund back for money lent earlier in the programme — which was first launched in 2018 and refinanced in 2022 — with repayments worth more than $2.7bn coming due by February 1. Entering into arrears would destabilise markets and deepen the crisis.The decision by the fund’s technical staff on Wednesday must be reviewed by its board, which will take several weeks.Milei has long pledged that his austerity measures would be more drastic than those demanded by the IMF. He has sought to draw a contrast with the previous left-leaning Peronist government, which fell far short on fund targets on fiscal balance, reserve accumulation and curbing money printing.The “shock therapy” economic plan Milei began implementing last month includes spending cuts and tax increases aiming to reach a primary budget surplus this year, which would overshoot the 2024 fiscal deficit target of 0.9 per cent of gross domestic product approved by the fund last year. Fund officials who visited Argentina this week said in a statement on Wednesday that Milei’s team had “moved quickly and decisively to develop and begin to implement a strong policy package to restore macroeconomic stability and are fully determined to bring the current program back on track”.The delay of November’s disbursement had forced Milei’s new government to take out a bridge loan from the Caracas-based CAF to make another $900mn repayment in December. A multibillion-dollar credit line from China tapped by the previous government has not been renewed since Milei’s election, according to local media.The IMF stopped short of negotiating a wider refinancing of the programme that could have provided extra cash to support Argentina during its reforms — a prospect some in the president’s team had floated during the campaign. Milei’s spokesperson said on Monday that he was not seeking new funds from the IMF, which is deeply unpopular in Argentina.Instead, analysts said the IMF opted to continue with disbursements in order to avoid destabilising the economy without increasing its exposure.“The fund will want to see first if Milei’s aggressive austerity plan is socially and politically sustainable, which is so far unclear,” said Sebastian Menescaldi, associate director at the EcoGo economics consultancy. He pointed to planned anti-austerity protests and the uncertain fate of Milei’s reforms in congress.“I don’t think either party has an incentive to look for a new agreement now. The situation is: let’s stabilise the economy first and in 2025 we’ll talk again.” More

WASHINGTON (Reuters) – The International Monetary Fund’s executive board on Wednesday approved a new $1.2 billion, four-year loan program to support Jordan’s economic reforms, replacing a previous program that was set to expire in March 2024, the fund said.The decision gives Jordan immediate access to an initial disbursement of about $190 million, with the remaining amount to be phased over the program, subject to program reviews, the IMF said.The IMF reached a staff-level agreement with Jordan on the new reform program on Nov. 9, sending what Finance Minister Mohamad Al Ississ called a signal of confidence to investors.Board approval of the new Extended Fund Facility comes amid growing concerns that the Israel-Gaza war could expand to become a bigger regional conflict.The IMF said the new program would build on Jordan’s “consistently strong performance under the previous program” to support the Middle Eastern country’s work on maintaining macro-stability, further building resilience and accelerating structural reforms.It said the funds would allow Jordan to continue its gradual fiscal consolidation while protecting social and capital spending, improving the financial viability of the electricity sector, and safeguarding the exchange rate peg.“Jordan has weathered well a series of shocks over the past few years, maintaining macro-stability and moderate economic growth thanks to adept policy making and sizable international support,” said IMF Deputy Managing Director Kenji Okamura.Jordan needs to make further progress in improving the business environment and attracting private investment to foster job-rich growth, the IMF said.”In this regard, strengthening competition, further reducing red tape, and pressing ahead with labor market reforms to increase flexibility, lower youth unemployment, and enhance female labor participation are critical,” Okamura said.The IMF noted that donor support remained essential to help Jordan navigate the “challenging external environment, host the large number of refugees, and maintain the reform momentum.” More

The staff facing exit at Prime Video and Amazon (NASDAQ:AMZN) MGM Studios in the Americas will be informed on Wednesday and in most other regions by the end of the week.The online retail behemoth last year cut more than 27,000 jobs as part of a wave of U.S. tech layoffs after the industry hired heavily during the pandemic. “We’ve identified opportunities to reduce or discontinue investments in certain areas while increasing our investment and focus on content and product initiatives that deliver the most impact,” Mike Hopkins, senior vice president of Prime Video and Amazon MGM Studios, told employees in a note seen by Reuters.The company has spent aggressively in recent years to bolster its media business, including the $8.5 billion deal for MGM and around $465 million on the first season of “The Lord of the Rings: The Rings of Power” on Prime Video in 2022.It is also set to roll out ads on Prime Video as well as a more expensive ad-free subscription tier in some market, similar to moves by rivals Netflix (NASDAQ:NFLX) NFLX.O and Walt Disney (NYSE:DIS) DIS.N.After widespread job cuts in 2022 and 2023, many companies are now targeting select projects and divisions as they re-priorities their resources. Amazon recently cut some jobs at its Alexa voice assistant division, while Microsoft (NASDAQ:MSFT) removed some staff at its LinkedIn professional network. Amazon’s Twitch service is set to lay off 500 employees, or about 35% of its workforce, according to a media report on Tuesday.Its shares, which surged more than 80% last year, were up 1.5% in afternoon trading. More

(Reuters) – A look at the day ahead in Asian markets.South Korea delivers its latest interest rate decision on Thursday with the main focus being policymakers’ signal as to when the rate-cutting cycle begins, while Japanese stocks continue to ride the crest of an increasingly bullish wave.The latest figures for Thai consumer sentiment, Malaysian industrial production, Australian trade and Japan’s foreign exchange reserves are also out on Thursday, ahead of the most significant event for global markets this week – U.S. inflation.Japanese markets, if not the rest of the region, are poised to open on a strong footing on Thursday after yet another solid performance on Wednesday.Japan’s Nikkei 225 index surged to a fresh 34-year high above 34,000 points as investors ponder whether the Bank of Japan will ‘normalize’ policy as quickly or dramatically as they were anticipating.The BOJ had already begun scaling back its ultra-easy policy by effectively lifting the ‘yield curve control’, paving the way to phase it out completely and end seven years of negative interest rate policy later this year. But recent data suggest inflation is falling back towards the BOJ’s 2% target and inflationary pressures are easing. If so, will the BOJ need to move so quickly, or even at all?The yen is weakening, making Japanese exports more competitive in the global marketplace and making it cheaper for overseas investors to buy Japanese assets. As a result, Japanese stocks are on a tear and outperforming their peers.The Nikkei is on course for its best week in three months and is up 3% this year, while the S&P 500 and MSCI World Index are essentially flat, the Euro STOXX 50 is down more than 1% and the MSCI Asia Pacific ex-Japan index is down 4%.Elsewhere in Asia on Thursday, attention shifts to Seoul and the Bank of Korea’s latest policy decision. The BOK is widely expected to keep its key policy rate unchanged at 3.50% for an eighth consecutive meeting, but with inflation easing, speculation around when the BOK pivots is bound to intensify, especially with the Fed, ECB and other major central banks widely expected to start cutting rates soon.Inflation is currently 3.2%, above the central bank’s 2% target but cooling once again, and the won is down around 2% against the dollar so far this year. BOK Governor Rhee Chang-yong said in a New Year speech the central bank would adopt a “policy mix” to bring down inflation and warned that keeping monetary policy restrictive for too long posed risks.Swaps markets currently point to a quarter-point rate cut by August and a strong probability of another by the end of the year.Here are key developments that could provide more direction to markets on Thursday:- South Korea interest rate decision- Australia trade (November)- Malaysia industrial production (November) (By Jamie McGeever) More

WHITE PLAINS, New York (Reuters) -Federal Reserve Bank of New York President John Williams said Wednesday that it’s still too soon to call for rate cuts as the central bank still has some distance to go on getting inflation back to its 2% target. The policy maker also said that banking sector liquidity levels do not signal any near-term need for the Fed to stop the contraction of its balance sheet, a process which has complemented rate hikes aimed at bringing inflation back to 2%. “We have seen meaningful progress on restoring balance to the economy and bringing inflation down,” Williams said in a speech before the Bronx EDC and BICNY’s 2024 Regional Economic Outlook in White Plains, N.Y., while adding “our work is not done.” “I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis,” Williams said. The official said the economic outlook remains “highly uncertain” and said decisions about monetary policy will be made meeting-by-meeting, based on “the totality of the incoming data, the evolving outlook, and the balance of risks.”Williams’ comments were his first of the year and followed a television appearance in late December that pushed back at the market view that the most recent rate-setting Federal Open Market Committee meeting had set the stage for rate cuts by spring. At the December gathering officials maintained their overnight rate target at between 5.25% and 5.5%, while penciling in a several rate cuts for this year amid expectations that softening inflation pressures would continue to ease back toward the 2% target. The meeting drove markets to price in a possible rate cut by March, a view investors still hold, even as a number of central bankers have argued over recent weeks that it’s too soon to say when a rate cut might happen. Speaking with reporters after his remarks, Williams declined to comment on the market’s bet on the near-term outlook for monetary policy. “Before we dial back on the restrictive stance of policy, I think it’s important that we’re confident that we’re moving toward 2% [inflation],” Williams said, adding that when it comes to lowering rates, “I’m not making a prediction” as to when that might take place. But he also said the Fed is in a “good place” to take in data and consider its next moves. The New York Fed president reiterated his view that over time monetary policy will need to bring rates down to track declining inflation, because keeping them in place in such an environment would create a rise in monetary policy restraint. Williams also declined to say how a broad easing in financial conditions that in theory adds lift to the economy will affect the Fed outlook. He noted markets have been very volatile but over the longer run, they have gotten tighter than they were. INFLATION ENDGAME IN SIGHT Williams said in his formal remarks the Fed has made considerable progress on lowering inflation, including in challenging areas like those for services. He sees inflation ebbing to 2.25% this year and to 2% next year. “We are clearly moving in the right direction,” Williams said, adding “we still are a ways from our price stability goal.” The New York Fed leader also said monetary policy will slow growth to about 1.25% this year and cause the unemployment rate, now at 3.7%, to rise to 4%. Williams also said the shrinkage of the Fed’s balance sheet, commonly referred to as quantitative tightening, has moved forward smoothly and there are yet to be any signs of liquidity issues that would cause the Fed to stop an effort that has shrunk its holdings by over $1 trillion. Williams did not give a time table for changing gears on the balance sheet, while noting that matter would be under debate by the Fed this year. The official told reporters recent money market volatility represents a normalization for that part of the market and said that it wasn’t affecting the Fed’s ability to control the federal funds rate. More

NEW YORK (Reuters) -Citigroup said it will book about $3.8 billion in combined charges and reserve builds when it reports fourth-quarter earnings on Friday, according to a filing on Wednesday.The bank said it will report a $1.3 billion reserve build for currency exposures outside the U.S., particularly in Argentina and Russia. It will also book $780 million in restructuring charges, include severance related to its sweeping reorganization.It also recorded a charge of about $1.7 billion to replenish a Federal Deposit Insurance Corp fund that was drained after the collapses of Silicon Valley Bank and Signature Bank (OTC:SBNY). Citigroup had previously estimated this charge at $1.65 billion, it said in the filing.”While we rarely provide information about the results of the quarter in advance of scheduled earnings announcement dates, we thought this was a prudent step in our commitment to building credibility and being transparent,” Mark Mason, the company’s finance chief, wrote in a separate statement. “The items we disclosed today do not change our strategy.”Citigroup also filed historical financial information in a new format that includes results for its five main businesses, for the quarters from March 2021 through September 2023 and annual reports for 2021 and 2022. The financial reports will allow comparisons with its fourth-quarter results. More