Aurelia Butler

TOKYO (Reuters) – Bank of Japan policymakers agreed in October to keep raising interest rates if the economy moves in line with their forecast, but some stressed the need for caution due to the uncertain outlook, minutes of the meeting showed on Tuesday.The central bank left interest rates steady at 0.25% at the Oct. 30-31 meeting but projected inflation to move around its 2% target in the coming years, signalling that it was on track to hike borrowing costs in the near-term horizon.The nine-member board shared the view that the BOJ would continue to raise interest rates if its economic and price projections are met, the minutes showed.But many members also stressed the need to continue scrutinising risks surrounding overseas economies, including that of the United States, and still-unstable markets.”We must guide monetary policy cautiously given heightening uncertainty at home and abroad,” one member was quoted as saying in explaining why the BOJ should stand pat in October.The BOJ kept rates unchanged at a subsequent meeting in December to await more data on whether wages would retain their upward momentum next year, and to gain more clarity on U.S. president-elect Donald Trump’s policies. More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

The central bank had kept its benchmark cash rate unchanged at 4.35% during the December 9-10 meeting, and had given scant cues on when it could potentially begin trimming interest rates. The RBA noted that inflation had eased largely in line with its expectations in recent months, although underlying inflation still remained well above the central bank’s 2% to 3% annual target, and is not expected to fall within the target until at least 2026. The RBA minutes showed that policymakers judged that the risk to inflation returning more slowly to its target range had diminished, with a bulk of this notion being driven by weak gross domestic product growth. Private consumption had also slowed, amid weakening wage growth. But on the flip side, strong spending during the Black Friday sales event and resilience in the labor market kept policymakers wary over inflation, as did signs of sticky inflation in international economies. Still, the minutes showed that policymakers acknowledged that if they gained more confidence that inflation was easing in line with their targets, it would be “appropriate to begin relaxing the degree of monetary policy tightness,” marking the first time since its recent rate hike cycle that the RBA has acknowledged the possibility of easing. But until the RBA was able to gain such confidence, it signaled that rates will remain unchanged.Analysts expect the central bank to begin cutting rates only by the second quarter 2025 in a shallow easing cycle.  More

WASHINGTON (Reuters) -The U.S. Federal Reserve said on Monday it was considering major changes to its annual bank “stress tests” in light of recent legal developments, including allowing lenders to provide comment on the models it uses, in a major victory for Wall Street banks.The Fed said it may also allow lenders to provide input on the hypothetical scenarios it uses for the annual bank health checks, and it may also average results over two years to reduce annual volatility in how much capital banks must set aside to absorb potential losses.Created following the 2007-2009 financial crisis, the tests assess whether big lenders could weather an economic shock. They are core to the U.S. capital regime, dictating how much cash lenders must put aside to absorb losses, and how much they can return to shareholders.The Fed said the proposed changes were not designed to affect overall capital requirements, but followed recent court rulings that have significantly changed the framework of administrative law in recent years. “The (Fed) Board analyzed the current stress test in view of the evolving legal landscape and determined to modify the test in important respects to improve its resiliency.” In June, the Supreme Court dealt a major blow to federal regulatory power by overturning a 1984 precedent that had given deference to government agencies in interpreting laws they administer. That precedent arose from a ruling involving oil company Chevron (NYSE:CVX) that had called for judges to defer to reasonable federal agency interpretations of U.S. laws deemed to be ambiguous. While the 2010 Dodd-Frank law passed following the crisis broadly requires the Fed to test banks’ balance sheets, the capital adequacy analysis the Fed performs as part of tests, or the resulting capital it directs lenders to set aside, is not mandated by law. Analysts have said the overturning of Chevron makes the stress tests more vulnerable to litigation.Wall Street banks and their Washington trade groups have been quietly lobbying this year to try to increase the transparency of the stress tests, according to industry sources and public records of meetings industry groups had with the central bank. Those discussions were part of a massive industry effort to water down the so-called Basel Endgame capital hikes, over which Wall Street banks had taken the unusual move of threatening to sue the Fed and the two other federal regulators working on the draft rules. Both the Basel standards and the tests help set bank capital.Banks have in the past been extremely reluctant to sue federal banking regulators, but have grown bolder as conservative-leaning U.S. courts have proved increasingly receptive to industry litigation arguing federal agencies are overstepping their authority.The Bank Policy Institute, an industry trade group that has been a vocal critic of the tests, said in a statement Monday’s announcement was the “first step towards transparency and accountability.” “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy,” said BPI President and CEO Greg Baer. More

The consumer sentiment index fell to 88.4 in December from 100.7 in November, the lowest since the index hit 86.6 in November 2022, when 159 people were killed in a Halloween crowd crush, the Bank of Korea’s monthly survey of consumers showed. The Composite Consumer Sentiment Index falling below the threshold of 100 means consumers have turned pessimistic over the economy.Thousands of protesters massed on Seoul’s streets as the parliament voted to impeach President Yoon on Dec. 14 over his short-lived declaration of martial law on Dec. 3.Tuesday’s data, the first monthly indicator since the crisis erupted over the martial law decree, shows consumer confidence is fast fraying amid political divisions as constitutional justices are set to weigh up whether to formally remove Yoon.In the days following Yoon’s martial law declaration, the benchmark Kospi plunged while the South Korean won last week hit its weakest level in 15 years. A sub-index on consumer spending outlook dropped by 7 points as “domestic political uncertainties worsened consumption sentiment across travel spending, dining out expenses and durable goods, which declined by 8 points, 6 points and 3 points, respectively,” the BOK said in a statement. Governor Rhee Chang-yong on Dec. 18 also said the political turmoil is weighing on the South Korean economy, and called for more fiscal support and other measures to ensure growth remains intact. More

(Reuters) – It could be a bumpy ride for U.S. corporate bond spreads in 2025, with investors and strategists expecting more market volatility, as the new Trump administration implements a reform agenda that could be inflationary and slow the pace of U.S. interest rate cuts.Corporate credit spreads, the premium over Treasuries that companies pay for debt, widened last week after the Federal Reserve’s December meeting. The Fed cut interest rates by 25 basis points but Chair Jerome Powell expressed caution about further reductions without seeing progress in lowering stubbornly high inflation.The widening of spreads on Thursday followed a rise in Treasury yields after the Fed’s hawkishness.Strategists expect this pressure on spreads to persist as they see demand moderating for corporate bonds, which drove spreads to their tightest in decades this year.”We expect demand to moderate somewhat in 2025 given the expectation for rates to remain elevated,” said BMO credit strategist Daniel Krieter. He expects this moderation in demand, alongside struggling corporate fundamentals and volatility as Trump takes office, to send credit spreads wider in the new year. Krieter expects investment-grade bond spreads to touch a low of 70 bps in the first quarter of 2025, from 82 bps on Friday, and a peak of 105 bps by the end of next year. “A lot of the policy that’s out there right now is inflationary, or is expected to potentially be inflationary. It certainly leans that way,” said Nick Losey, portfolio manager at Barrow Hanley. The uncertainty about the impact of the new administration’s policies on markets is now expected to push companies to bring forward their debt-issuance plans to the first quarter.Some strategists predict investment-grade bond issuance next month to touch between $195 billion and $200 billion, and to set a record, beating $195.6 billion in January 2024.Junk bond issuance in January is expected to range between $16 billion and $30 billion, said one strategist. This compares to $28 billion this past January and $20 billion in January 2023, according to JPMorgan data.”We’re expecting January to be a busy month as long as the secondary market continues to look welcoming towards issuance, which I would argue is still very much the case right now, even with the little hiccup we’ve had the past two days,” said Blair Shwedo, head of public sales and trading at U.S. Bank.Demand for these new bonds will remain robust as returns on corporate bonds could be attractive in 2025 despite potential volatility, said Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global Asset Management.”The good news is that unlike in awful 2022, the starting yield level for the asset class is high. Even if both Treasury yields rise further and credit spreads widen, you’re still likely to have at worst a flattish total return on a forward-looking 12-month basis,” Skiba said.   More