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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Stefan Angrick is a senior economist at Moody’s Analytics.Few things bring Bank of Japan-watchers more pure joy than speculating about the intricacies of the central bank’s policy framework and any changes that might be coming.Whether it’s tweaks to “yield-curve control”, minor changes to the esoteric wording of policy statements, or shifts in the mechanics of the negative interest rate policy, timing the BoJ’s next move has become a favourite pastime for sellside analysts. But how much do more casual observers actually need to care? Much less than you’d think! Of the many levers at the BoJ’s disposal, adjustments to yield-curve control and negative interest rate policy would seem to be the most important. Both appear to be on their way out. And some people are naturally getting excited. Alphaville reported yesterday how some investors are betting it will supercharge the wilting yen, but many think this might even be a big deal elsewhere too. From Bloomberg earlier this week:What the BOJ does, and when it does it, will reverberate through world markets. The biggest consequence, according to MLIV Pulse respondents: more turbulence for the vast amount of Treasuries. That’s because higher yields in Japan would encourage fund repatriation by Japanese investors whose huge holdings include US, European and Australian debt.Although the BoJ’s official position is that it’s committed to easing, in practice it’s already been gradually dialling back support. Borrowing costs for households and businesses have gone up after the BoJ widened the corridor around the 0 per cent target for 10-year Japanese government yields twice this past year. And the central bank’s increased focus on bond market functioning betrays some fundamental unease with the notion of capping long-term rates.Meanwhile, subtle shifts in communication are laying the groundwork for a departure from negative interest rate policy. Recent BoJ reports have been going out of their way to stress the good news — better exports and the biggest pay gains in decades — while avoiding the bad — shrinking domestic demand and falling real wages. Governor Ueda’s suggestion that the BoJ might have enough data by year-end to scrap negative rates also breaks with the past in an important way: Where the BoJ used to insist that sustained, robust wage growth was a prerequisite for rate hikes, it’s now putting that option on the table before results for 2024’s spring wage negotiations are known. This adds to the impression that negative rates will eventually get axed regardless.And yet! The end of YCC and negative rates may inspire some to break out the champagne (or freak out for that matter) but in the grand scheme of things neither is terribly important.Dropping YCC would simply eliminate what has by now become a fairly modest commitment to the 0 per cent yield target. Even without a formal peg, the BoJ would maintain some form of quantitative easing to limit government bond market volatility. More importantly, though, Japanese government bond yields just don’t have very far to go. Even without YCC, the 10-year JGB yields would probably top out at 1 per cent. Other estimates might put yields a bit higher or a bit lower, but what they all have in common is that they’re not too far from the 0.85 per cent rate 10-year JGBs are trading at now. Achieving a higher equilibrium rate, the infamous ‘R-star’, would require stronger productivity growth or inflation than seem plausible in Japan.Yes, Japan’s challenging demographics raise the importance of productivity gains. But barring a significant acceleration in capex spending — which we haven’t seen yet — this can only go so far. Meanwhile, inflation may in the future well run higher than in the past as geopolitical tensions reshape supply chains and climate change-related disruptions to food production become more common. But it’s important to keep things in perspective: Japanese consumer price inflation, excluding the impact of consumption tax hikes, has averaged a meagre 0.3 per cent annually in the decade prior to the pandemic. Even an increase to a new long-run average of 0.5-1 per cent would be a significant change.On the short end of the Japanese yield curve, it’s the tiering system that scrambles the economic calculus. When the BoJ introduced negative interest rate policy in 2016, it split banks’ deposits at the central bank into three tiers, of which only the smallest is subject to the negative 0.1 per cent policy rate. The other two tiers are paid 0 per cent and 0.1 per cent interest. This set-up ensures that the average deposit rate stays above zero, guaranteeing banks a positive amount of interest income which was intended to make the whole exercise more palatable (not that it had much success at that).If negative interest rates were to be dropped, so would tiering. The BoJ would raise its short-term policy rate to 0 per cent, which matters to the overall optics of its policy stance. But banks would lose interest income from the tiering. So fundamentally things wouldn’t change very much.This is also what makes it such an attractive policy option. Returning to zero rates and quantitative easing would make the BoJ’s policy setting a tad more conventional (now there’s a word that rarely shows up in the same sentence as ‘quantitative easing’) without changing the substance too much. So, while it’s fun to speculate about when and how YCC and negative rates might get axed, don’t expect fireworks. More

South-east Asian currencies are trading near their lows for the year against the surging dollar, with the Malaysian ringgit and Thai baht leading the decline, as governments and businesses in the region worry about the economic impact of the depreciation.The cheaper currencies are bringing higher import costs. Regional exporters, on the other hand, are struggling to take advantage of the slide, as uncertainties prevail in big markets, especially China.While a weaker currency generally benefits exporters and tourism, a sustained fall risks triggering capital outflows. The recent uptick in oil prices has also raised fears of faster inflation.“A combination of a higher dollar, a weaker Chin[ese economy] and higher oil prices [has] become a dangerous cocktail for most of the ASEAN economies,” Charu Chanana, market strategist at Saxo Markets in Singapore, told Nikkei Asia.The ringgit and baht are the worst performers against the dollar in south-east Asia this year, falling 6.9 per cent and 4.4 per cent, respectively, through October 13. The Vietnamese dong is down 3.4 per cent, while Singapore’s dollar and Indonesia’s rupiah have held up relatively well, slipping 2.1 per cent and 0.7 per cent, respectively.This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan. Subscribe | Group subscriptionsThe broad depreciation comes on the back of strong US economic and wage growth, which has pushed Treasury yields and the dollar higher. The resilient US economy has led some investors to conclude the Federal Reserve will keep interest rates higher for longer to fight inflation.Higher interest rates in the US attract investors seeking better returns, encouraging capital outflows from south-east Asia and weakening regional currencies. In particular, the Malaysian ringgit hit a 10-month low of 4.729 against the dollar on October 4.Malaysia’s currency has been hit by a widening interest rate gap with the US. On the back of moderating inflation, at 2 per cent in August, Malaysia’s central bank has tightened only once this year, in May, when it lifted the benchmark rate a quarter point to 3 per cent. By contrast, the Federal Reserve has lifted the US overnight rate to between 5.25 and 5.5 per cent.At the same time, the ringgit has been hurt by Malaysia’s greater exposure to the Chinese economy, which is seeing disappointing growth. “The Malaysian ringgit moves in lockstep with the Chinese yuan,” said CIMB Group’s Intan Nadia Jalil. Weaker prices for commodities such as palm oil and natural gas, which make up a big share of Malaysian exports, are another negative factor.Malaysia’s prime minister Anwar Ibrahim, who also serves as finance minister, on October 10 said the government was “exploring initiatives” to trade in local currencies to reduce its reliance on the dollar for trade and investment.“To entirely end reliance on the US dollar will be difficult, but Malaysia will be more active and aggressive in the use of the ringgit” for trade, Anwar told the parliament. Malaysia has started using local currencies in transactions with Indonesia, Thailand and China.Concerns in Malaysia about a sharp dollar rally are echoed by neighbours such as Thailand, where the local currency hit a 10-month low of 37.07 baht a dollar on October 3.Analysts at the Kasikorn Research Center said foreign investors have also sold the baht due to a lack of confidence in the economy and concerns over Thailand’s fiscal discipline, particularly the government’s contentious digital money handouts, which it is estimated will create up to 560bn baht ($15bn) in new public debt.The Thai currency is not only weaker but also volatile, raising concerns for exporters, which are unlikely to be able to take advantage of the depreciation. The volatility of the baht makes exporters reluctant to quote prices as they fear incurring exchange rate losses.The Joint Standing Committee on Commerce, Industries and Banking, which groups some of Thailand’s largest industries, said the government “should try to stabilise” the local currency in an acceptable range that will support exports.In Indonesia, a weaker currency typically helps export-oriented companies such as coal miners and palm oil producers. But Indonesia’s trade surplus has trended lower this year, undermining support for the rupiah.Although Indonesia posted a $3.12bn trade surplus in August, exports fell 21 per cent in value terms from a year earlier to $22bn, weighed down by lower commodity prices and weaker demand from China.Meanwhile, the Philippine central bank has not changed its tone on the peso’s depreciation, as central bank governor Eli Remolona believes a hawkish stance will benefit the local currency. The central bank has traditionally preferred a weak peso because it raises the value of remittances from overseas workers.At the same time, a weaker currency means disproportionately higher costs for importers, especially for the energy and other inputs needed to manufacture products for export.Vietnam, for example, has the highest rate of imports and exports as a share of gross domestic product in the region, after Singapore. Analysts say the higher costs hurt even more now because this is a key period for imports, which have been rising steadily since the summer as manufacturers gear up for the Christmas season.Despite this, the Vietnamese central bank became the first in Asia to cut interest rates this year. It began doing so in March in hopes of “removing the difficulties for the economy.” Vietnam wants to encourage lending and business activity amid lukewarm global demand for its exports, a property crisis and mass lay-offs.“While these measures were introduced to bring relief to the property sector, there is a risk of a knock-on effects on energy imports,” said Nick Ferres, chief investment officer at Vantage Point Asset Management, adding that coal prices were especially affected. “We see the energy sector in Vietnam feeling the pinch from high exchange rates, with a possibility of passing on these costs to consumers.”Richard Bullock, a senior research analyst at Newton Investment Management, said for now, he believed the currency declines were “manageable” for the region. “Balance of payments are generally healthy across the region, and foreign exchange reserves are sizeable enough to cushion short-term capital outflows,” Bullock told Nikkei Asia.However, higher oil prices could weigh on regional economies, which have been experiencing lower inflation than in the US and Europe. In September, Brent crude traded above $90 a barrel for the first time since November 2022, triggered by supply cuts from Saudi Arabia and Russia.In a research note on October 3, Morgan Stanley said it expected oil prices of more than $90 a barrel through the middle of 2024. The investment bank, which has stayed bearish on Asian currencies, warned the higher oil price “could have a decent impact” on the region’s inflation.“The market might underestimate the risk of Asian central banks turning more hawkish should inflation surprise the market on the upside going into 2024,” the note said.Additional reporting by Norman Goh in Kuala Lumpur, Apornrath Phoonphongphiphat in Bangkok, Lien Hoang in Ho Chi Minh City, Ramon Royandoyan in Manila, Erwida Maulia in Jakarta and Echo Wong in Hong KongA version of this article was first published by Nikkei Asia on October 16. ©2023 Nikkei Inc. All rights reserved.Related stories 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 million dollars ain’t what it used to be. With inflation biting into the pockets — and trust funds — of even the very rich, few people can ignore the effects of rising prices. Of course, the pain is very unevenly shared, with poorer people bearing the brunt. But, even at the top of the wealth pile, the impact is clear.The real value of fortunes has been eroding in the past two years at its fastest rate in more than 40 years, with inflation at its highest since the early 1980s in the US, the UK and the EU. In dollar terms, inflation reduced wealth growth by 6 percentage points last year, turning a nominal wealth gain of 3.4 per cent into a real wealth loss of 2.6 per cent. That’s according to the Annual Wealth Report, a guide to household wealth, produced by Credit Suisse/UBS. It’s hardly a surprise, given the upsurge in inflation, which hit 8.3 per cent in the US. What’s more striking is that, even in the previous two decades, when inflation was low, rising prices still managed to eat away at asset values. As the data shows, there have been five years since the turn of the century when nominal investment returns exceeded 10 per cent, but none at all when real returns reached this level.To put it another way, in figures prepared for FT Wealth, the Credit Suisse authors calculate that only 34mn of the 59mn people in the world with assets of $1mn and more last year would have qualified as real-terms asset millionaires after adjusting for inflation since 2000. For those with $50mn and more to their name, it was only 112,000 out of 243,000. As the report says: “Inflation has eroded the real value of wealth this century (and made it easier for adults to become dollar millionaires).” And this has happened in a two-decade period when US inflation rates averaged just 2.5 per cent. Currently, rates are falling from their recent highs, in the US and western Europe. However, few economists expect a return to the low-rate average of 2000-2020. This decade is, in so many ways, turning out to be quite different, with massive disruptions in global stability, trade and finance.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The range of inflationary risks from geopolitics is particularly wide, including everything from Russia’s invasion of Ukraine (which has raised agricultural prices), economic sanctions on Russia (which feed into the oil market) and concerns about stability in the Middle East (oil again) and around Taiwan (electronics supplies). You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.On top of this, there is the monetary overhang from years of cheap money and pressure from workers to increase pay after decades of decline or stagnation in real wages.How should investors respond? One lesson from the price-adjusted numbers is the central importance of inflation in assessing how much money you need to live on if you are not working and earning an income. In your pension pot, for example. Or family trust fund. What ultimately matters is not the size of your asset pile today but the future value of the income you’ll draw down — adjusted for inflation. Canny wealth managers often urge clients not to focus too much on whether their nominal returns are beating portfolio benchmarks (such as stock and bond indices) but to concentrate instead on the real returns. Such advice can often sound like an excuse from a poorly-performing manager worried about losing a client to a benchmark-beating rival.But it’s a useful reminder that there is a world beyond the financial markets where you will actually be spending the money you draw from the portfolio — in real, inflation-adjusted, dollars, euros and pounds.It’s advice that is particularly relevant now that markets — and benchmarks — are volatile and inflation, while falling in most developed countries, looks like it might persist. Stefan Wagstyl is the editor of FT Wealth and FT Money. Follow Stefan on X @stefanwagstylThis article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment More

TOKYO (Reuters) – Japan’s Chief Cabinet Secretary Hirokazu Matsuno said on Friday he expects the central bank to coordinate closely with the government and conduct “appropriate” monetary policy to sustainably achieve its 2% inflation target.Matsuno made the comment in a regular news conference, when asked about the government’s view on whether the Bank of Japan (BOJ) should take steps at next week’s policy meeting to allow long-term interest rates to rise more in line with higher inflation. More

SINGAPORE (Reuters) – The dollar was headed for a weekly gain on Friday, aided by solid U.S. growth figures that bolstered the case for higher-for-longer interest rates, while the yen hovered on the weaker side of 150 per dollar ahead of a key policy meeting next week.The U.S. economy grew at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending, data on Thursday showed.That added to bets the Federal Reserve is likely to keep monetary conditions restrictive for longer, driving the dollar broadly higher against a basket of currencies.The U.S. dollar index steadied at 106.57, having hit a three-week high of 106.89 in the previous session, and was on track for a weekly gain of about 0.4%.”Certainly, the U.S. economy is a lot more resilient than most expected. It’s both a blessing and a curse for the Fed,” said Christel Rendu de Lint, head of investments at Vontobel.”But certainly, the chances of a soft landing look greater than most anticipated.”Sterling edged 0.07% higher to $1.21355, though was not too far from a three-week low of $1.2070 hit on Thursday. The euro slipped 0.02% to $1.0560 and was headed for a weekly loss of roughly 0.3%. The European Central Bank (ECB) on Thursday left interest rates unchanged as expected, ending an unprecedented streak of 10 consecutive rate hikes.”With a rapidly deteriorating macroeconomic landscape, as shown by October PMIs, in our view the ECB will have to tread very carefully going into 2024 and will have no choice but to lower interest rates,” said Julien Lafargue, chief market strategist at Barclays Private Bank.Data earlier this week showed euro zone business activity took a surprise turn for the worse this month.Analysts said the dollar was also buoyed by some safe-haven flows, with Asia extending the cautious risk sentiment from Wall Street that saw stocks tumble and kept U.S. Treasuries bid. [US/]”The retreat in yields was to do with a little bit of flight to quality, because what you saw last night was pretty devastating action in the equity market,” said Tony Sycamore, market analyst at IG.Treasury yields move inversely to bond prices.”The last few Fridays … we’ve seen very much flight-to-safety type moves (because) ahead of the weekend, we’re not really sure what’s going to be playing out in terms of Gaza,” said Sycamore.The Australian dollar, often used as a proxy for risk appetite, gained 0.24% to $0.6337, having slid to a one-year low of $0.6271 on Thursday.The kiwi similarly languished near a roughly 11-month low and was last 0.1% higher at $0.5825.EYES ON BOJIn Asia, the yen remained top of investors’ minds as it stayed on the weaker side of 150 per dollar, a threshold which some see as a potential trigger for intervention by Japanese authorities.The yen last stood at 150.38 per dollar, languishing near the previous session’s one-year trough of 150.78.Data on Friday showed core consumer inflation in Tokyo unexpectedly accelerated in October, keeping pressure on the Bank of Japan (BOJ) to phase out its ultra-loose monetary policy settings.The BOJ is due to meet next week, amid mounting speculation that the central bank could change its bond yield control, with a hike to an existing yield cap set just three months ago being discussed as a possibility.”If we come in with dollar/yen up at 151 next Monday, then there’s more chance I think they’d lift the cap,” said IG’s Sycamore.”The higher the dollar/yen goes in the interim, the more chance there is of a tweak.” More