Aurelia Butler

(Reuters) -The U.S. Senate on Wednesday confirmed Philip Jefferson as vice chair of the Federal Reserve in an 88-10 vote that signaled broad bipartisan support for the U.S. central bank’s second-in-command as policymakers near a potential watershed moment in their battle against inflation. Senators also confirmed Fed Governor Lisa Cook to a fresh 14-year term at the central bank, though they did so in a 51-47 vote that broke along partisan lines.Both Jefferson and Cook have a PhD in economics and became Fed governors in May of 2022 after long careers in academia.They have voted for every interest rate hike since then as the central bank has lifted its benchmark overnight interest rate from the near-zero level in March 2022 to the current 5.25%-5.50% range. With interest rates now seen as high enough to slow the economy and cool the job market, Fed policymakers are widely expected to leave the policy rate unchanged at their Sept. 19-20 meeting. But they will also likely keep the door open for one last rate hike before the end of the year, giving themselves time to assess if they have done enough to vanquish inflation that just last year was running at 40-year highs. The tally in support of Jefferson’s confirmation surpassed the 80-19 vote confirming Fed Chair Jerome Powell to a second term as head of the central bank last year, itself an unusually decisive margin in an often narrowly divided body. Jefferson’s new role means he will work closely with Powell and New York Fed President John Williams to hash out policy alternatives ahead of each rate-setting meeting attended by the full panel of 19 U.S. central bankers. The U.S. central bank’s vice chair, whose term is four years, also traditionally serves as the Fed chief’s go-to official on policy communications, underscoring key messages and clarifying potential misinterpretations. Also on Wednesday, a majority of the U.S. Senate voted to clear the way for a confirmation vote for Adriana Kugler, a World Bank economist who would fill the last vacant seat on the seven-member Fed board.The confirmations of Jefferson, Cook and Kugler would make the board the most diverse in the central bank’s more-than-100-year history. Jefferson is only the second Black man ever to be appointed to the institution’s No. 2 job; Cook is the first Black woman to be a board member, and Kugler will be its first Latina. More

TOKYO (Reuters) – Policymakers in Tokyo believe China’s deepening economic woes could hit Japan’s fragile recovery, especially if Beijing fails to shore up demand with meaningful stimulus, potentially delaying an exit from ultra-loose monetary policy.China’s downturn would leave Japan’s export-reliant economy with little external support as aggressive Federal Reserve interest rate hikes cool growth in the United States, another key driver of global activity.The risks from China will be among key topics of debate at the Bank of Japan’s September policy meeting, say five sources familiar with the bank’s thinking, and raise fresh questions about Governor Kazuo Ueda’s efforts to wean the economy off the massive monetary stimulus of the past decade.”What’s happening in China is worrying and could deal a huge blow to Japan’s economy,” said one of the sources, who spoke on condition of anonymity due to the sensitivity of the matter.”A downturn in China may diminish the chance of Japan achieving sustained wage growth,” which is a crucial condition for phasing out monetary stimulus, another source said.In a sign of growing pessimism over China, the government also said its monthly economic report for August that “concern over China’s outlook” was among risks to Japan’s recovery.”China is over,” a senior Japanese government official told Reuters on condition of anonymity because of sensitivity of the issue. “I think China will never return to 5% growth.”Having taken steps in July to make its ultra-loose policy sustainable, the BOJ is widely expected to keep monetary settings unchanged at its Sept. 21-22 meeting.NEW RISKSWhile many Japanese policymakers expect China to avert a hard-landing, thanks in some part to Beijing’s recent support measures, the stakes for Japan are high.China is Japan’s largest trading partner, accounting for 20% of its exports, having replaced the United States in 2020. Exports to China fell 8.6% in the first half of this year as demand for cars, steel and electronics wilted.Economists believe China’s downturn could knock 1-2 percentage points off Japan’s annual growth, fuelling fears of a prolonged slowdown in Asia’s two biggest economies, which combined account for about a fifth of global gross domestic product.China is also losing its appeal as a production hub for Japanese firms with some already reducing exposure to the country.Komatsu (OTC:KMTUY) Ltd, was among them. The world’s No. 2 construction machinery maker has shifted some operations away from China, its chief executive Hiroyuki Ogawa told Reuters this week.Ogawa said going forward Komatsu will “cut down on production capacity in a way to match actual demand in China.”Diplomatic tensions may also be a factor.Suntory Holdings chief executive Takeshi Niinami warned China’s economy is in an “extremely difficult” situation, which may be contributing to a rising backlash against Japan over the release of treated Fukushima water into the ocean.Those bilateral strains could additionally dash hopes of a revival in Chinese tourists, delaying a broad-based recovery in Japan’s service sector.The risks from China heighten challenges for the BOJ in winding down its bond yield control, a key part of its monetary policy aimed at sustainably reflating stagnant consumer demand.”Exports to China had already been weak and headwinds to inbound tourism are clearly bad for Japan’s economy,” said Toru Suehiro, chief economist at Daiwa Securities. “All in all, it’s hard to justify tightening monetary policy any time soon.”Japan’s core inflation hit 3.1% in July, exceeding the BOJ’s 2% target for the 16th straight month. Firms also promised wage hikes unseen in three decades this year, heightening the case for a retreat from decades of ultra-loose monetary policy.While some BOJ policymakers began dropping hints of a near-term policy shift, Governor Ueda has stressed the need to wait until domestic demand and wage growth replace import costs as a key driver of consumer inflation.The darkening outlook for Japan’s recovery may push back the timing of a BOJ policy shift. Falling demand in overseas markets like China could weigh on manufacturers’ profits and discourage them from hiking wages – a prerequisite for phasing out monetary stimulus.BOJ board member Toyoaki Nakamura last month described China’s high unemployment and shrinking investment as sources of concern.Analysts expect Japan’s economic growth to slow in the current quarter after a brisk expansion in the April-June period, heightening uncertainty on whether a spiral of higher wages and inflation could take hold.In a sign rising inflation is already taking a toll on consumption, Japan’s household spending suffered its biggest drop in nearly 2-1/2 years in July.”China’s recent weakness alone won’t be enough for the BOJ to alter its optimistic projection on external demand,” said former top BOJ economist Seisaku Kameda, now an economist at a think tank affiliated with Japan’s Sompo Holdings.”But China’s weakness certainly heightens the hurdle for Japan to sustainably achieve 2% inflation, which is a quite ambitious goal in the first place.” More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets are set to open on the defensive on Thursday, with investors anticipating another slump in Chinese trade activity against a backdrop of rising U.S. bonds yields, new 2023 highs in oil prices and a steep selloff on Wall Street.Malaysia’s central bank is expected to keep interest rates on hold at 3.00% for a second meeting, Chinese FX reserves data and Australian trade figures are also due, and G20 finance and energy ministers meet in India ahead of the leaders’ summit this weekend.The general market mood is souring as September unfolds, the latest catalyst being a surprisingly strong reading of U.S. services sector activity and price pressure that put a possible Fed rate hike later this year back on the table.Oil’s rise to new highs for the year continue to unnerve investors. For the first time this year U.S. crude futures are more expensive than they were 12 months ago, meaning the disinflationary impulse has now reversed.Good news for oil exporters, not so good for oil importers like Japan, which imports almost all its energy. The yen is extremely weak, and senior Japanese officials are warning that all options to support the currency are on the table.Elsewhere in Asian FX markets, China’s yuan slid to a 10-month low on Wednesday through 7.32 per dollar and is a whisker from plumbing depths not recorded since late 2007.Investors could get further reminders on the currency’s vulnerability from Chinese trade and FX reserves figures on Thursday.Chinese trade has been one of the biggest economic red flags this year. Exports and imports have both plunged, reflecting weak overseas demand for Chinese goods and weak domestic demand.Economists polled by Reuters expect more of the same in August – a 9.2% year-on-year fall in exports and a 9.0% fall in imports – although not quite as severe as recent months.FX reserves tend not to be big market-movers, but another decline could be seized upon – rightly or wrongly – as further evidence of the yuan’s vulnerability and Beijing cooling on dollar-denominated assets.Beijing’s nominal FX reserves have risen this year, even as the nominal value of Beijing’s holdings of U.S. Treasuries has fallen to a 14-year low. This suggests China is diversifying, either across currencies, dollar-denominated assets, or both.Reserves are expected to have dipped to $3.187 trillion in August from $3.204 trillion in July. At the end of last year they stood at $3.128 trillion.Here are key developments that could provide more direction to markets on Thursday:- China trade (August)- Malaysia interest rate decision- Australia trade (August) (By Jamie McGeever; Editing by Josie Kao) More