Aurelia Butler

TOKYO/BEIJING (Reuters) – China may be Japan’s top seafood export market but marine products make up less than 1% of Tokyo’s global trade, which is dominated by cars, so that Beijing’s seafood ban on its neighbour is more of a political gesture, analysts say.China has said Thursday’s ban on seafood imports from Japan was prompted by concerns about the “risk of radioactive contamination” after it started releasing treated radioactive water from the wrecked Fukushima nuclear plant into the sea.”The Fukushima water release is mostly of political and environmental significance,” said Stefan Angrick, a senior economist at Moody’s (NYSE:MCO) Analytics.”Economically, the ramifications of a potential ban on Japanese food shipments are minimal.”Last year Japan exported seafood worth 87.1 billion yen ($600 million), or a fifth of its total, to top trading partner China, while Hong Kong, Japan’s No.2 seafood market after mainland China, accounted for another 75.5 billion.The Asian financial hub of Hong Kong and the gambling centre of Macau, both Chinese-ruled, are banning imports from 10 Japanese regions.With Japan’s total exports, dominated by cars and machinery, standing at close to 100 trillion yen, impact from China’s move is negligible, analysts say.The neighbours have complex ties rooted in history and the question of a regional balance of power.Just last week Beijing criticised an agreement among the United States, South Korea and Japan to strengthen military and economic ties.This week’s ban “seems part of the features of China-Japan rivalry, which is of course entangled with China-U.S. competition, given Tokyo’s close alliance relationship with Washington,” said Chong Ja Ian of the National University of Singapore, who analyses how major power competition affects the domestic economies of third countries.Seafood exports to China and Hong Kong accounted for just 0.17% of Japan’s total exports last year, said Takahide Kiuchi, an economist with the Nomura Research Institute.”Even if the import suspension continues for one year, the effect of depressing Japan’s gross domestic product is only 0.03%.”Since the vast majority of Japan’s fish catch is consumed at home, top seafood producers Maruha Nichiro and Nissui, expect limited impact from the ban, their spokespersons told Reuters.The news hardly affected their shares, with Maruha Nichiro closing up 0.12% and Nissui adding 0.75%, moderately underperforming a rise of 0.87% in the benchmark Nikkei index.NEITHER FOR CHINAChina’s customs data shows it is sourcing all its bluefin tuna, one of the most expensive fish globally, from Japan, while scallops make up the largest import by volume.Yet the 156,000 metric tons of seafood Japan supplied to China last year contribute less than 4% of the latter’s seafood imports of $18.8 billion, the data shows, with Ecuador, India and Russia being the largest suppliers.”It’s not going to make many ripples in the seafood sector,” said Gorjan Nikolik, senior global seafood specialist at Dutch bank Rabobank, referring to the ban. “Japan is not a relevant exporter.”Fukushima plant operator Tokyo Electric Power Co (Tepco) has vowed to compensate domestic businesses for damage from a fall in exports because of the ban.About 82% of Japanese companies expect China to stay at least as important to their business in future as it is now, a Reuters corporate survey showed this month.Mainland China was Japan’s biggest export market in 2022, at $145 billion, data from the International Monetary Fund shows.($1=145.3700 yen) More

JAKARTA (Reuters) -Indonesia’s central bank left interest rates unchanged on Thursday, as expected, saying current levels are sufficient to keep inflation in check, while strengthening efforts to stabilise the rupiah currency. Bank Indonesia (BI) plans to issue new rupiah-denominated securities, using its holdings of government bonds as the underlying asset, as a new monetary instrument aimed at attracting foreign portfolio capital flows, Governor Perry Warjiyo said. BI kept the benchmark 7-day reverse repurchase rate at 5.75% for its seventh straight monthly policy review, as widely expected by economists surveyed by Reuters. Its two other main rates were also left unchanged.BI has been trying to balance currency stability, keeping inflation in check and maintaining growth momentum in Southeast Asia’s largest economy as exports fall amid softening commodity prices. There have been calls for the bank to start considering rate cuts to shore up growth after inflation cooled to within its target earlier than expected, but some economists say further tightening is necessary to prevent capital outflows.Guarding the rupiah “is our way to protect the domestic economy, inflation and growth from global spillovers,” Warjiyo told reporters.”All countries are experiencing currency depreciations, our focus is to stabilise the exchange rate through intervention,” the governor said, especially by intervening in the spot and domestic non-deliverable forward markets and relying on its new securities.”We have over 1,000 trillion rupiah of government bonds that we can use as underlying assets for the Bank Indonesia Rupiah Securities,” he said, adding that the notes will have 6-, 9- and 12-month maturities and are to be offered from Sept. 15. The new notes will replace BI’s reverse repo with the same tenors used in monetary operations and can be traded on the secondary market, Warjiyo told a separate call with analysts. With the new instrument, the bank will also switch the use of its bond holdings from the so-called ‘Operation Twist’ where it sells short-term government bonds and buys long-term bonds to help stabilise yields and the rupiah. The rupiah, which had gradually fallen since mid-July to its weakest levels since March, strengthened 0.3% against the U.S. dollar ahead of the announcement and was steady after the rate decision. The rupiah is still up about 2% this year, but has come under pressure along with bonds amid rising U.S. Treasury yields and economic weakness in China.And while Indonesia’s second-quarter growth beat expectations due to higher consumption, the outlook for the remainder of 2023 remains bleak due to a contraction in exports while a general election early next year has held back investment.Inflation slowed in July to 3.08%, roughly the midpoint of the central bank’s 2% to 4% target range. “BI signalled a preference to tap a confluence of intervention efforts, measures to draw more dollar inflows … to address the more pressing currency depreciation pressures,” said Radhika Rao, economist with DBS Bank, calling the rate decision “the middle path to balance stability and inflation priorities”.BI kept its 2023 economic growth forecast in a range of 4.5% to 5.3%, predicting inflation will be at 2.9% by year end and within a target range of to 1.5% to 3.5% in 2024. “With inflation set to remain firmly within target and downside risks to the economic outlook elevated, we remain convinced that interest rate cuts will be starting from October,” said Shivaan Tandon of Capital Economics. Meanwhile, analysts at Bank Danamon said they expected the BI’s monetary stance to remain neutral unless another Federal Reserve surprise rattles markets and causes a deep weakening in the rupiah. More

The French state must reduce public spending, he added, confirming that gas and electricity price caps would end.Inflation has started to slow and “we will stick to our fiscal policy”, Le Maire said during a visit to the Haute-Savoie department in the French Alps.France is under pressure to bring finances into balance after Fitch in April cut the country’s rating to AA- over concerns about potential political paralysis and social unrest following an unpopular pension reform.On Wednesday, Prime Minister Elisabeth Borne said the French government has no plans to make households pay more taxes, but two government sources said other tax rises were under consideration, as ministers work on finalising the draft 2024 budget. More

Over the next few weeks, the European Central Bank will probably write a letter to Rome. In that letter — formally, a legal opinion — it will almost certainly criticise the Italian government’s plans to tax a substantial chunk of the net interest income of its banks. Upon receiving the missive, Giorgia Meloni, Italy’s prime minister, should not feel unfairly singled out. The ECB has taken aim at Madrid too over its banking windfall taxes, warning that it could weaken lenders’ capital positions. Yet the central bank’s own actions may, ultimately, have set in motion the chain of events that led to governments’ decisions to levy their lenders. Two of the eurozone’s largest economies have now unveiled windfall taxes, as well as Lithuania. We’d bet that others may follow suit. In an environment where lawmakers — and voters — are struggling to make ends meet, taxing banks’ profits inflated by central banks’ interest payments is an option too politically attractive, and too fiscally lucrative, for the likes of Meloni to ignore. Especially when lenders across the region are, to varying degrees, failing to pass on higher central bank interest rates to savers. There simply is less cause for them to do so, however, in an environment where the side-effects of the ECB’s decision to purchase trillions of euros’ worth of debt — as well as offer cheap long-term loans — are still being felt. Let’s row back a little. Throughout history, looser monetary policy has not only meant lower rates, but more plentiful supplies of cheap central bank cash. However, the scale of central banks’ aggressive easing during the last cycle has created a scenario where important elements of looser monetary policy cannot be easily unwound. Let’s look at the Eurosystem’s balance sheet. Eurozone central banks still hold about €5tn-worth of mostly government bonds. Several of their targeted longer-term refinancing operations (TLTROs), which offered abundant supplies of dirt-cheap liquidity, are yet to expire. And so the balance sheet, deep into the current tightening cycle, still stands at north of €7tn, compared with less than €2tn when rate-setters last raised borrowing costs in 2011. Why does this matter? In the past, when central banks wanted to raise borrowing costs, they did so by hoovering up excess reserves through their open market operations. That process guided market rates upwards as the need for lenders to roll over their central bank funding — “reserves scarcity” in the jargon — allowed officials to easily control the price of reserves by controlling the quantity on offer. Yet, despite rates hurtling back to historical norms, 15 years of aggressive monetary easing has meant that deep into the current cycle, banks still have all the liquidity they need. Lenders do not, on the whole, need to take part in central banks’ open market operations to access cash, and have far less need to compete with their rivals for deposits, as years of QE and TLTROs have left them flush. Central banks, therefore, appear to have far less control on the interest rates that lenders offer on deposits than in past cycles. A striking recent note from the banking team at Berenberg shows the same issue is facing the Bank of England in the UK (our emphasis in bold) We estimate that there is around £160bn of surplus UK private-sector deposits (relative to trend). This has fallen from a peak of c£250bn but remains historically abnormal. This abundance of deposits helps to support UK private sector resilience as borrowing costs and living costs rise. For banks, this also reduces the relative need to increase deposit rates to attract funding (at least at an aggregate level). Consistent with this, UK banks’ loan-to-deposit ratio has fallen 45ppt since its 2006 peak and by 10ppt versus 2019. Liquidity is also abundant. As a result, UK banks have less need to attract deposits relative to past periods during which interest rates were around the current level.Interestingly, Berenberg’s research shows that the lack of pass-through is concentrated on current accounts, with those with the financial security to be able to stuff their savings into time deposits feeling most of the benefits of higher rates. Which leads us back to the current trend towards windfall taxes. Rather than rationalise lenders’ behaviour as a natural reaction to the idiosyncrasies associated with central banks’ mass asset purchases and generous supplies of credit, politicians such as Meloni have cried foul. Lawmakers have accused the banks of being motivated by greed. But, in normal circumstances, more competition for deposits would mean lenders might not be able to take advantage of central banks’ interest outlays to the same extent. This newsletter is not an attempt to claim that the chaos that has surrounded Italy’s windfall levy is in any way the ECB’s fault. The Italian prime minister’s coalition government has gone about introducing its measure in a haphazard fashion, with numerous about-turns and communications gaffes along the way. Yet, set aside the unnecessary confusion that has surrounded the measure’s introduction, and — at its root — this, and the other windfall taxes befalling Europe’s banks, may say more about the aftermath of central banks’ giant easing experiments than who’s in charge in Rome. Other readablesOur new economics columnist Soumaya Keynes on why she’s (probably) glad she ditched acting; Doughnut economics pioneer Kate Raworth on the great life of environmental scientist Donella Meadows; Sarah O’Connor looks at how the minimum wage has fared through the worst bout of inflation in a generation; Numbers newsMartin Arnold explains why Ireland’s wild data is leaving the eurozone’s economists stumped. Key chart below: More