Aurelia Butler

Resurgent car exports propelled Japan’s economy to a larger than expected expansion in the second quarter of the year, offsetting immediate concerns that the country was vulnerable to global recession.Japan’s gross domestic product grew at an annualised rate of 6 per cent during the April-June period, significantly higher than the 2.9 per cent consensus estimate of economists and the third straight quarter of expansion.Analysts said the weak yen, which remains close to multi-decade lows, had been a boon to the nation’s exporters even as it hit domestic consumption by contributing to higher prices for imports.But while the 1.5 per cent quarter-on-quarter gain in Japan’s GDP was much bigger than the 0.8 per cent average forecast by economists, several cautioned that a recovery of post-pandemic domestic consumption remained unconvincing.Exports expanded by 3.2 per cent in the second quarter. Car sales abroad were helped by the fading impact of supply chain disruption, while inbound tourism, whose contribution to GDP is included in net export figures, has returned to more than two-thirds of pre-pandemic levels. Foreign arrivals are expected to continue to grow after China last week ended restrictions on group tours to a number of countries including Japan.However private consumption — which makes up more than half of the Japanese economy — fell 0.5 per cent quarter on quarter.Marcel Thieliant, an economist at Capital Economics, noted the 4.3 per cent quarter-on-quarter fall in imports — one of the largest on record and a potential signal of the impact that rising prices are having on consumers in Asia’s second-biggest economy.

After decades of stagnant or falling prices and flat wage growth, Japanese consumers have faced significant increases in the prices of food, goods and some services over the past 20 months.The weak yen has accentuated the pain of energy and other imported commodity price increases and damped Japan’s bounceback from lower spending during the pandemic.Stefan Angrick, a senior economist at Moody’s Analytics, said despite the strong reading from the GDP numbers, it would be premature to say the Japanese economy was out of the woods. “Looking beyond headline GDP, it’s not all sunshine and rainbows,” he said.“Domestic demand lacks oomph. High inflation has kept households and businesses reluctant to spend, raising the question whether Japan’s post-pandemic recovery has run out of steam before properly getting going.” More

The writer is publisher of The Overshoot research service and co-author of ‘Trade Wars are Class Wars’Markets are currently pricing in the most benign possible outcome: that US inflation continues to decelerate even as real output keeps growing briskly. While this is certainly possible, it is at least as likely that inflation will stabilise at a rate roughly 2 percentage points faster than the Federal Reserve’s 2 per cent yearly goal. In that scenario, shorter-term interest rates would remain at their current levels for some time, if not go even higher, which in turn would pull up longer-term yields and push down valuation multiples. That could spell trouble for asset prices. At first glance, this seems like an odd time to be expressing concern. US inflation has already slowed from roughly 10 per cent a year in the first half of 2022 to about 3 per cent a year. This slowdown has coincided with robust growth in real consumer spending and millions of extra jobs. Having made it this far, it feels churlish to suggest that inflation will not decelerate painlessly to 2 per cent from here.But the slowdown in inflation reflects the unwinding of temporary disruptions associated with the coronavirus pandemic and Russia’s full-scale invasion of Ukraine. These events reduced the supply of goods and services, pushing up prices. As conditions have normalised, many prices have stopped rising or even dropped outright.These swings have masked the modest but persistent acceleration in underlying price pressures. Just as investors and policymakers were right to look through the “transitory” inflation of 2021-2022, they should also strip out the “transitory” disinflation of 2022-2023 to get a handle on where such pressures will settle in the years ahead. Since inflation is just the difference between changes in nominal spending and real production, that means focusing on wage trends: the largest and most reliable source of financing for consumer spending.Since 1929, the average American worker’s hourly wage has grown about 1.6 percentage points faster than the PCE price index each year. Wages have grown at least 3 percentage points faster than prices in only 17 of the past 92 years for which we have data, of which only five occurred after 1956. Between 2000 and 2019, average hourly wages consistently grew just 1 percentage point faster than prices each year. Wages have grown 4 or more percentage points faster than prices only a handful of times: at the beginning of the Great Depression, during the rationing and price controls of the second world war and the Korean war, in the late 1990s productivity boom, and during the first year of the pandemic. Now, however, the best data suggests that US wages are rising at a yearly rate of about 5 per cent. Moreover, persistent wage growth means that interest rates may stay “higher for longer”— unless consumers start spending a much lower share of their incremental earnings, real output per worker rises sharply, or both.Federal Reserve boss Jay Powell agrees. At his recent press conference, he said: “we want wages to be going up at a level that’s consistent with 2 per cent inflation over time” and that “wages are probably an important issue going forward”. This explains Fed officials’ continued focus on “softening” the job market via higher interest rates. That presents a risk that interest rates may not come down as quickly as implied by market prices, which in turn could affect other asset valuations.Futures in Sofr, the floating interest rate benchmark, currently imply that short-term interest rates will drop to 3.5 per cent by the end of 2025, while break-even inflation rates imply that prices will rise almost exactly 2 per cent a year from now for the next three decades. Meanwhile, credit spreads are tighter than they were in 2019 and earnings multiples on stocks have jumped. By some measures, the prospective returns on stocks relative to bonds are lower than at any point since mid-2007, implying extreme optimism about future profit growth. This combination only makes sense if inflation returns to 2 per cent — and wage growth decelerates commensurately — without any hit to real output.Many Fed officials would be unwilling to force the economy into a downturn just because inflation stabilised around 4 per cent a year, instead of 2 per cent. It was not long ago that many leading economists were recommending 4 per cent inflation targets, or, in what amounts to roughly the same thing, a 5 to 6 per cent yearly nominal income growth target. But while a policy of benign neglect might make sense, it is not currently priced in. More

NEW YORK (Reuters) -Sam Bankman-Fried used money he stole from customers of his FTX cryptocurrency exchange to make more than $100 million in political campaign contributions before the 2022 U.S. midterm elections, federal prosecutors said on Monday.An amended indictment accused the 31-year-old former billionaire of directing two FTX executives to evade contribution limits by donating to Democrats and Republicans, and to conceal where the money came from.”He leveraged this influence, in turn, to lobby Congress and regulatory agencies to support legislation and regulation he believed would make it easier for FTX to continue to accept customer deposits and grow,” the indictment said.Bankman-Fried faces seven counts of conspiracy and fraud over FTX’s collapse, though the indictment no longer includes conspiracy to violate campaign finance laws as a separate count.Federal prosecutors in Manhattan said last month they would drop that charge after the Bahamas, where FTX was based and where Bankman-Fried was arrested in December 2022, said it never intended to extradite him on that count. Instead, prosecutors told U.S. District Judge Lewis Kaplan last week that a new indictment would “make clear that Mr. Bankman-Fried remains charged with conducting an illegal campaign finance scheme as part of the fraud and money laundering schemes originally charged.”Mark Botnick, a spokesman for Bankman-Fried, declined to comment. Bankman-Fried has previously pleaded not guilty to stealing billions of dollars in FTX customer funds to plug losses at Alameda Research, his crypto-focused hedge fund.Kaplan jailed him last Friday ahead of his Oct. 2 trial, after finding probable cause that Bankman-Fried tampered with witnesses.Previously, Bankmman-Fried had been largely confined to his parents’ Palo Alto, California, home on $250 million bond.Bankman-Fried rode a boom in cryptocurrency values to amass a fortune that was once estimated at $26 billion, and became an influential donor to mostly Democratic candidates and causes.The November 2022 collapse of FTX after a flurry of customer withdrawals destroyed his wealth and stained his reputation.EX-FTX EXEC SALAME DECLINES TO TESTIFYBankman-Fried’s indictment does not name the two people prosecutors say he used for “straw donors” to donate money at his direction. But other court papers and Federal Elections Commission data show they are Nishad Singh and Ryan Salame.  Singh, FTX’s former engineering chief, pleaded guilty to fraud and campaign finance violations in February. He donated $9.7 million to Democratic candidates and causes, and said in court he knew the money came from FTX customers.Salame, the former co-CEO of FTX’s Bahamian unit, gave more than $24 million to Republican candidates and causes in the 2022 election cycle, according to Federal Election Commision data.He has not been charged with a crime. In a separate court filing on Monday, prosecutors said Salame’s lawyer had told them he would invoke his Fifth Amendment right against self-incrimination if called to testify.Prosecutors said Salame told a family member in a November 2021 message that Bankman-Fried wanted to use political donations to “weed-out” anti-crypto Democratic and Republican lawmakers, and would likely “route money through me to weed out that republican (sic) side.”Salame’s lawyer did not immediately respond to a request for comment. More

A high interest rate environment has benefited Australian banks, but they now face headwinds from rising bad debt and increasing competition for mortgages.Last week, the country’s biggest lender Commonwealth Bank of Australia (OTC:CMWAY) posted record annual profit on the back of rising interest rates, but warned higher living costs were pushing up debt arrears and competition was squeezing margins.NAB’s net interest margin – a key measure of profitability – slipped to 1.72% in the April-June quarter from 1.77% as at March 31. The country’s second-biggest lender, however, reported a 5% increase in cash earnings from higher interest rates.”We know this environment is challenging for our customers, but pleasingly, most are proving resilient with only a modest deterioration in asset quality in 3Q23,” said NAB Chief Executive Ross McEwan.The bank announced a A$1.5 billion ($973.05 million) share buyback, which will result in the reduction of the common equity tier 1 (CET1) ratio – a measure of a bank’s capital position and financial strength – by 35 basis points.The ratio stood at 11.9% as at June-end, down from 12.2% as at March-end.Loan repayments delayed more than 90 days stood at 0.71% of the bank’s total gross loans, up five basis points from the previous quarter, in line with what CBA reported last week.NAB recorded a credit impairment charge of A$244 million for the quarter, which reflected a modest deterioration in asset quality across the group and volume growth. It posted cash earnings of A$1.90 billion, compared with A$1.80 billion a year earlier. Analysts had expected A$1.83 billion, according to Visible Alpha consensus.($1 = 1.5415 Australian dollars) More