Aurelia Butler

TOKYO (Reuters) -The Bank of Japan debated growing prospects of sustained inflation at their July meeting with one board member saying wages and prices could keep rising at a pace “not seen in the past,” according to a summary of opinions released on Monday.While the members stressed the need to keep ultra-easy monetary policy, the upbeat view on the inflation outlook suggests they are now more convinced that conditions for phasing out stimulus could fall in place.”More firms have started to consider wage hikes for next fiscal year and beyond. Japan is expected to see a new phase where wages and services prices continue to increase,” according to one opinion shown in the summary.”The recent wage hikes and pass-through of cost increases by firms have a pent-up aspect, in that these moves had been suppressed for nearly three decades. Therefore, wages and selling prices could continue to rise at a pace that has not been seen in the past,” another opinion showed.At the July meeting, the BOJ kept its yield curve control (YCC) targets unchanged but took steps to allow long-term interest rates to rise more freely in line with increasing inflation and economic growth.Governor Kazuo Ueda said the decision was a pre-emptive move against the risk of rising inflation pushing up long-term bond yields, and heightening volatility in financial markets.With high uncertainty over the outlook, as well as both “upside and downside risks” to inflation, it was appropriate to make YCC flexible at this stage, several members said, according to the summary.”If prices and inflation expectations continue to heighten, the effects of monetary easing will strengthen. On the other hand, strictly capping the 10-year bond yield at 0.5% could affect bond market function and market volatility,” one opinion showed.While some saw the need to make YCC more flexible as a preventive measure against future risks, one member said sustained achievement of 2% inflation was already in sight.”Achievement of 2% inflation in a sustainable and stable manner seems to have clearly come in sight. In order to continue with monetary easing smoothly until an exit, the Bank should allow greater flexibility in its conduct of yield curve control,” the member was quoted as saying.Under YCC, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around 0% as part of efforts to prop up growth and sustainably achieve its 2% inflation target.It also sets an allowance band of 50 basis point around the 10-year yield target. The BOJ nominally kept the band unchanged last month but said it would now allow the 10-year yield to rise to as much as 1.0%.Japan’s core consumer inflation stayed above the central bank’s 2% target in June for the 15th straight month, as firms kept passing on higher import costs to households.The BOJ has said it needs to maintain ultra-low rates until robust domestic demand and higher wages replace cost-push factors as key drivers of price gains, and keep inflation sustainably around its target. More

Goetz, 52, died on Saturday, a statement said, without giving details of the accident.Goetz spent his entire professional career, spanning more than 36 years, in the Daimler (OTC:MBGAF) Group, and was largely responsible for the successful spin-off of Daimler Truck Holding from what is now the Mercedes-Benz Group in December 2021.”He played a key role in shaping today’s Daimler Truck company and, as CFO, consistently worked to ensure that the company is now more economically successful than ever before,” Chief Executive Martin Daum said.The company statement said Goetz had been distinguished by “his high level of professionalism as well as his positive, hands-on manner”.Joe Kaeser, supervisory board head and former Siemens veteran, said of Goetz: “Just a few days ago, he convincingly and confidently presented the successful financial development of ‘his company’ to the supervisory board.”Daimler Truck achieved a second quarter record adjusted return on sales of 10.3% for its industrial business, the company said last Tuesday, even as it faced rising monthly costs from inflation.Goetz, who had held his current position since July, 2021, leaves a wife and two children. More

SYDNEY (Reuters) – Asian share markets started in a cautious mood on Monday after a mixed U.S. jobs report sparked a rally in beaten-down bonds, but new hurdles lay ahead in the shape of U.S. and Chinese inflation figures due later this week.MSCI’s broadest index of Asia-Pacific shares outside Japan were a fraction lower in thin trade, after losing 2.3% last week. Japan’s Nikkei slipped 1.0% to test its July low. A summary of the last Bank of Japan meeting showed members felt making yield policy more flexible would help extend the life of its super-easy stimulus.Going the other way, S&P 500 futures added 0.2% and Nasdaq futures 0.3% in early trade.With roughly 90% of S&P 500 earnings reported, results are 4% better than consensus estimates with more than 79% of companies beating the Street. Results due this week include Walt Disney (NYSE:DIS) and News Corp (NASDAQ:NWSA). Data on U.S. consumer prices due Wednesday are forecast to show headline inflation picking up slightly to an annual 3.3%, but the more important core rate is seen slowing to 4.7%.Analysts at Goldman Sachs (NYSE:GS) see a downside risk to the numbers in part due to falling car prices, an outcome that might help keep the bond rally alive and kicking.In China, the market is looking for further signs of deflation with annual consumer prices seen down around 0.5%, and producer prices falling 4%.Any upside surprises would be a test for Treasuries which bear steepened markedly early last week ahead of a flood of new borrowing. In the event, a mixed payrolls report helped reverse much of the losses, particularly at the short tend.Futures imply only a 12% chance of a Federal Reserve rate hike in September, and 24% for a rise by year end.Michael Gapen, an economist at BofA, cautioned the market was still expecting too much policy easing next year given the recent run of resilient economic data.”We now expect a soft landing for the U.S. economy, not the mild recession we had previously forecasted,” wrote Gapen. “While the market implies between 120-160bps of Fed cuts in 2024 we look for only 75bps,” he added. “There’s simply less reason for the Fed to quickly pivot to rate cuts in 2024 when growth is positive and unemployment is low.”As a result, the bank raised its year-end forecast for two-year and 10-year yields by 50 basis points to 4.75% and 4% respectively.On Monday, two-year yields were a tick higher at 4.80%, with the 10-year at 4.06%.The pullback in yields took some steam out of the U.S. dollar, which was idling at 141.90 yen and short of last week’s top of 143.89.The euro held at $1.1000, having bounced from a trough of $1.0913 last week.The dip in the dollar helped gold hold at $1,942 an ounce, after Friday’s rally from $1,928.90. [GOL/]Oil prices stood firm having rallied for six straight weeks amid tightening supplies. The 17% climb in Brent combined with upward pressure on food prices from the war in Ukraine and global warming, is a threat to hopes for continued disinflation across the developed world. [O/R]Brent rose 17 cents to $86.41 a barrel, while U.S. crude gained 12 cents to $82.94. More

LONDON (Reuters) – British employers reduced the number of new permanent staff they hired through recruitment agencies by the most since mid 2020 last month due to concerns about the economic outlook, adding to signs that the market is becoming tougher for job seekers. A gauge of permanent staff hiring by the Recruitment and Employment Confederation and accountants KPMG fell to 42.4, the lowest since the 34.3 in June 2020 when the country was in lockdown due to the COVID-19 pandemic. The survey’s measure of temporary staff hiring, which often rises when employers are cautious about the outlook, in July showed the weakest growth in nine months – partly because more workers were looking for the security of permanent roles. Neil Carberry, chief executive of REC, said the jobs market remained “fairly robust” despite the slowdown in permanent placements. “To some extend this is normalisation as the post-pandemic boom abates, but it is also driven by uncertainty,” he said.While starting pay for new permanent staff rose sharply by pre-pandemic standards, the rate of wage growth was the lowest since April 2021, REC said.Claire Warnes, partner of skills and productivity at KPMG UK, said competition for skilled workers and cost of living pressures were keeping starting salaries high. Monday’s survey chimed with other indicators showing the labour market is loosening, welcome news for the Bank of England which raised interest rates for the 14th meeting in a row to 5.25% last week and has been concerned about high wage growth.Official data showed unemployment rose to 4% in the three months to May, a 16-month high, although annual wage growth remained at a record high of 7.3% in cash terms.Separate figures from accountants BDO showed rising interest rates, tough trading conditions and weak demand hit hiring intentions and business confidence across services and manufacturing sectors. BDO’s employment index fell for the first time in six months in July and its optimism gauge declined for the first time in four months.REC said the availability of both temporary and permanent workers to fill jobs hit the highest since December 2020. More

(Reuters) – A global failure to curb carbon emissions will lead to rising debt-servicing costs for 59 nations within the next decade, according to a study that simulated the economic impact of climate change on current sovereign credit ratings.Among them, China, India, the United States and Canada could expect higher costs as their credit scores fall by two notches under a “climate-adjusted” ratings system, the study published in the Management Science journal on Monday found.”Our results support the idea that deferring green investments will increase costs of borrowing for nations, which will translate into higher costs of corporate debt,” researcher Patrycja Klusak said of the study led by the University of East Anglia (UEA) and the University of Cambridge.Rising debt costs would be just one extra facet of the overall economic damage which climate change is already causing. Insurance giant Allianz (ETR:ALVG) estimates that recent heatwaves will already have shaved 0.6% points off global output this year.While ratings agencies acknowledge the vulnerability of economies to climate change, they have so far been cautious in quantifying those risks in their ratings exercises because of uncertainties about the likely extent of the damage.The UEA/Cambridge study trained artificial intelligence models on S&P Global (NYSE:SPGI)’s existing ratings and then combined that with climate economic models and S&P’s own natural disaster risk assessments to create new ratings for various climate scenarios.A downgrade to 59 sovereigns emerged from a so-called RCP 8.5 scenario of emissions that keep rising. By comparison, 48 sovereigns experienced downgrades between January 2020 and February 2021 during the turmoil of the COVID-19 pandemic.If the planet manages to stick to the goal of the Paris Climate Agreement, with temperatures held under a two-degree rise, sovereign credit ratings would under the simulation see no impact in the short-term and only limited long-term effects.A worst-case scenario of high emissions through to the end of the century would on the other hand result in higher global debt-servicing costs, rising up to the hundreds of billions of dollars in current money, the model found.While developing nations with lower credit scores are seen hit hardest by the physical effects of climate change, nations with the highest ranking credit scores were likely to face more severe downgrades simply because they have furthest to fall.”There are no winners,” Klusak said in an interview.The findings come as regulators around the world seek to better understand just how much damage to economies and the global financial system to expect from climate change. A European Central Bank paper last year urged greater clarity in how those risks were being built into credit ratings.S&P Global Ratings has published the environmental, social and governance (ESG) principles used in its credit ratings which include reference to the risk of economic damage from climate change and the costs associated with mitigating it. It declined to comment on the UEA/Cambridge study.Fitch Ratings pointed to its system of “ESG Relevance Scores” as including factors such as exposure to environment impacts as one component in its assessments.”These are longstanding and increasingly important rating factors which we continue to weigh in our analysis and publish frequent research and commentary upon,” it said in response to a request for comment. (Writing and reporting by Mark John; Editing by Hugh Lawson) More

BEIJING (Reuters) – China’s promised “basket of measures” to defuse local government debt risks is likely to include special bond issuance, debt swaps, loan rollovers, and something Beijing really loathes: dipping into the central budget.Local governments are fundamental to China’s economy, with Beijing tasking provincial and city officials with meeting ambitious growth targets. But after years of over-investment in infrastructure, plummeting returns from land sales and soaring COVID costs, economists say debt-laden municipalities now represent a major risk to China’s economy. Chinese leaders last month pledged, without detailing, to help ease their debts, signalling worries over a potential chain of municipal debt defaults destabilising the financial sector.Economists took that message as being more constructive than in April, when Communist Party leaders demanded “strict control” of local debts. The implication, they say, is that Beijing has realised it needs to urgently throw cash at the problem.That could represent a major breakthrough in finding a way out of China’s municipal debt crisis, with Beijing having for years demanded that local administrations sort themselves out.”The local debt problem is complex so you cannot simply say you don’t want to take responsibility,” said Guo Tianyong, professor at the Central University of Finance and Economics in Beijing, explaining the politburo’s directions. The extent of any central government involvement, and any conditions attached to it, are still subject to debate, two policy advisers told Reuters. Whether the package of measures will be a short-term or multi-year plan also remains unknown.These details will be key for investors to gauge how decisive and long-lasting Beijing’s solution will be.”The size of any restructuring and the scale of the problem Beijing acknowledges is important to the success of this effort,” said Logan Wright, a partner at Rhodium Group.BEIJING’S DILEMMALocal government debt reached 92 trillion yuan ($12.8 trillion), or 76% of economic output in 2022, up from 62.2% in 2019. Part of it is debt issued by local government finance vehicles (LGFVs), which cities use to raise money for infrastructure projects. The International Monetary Fund expects LGFV debt to reach $9 trillion this year.The central government, which has repeatedly warned about “hidden debt risks” worries the numbers are even higher when accounting for any debt issued outside municipal balance sheets.It is an unsustainable situation that puts Beijing in a bind: provide no help and the economic model unravels with severe consequences on growth and social stability, or step in at the risk of encouraging more reckless spending.”A principle should be established: not all debt will be assumed by the central government,” a policy adviser told Reuters on condition of anonymity. “This could lead to moral hazard.”To avoid that risk, the adviser suggested all stakeholders bear some of the burden: financial institutions, local governments, Beijing and society at large.OPTIONSMost economists expect Beijing to instruct state-owned banks to keep rolling over maturing debt with longer-term loans at lower interest rates, a strategy often referred to as “extend and pretend.”The banks, however, need to be selective based on the magnitude and urgency of any refinancing task. Debt restructurings hurt their own balance sheet, hampering their ability to finance other parts of the economy.For many local governments “to keep vital functions you need transfers from Beijing and to develop you need to issue bonds – the central leadership is aware of that,” a source at a state bank told Reuters after a recent work trip to two indebted provinces.Local governments themselves will have responsibilities, above all to come clean.Local governments are likely to use left-over bond issuance quotas from last year to swap “hidden debt” with official bonds on their balance sheet, according to analysts, with up to 2.6 trillion yuan to be issued.Such a move has a precedent. From 2015 to 2018, local governments issued some 12 trillion yuan of bonds to swap for off-balance sheet debt.Beijing may also ask certain localities to sell or leverage assets to raise funds. “Extension of local government and LGFV debt and de facto restructuring, especially with banks, will likely be encouraged, while local governments may also be pushed to sell or mortgage some assets,” said Tao Wang, chief China economist at UBS. Then comes frugal Beijing, which has most room for manoeuvre, with a central government debt of only 21% of GDP.Beijing issued 1 trillion yuan in special bonds in 2020 to cope with the pandemic, 1.55 trillion in 2007 to recapitalise its sovereign wealth fund and 270 billion yuan in 1998 to recapitalise the “big four” state banks.“The central government can issue low-cost bonds to replace local debt,” a second policy adviser said. China’s 10-to-30-year government bonds yield 2.7%-3.0%. Some cities and LGFVs pay 7-10% interest.Guo, the professor, said such swaps should exceed 1 trillion yuan this year to make a difference.More generous direct fiscal transfers for funding vital public services could also be thrown into the basket, analysts say. That path is well-trodden: the finance ministry expects a record 10 trillion yuan in such transfers this year, up 3.6% from 2022.For the local debt problem to stop re-occuring policymakers need to implement profound changes to how the economy works.BBVA (BME:BBVA) analysts suggest diluting the growth performance criteria in evaluating local government officials.But ultimately Beijing, and the Chinese society, may have to accept lower growth after four decades of expansion at a staggering pace.”Whether Beijing will be able to accept a significant slowdown in local government investment, and therefore economic growth, will be one of the most important questions in any restructuring,” Rhodium’s Wright said.($1 = 7.1780 Chinese yuan renminbi) More