Aurelia Butler

SYDNEY (Reuters) -Australia’s central bank on Tuesday held interest rates at 4.1% for a second straight month, saying past increases were working to cool demand, but retained a warning that some more tightening might be needed to curb inflation.Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) largely left its economic outlook unchanged from the previous quarter, forecasting headline inflation would return to within its 2-3% target range by late 2025, from the current 6%. Markets had leaned toward a steady outcome given recent data showed inflation had eased for a second quarter and consumer spending was softening. However, economists were more split on the outcome, with 20 out of 36 polled by Reuters expecting a hike. [AU/INT]The Australian dollar extended earlier declines to be 0.9% lower at $0.6656, and futures jumped as investors scaled back the probability of a further rise at all, with a move in September seen as a less than a 20% chance.Swaps now implied a risk of around 13 basis points of tightening by year end.Outgoing Governor Philip Lowe reiterated that higher interest rates were working to cool demand, and would continue to do so, and the pause this month would again provide time to assess the impact of the a 400 basis point jump in rates.”The recent data are consistent with inflation returning to the 2–3% target range over the forecast horizon and with output and employment continuing to grow,” said Lowe, adding that further tightening will be dependent on data and the evolving risk assessment.In a relief for policymakers, headline inflation slowed more than expected in the second quarter while retail sales posted their biggest fall this year in June.With markets suspecting rate hikes might be already done, incoming Governor Michele Bullock, who assumes her role in September, will be in charge of steering a slowing economy and engineering any rate cuts, analysts say.MIGHT BE DONE Governor Lowe also removed any reference to a “narrow” path to a soft landing in which inflation eases without unemployment rising dramatically.Indeed, the economy is already slowing to sub-par levels, with the RBA forecasting growth would ease to 1.75% next year and average a little above 2% in 2025, while the jobless rate would tick up to 4.5% late next year, mostly unchanged from previous estimates.Commonwealth Bank of Australia (OTC:CMWAY), which had forecast a hike to 4.35% on Tuesday, now expects the RBA to be on hold for an extended period of the year.”While the RBA retains a tightening bias, we expect the hurdle to another rate hike is high. It would take an upside surprise to the economic data from here… for the RBA to shift its assessment of the outlook,” said Belinda Allen, a senior economist at CBA.However, risk remains that services inflation, including surging rents, stays sticky. The labour market has so far defied expectations for a slowdown while house prices continued to climb in July, a positive wealth effect for consumers.Both National Australia Bank (OTC:NABZY) and Goldman Sachs (NYSE:GS) now see a hike in November, bringing the cash rate to 4.35%, compared with expectations for two hikes before.”I am a bit surprised about the RBA’s over-relaxed tone with the backdrop that Australia’s inflation rate today is now on the top tier of the developed economies,” Hebe Chen, markets analyst at IG, told Reuters Global Markets Forum.”If the labour markets turn out more resilient than expected, the chance for RBA to extend the tightening to 2025 is also a possibility that can’t be ruled out.” More

(Reuters) – Economic sanctions have been the biggest headache for Russia’s business elite since the start of the war in Ukraine, but two drone strikes in the heart of Moscow’s financial district are forcing companies to think about their employees’ safety.An explosion early on Sunday rocked the Moskva-Citi business district, a few miles west of the Kremlin and home to several skyscrapers, in what Russia’s defence ministry said was a thwarted Ukrainian drone attack, the second in a week.Early on Tuesday, an out of control drone hit the same high-rise building, damaging the facade on the 21st floor, according to Moscow Mayor Sergei Sobyanin.Nobody was hurt in either incident and there was only minor damage, but such attacks are uncomfortable for the authorities who have told the public that Russia is in full control of what they call its “special military operation” in Ukraine.After the first attack, tech giant Yandex (NASDAQ:YNDX), which has offices dotted around the Russian capital including in Moskva-Citi, asked staff to vacate offices at night, when strikes on the Russian capital have tended to occur.”Taking into account the situation, we ask you not to be in the office at night (from 1 a.m. to 6 a.m.),” Yandex said in a message to employees. “The restriction applies to all Moscow offices. Take care!”Yandex, which like many technology companies has relatively flexible working hours, declined a Reuters request for comment.Many companies in Russia continue to allow employees to work in hybrid mode, split between home and the office, following the lockdowns imposed during the coronavirus pandemic.Kremlin spokesman Dmitry Peskov said on Monday Ukrainian attacks on Moscow and other Russian targets were “acts of desperation” and that Russia was taking all measures possible to protect against strikes.Kyiv typically does not claim responsibility for specific incidents on Russian territory, and did not claim Sunday’s attack, though President Volodymyr Zelenskiy said the war was “gradually returning to Russia’s territory – to its symbolic centres”.Two drones reached the Kremlin in May, the most high-profile incident, but other attacks have targeted buildings near the defence ministry’s headquarters on the Moscow River and the capital’s exclusive Rublyovka suburb, home to much of Russia’s political, business and cultural elite.’REALLY SCARY’Reuters spoke to several people, who asked not to be identified, in order to gauge the business community’s reaction to the first incident, with some expressing fear and concern, while others remained unfazed.”I can say that for myself it has of course become more worrying for me and my colleagues,” said one person who works in Moskva-Citi. “Somewhere in the back of my mind it was always understood that Citi could be one of the targets.”One employee at a company with an office in a Moskva-Citi skyscraper said working there felt “weird”, but that staff were not being sent to work remotely.Another, who works for a bank, said most staff had been told to work from home.Some said business was continuing as normal and that everything was calm.One financial services professional said he did not think the attack would deter people from going to Moskva-Citi.The attack damaged a building reported to house government offices. Reuters on Sunday saw glass panels blown out in one high-rise building and glass, debris and office documents littering part of the pavement below.Video footage from the incident showed a bright orange explosion, accompanied by a deafening bang.A Telegram channel run by the Russian online media group Mash broadcast photos of the damage done to the digital ministry’s headquarters.Mash reported that the ministry’s staff had been asked to be resilient, but that most employees would be permitted to work from home temporarily.The ministry did not respond to a request for comment.For one employee at a large Russian company, the attack was a “really scary” warning.”No one is safe, I’m afraid now.” More

Paul Blustein is an author, journalist, and a senior associate (non-resident) with the economics program at the Center for Strategic and International StudiesEven to well-informed laypeople, the global dominance of the US dollar is a source of perplexity. Claims materialise with regularity that the dollar is doomed to lose its status as the world’s main reserve currency, only to be contradicted by economic data showing the greenback’s continued supremacy in international trade and finance.For perspective on the dollar debate, the pithiest insight can be gleaned from a character in Marvel comics and films who conscientiously utilises his superhuman strength, agility and web-spinning prowess. I refer to no less an authority than Spider-Man, famed for the adage, “With great power comes great responsibility.”The greatness of the dollar’s power has been proven repeatedly against other major currencies. Frustrating as it may be for policymakers in Moscow, Beijing, Tehran and other capitals, the dollar’s primacy is all but impregnable, barring catastrophic mis-steps by the US government. No other economy can rival America’s for its capacity to generate safe and liquid assets.But US complacency about the dollar’s role — or worse, imperiousness — would be seriously misguided. Americans should recognise the applicability of the Spider-Man adage to the dollar, and US leaders should adopt it as an overarching principle for all aspects of dollar policy. Much is riding on how Washington uses the power that comes with the world’s dominant currency. Whether it is wielded responsibly or not should be of profound concern to citizens of the US and other countries alike.First, heavy-handed use of the dollar as a sanctions weapon — cutting off US adversaries from the dollar-based system without broad backing from the international community — is likely to boomerang. That’s not simply because other countries may devise alternative monetary arrangements for circumventing the dollar or eroding its sanctions potency. Although warnings of such an outcome may be well founded, the prospect that dollar sanctions might be a “wasting asset” can be cited in favour of using the tool while it remains effective.There are other, more compelling reasons for eschewing the thuggish imposition of dollar sanctions (a prime example of which was the Trump administration’s threat in 2018 to cut off dollar access from European companies doing business with Iran). Unilateral use of the dollar as a tool of diplomatic coercion risks infuriating other countries to the point where US allies will be alienated and adversaries will be provoked into confrontation on other fronts. Even when sanctions are well justified and broadly supported, as they are against Russia, they can inflict severe pain on innocent civilians and draw retaliation that may depress global economic growth and living standards.Second, the Spider-Man adage comes into play regarding the rapidly-evolving technological innovations that are transforming the world of payments and finance. The paramount goal for the US should be instilling the monetary system of the future with universal values that America has long championed, notably freedom of expression and protection of individual privacy, while simultaneously guarding against abuse of the financial system for illicit purposes. Whether that means a digital currency issued by the Federal Reserve or leaving digital dollar issuance to the private sector, Washington has a special obligation as issuer of the world’s leading currency to take the lead in optimising the difficult trade-offs and influencing choices made in other capitals.But such is the dollar’s clout that the US has to take care to avoid going overboard. For example, lobbyists for stablecoins (privately-issued digital tokens whose value is almost invariably linked to the dollar) excitedly tout their product as the best way to strengthen the dollar’s reserve currency status, by spreading dollars all over the globe in an instantly-accessible form. This argument appeals to members of Congress anxious about the dollar’s vulnerability to potential rivals. But the result—“currency substitution,” as economists call it — could severely disrupt the ability of foreign central banks to manage their countries’ money supplies if large numbers of their citizens use the dollar as their method of payment. Among officials sounding the alarm is India’s deputy central bank governor, Rabi Sankar, who has called stablecoins “an existential threat to policy sovereignty,” citing the danger that they will undermine use of the rupee.Third, the dollar’s primacy puts a disproportionate obligation on the US to foster and preserve global financial stability. Some analysts go so far as to contend that the dollar’s status imposes an “exorbitant burden” on the US economy, meaning that the economic costs exceed the benefits. That argument may be a tad extreme, but there is no disputing the frightening degree to which dollar shortages arise during bouts of turmoil such as the global financial crisis of 2007-9 and the Covid-related market meltdown of spring 2020. This makes the world heavily dependent on the Fed to act as international lender of last resort, by providing ample supplies of dollars to central banks abroad.Finally, note the caveat — “barring catastrophic mis-steps by the US government” — in the passage above about the dollar’s impregnability. The danger of such a mis-step is hardly trivial; although default on US Treasury bonds was averted earlier this year, nobody should discount the possibility of future episodes in which Washington’s political dysfunctionality destroys confidence in US obligations. Nor is it inconceivable that a couple of years from now, the American electorate will have chosen a president who runs total roughshod over rule of law, one of the bulwarks of dollar hegemony.If only Spider-Man had something trenchant to say on that subject. More

When Xi Jinping toured an LG Display factory in the southern city of Guangzhou earlier this year, the intended message was clear: China still welcomes foreign investment.But there was another possible interpretation. Visiting an LG-owned facility was a coded warning that Korean companies in particular should think twice before joining the US-led “decoupling” from China.From semiconductors and electric vehicle batteries to biotech and telecoms, Korea’s conglomerates are crucial players in sectors critical to national security and industrial strategy in both Washington and Beijing.Chipmakers Samsung Electronics and SK Hynix, along with battery makers LG Energy Solution, SK On and Samsung SDI, are set to receive billions of dollars in US subsidies as the Biden administration seeks to attract Korean technology and manufacturing prowess and reduce the role of China in US supply chains.But in return, they must comply with a raft of US restrictions on their activities in China and their partnerships with Chinese companies, raising the spectre of retaliation from Beijing.Earlier this month, China hit back at US-led curbs on semiconductor sales by restricting exports of gallium and germanium, two metals used in chipmaking and communications equipment. Beijing has also banned operators of China’s key infrastructure from buying chips from US rival Micron, feeding Korean fears that its companies could also be targeted.Chinese president Xi Jinping’s visit to the Guangzhou factory of LG Display earlier this year highlighted how South Korea’s is caught between China and the US © Chine Nouvelle/SIPA/ShutterstockIn June, Xing Haiming, China’s ambassador in Seoul, publicly warned South Korea against “decoupling” from the Chinese economy under the influence of the US.“I can assure you, those who bet on China’s defeat will definitely regret it,” said Xing, earning himself a reprimand from the South Korean foreign ministry.While South Korea’s conservative president, Yoon Suk Yeol, has riled Beijing with comments blaming China for regional tensions over Taiwan, other ministers have struck a more conciliatory tone. “We should not consider efforts to bolster the relationship with the United States as a move to disregard China,” finance minister Choo Kyung-ho told a parliamentary session in May. “We have never announced a plan to decouple from China, and we have no intention of doing so.”But Korean economists, former and serving trade officials, and company executives all note that whether Beijing likes it or not, South Korea has already embarked on an unmistakable — albeit untrumpeted — pivot away from the Chinese economy.According to data released by the Bank of Korea in June, South Korea exported more goods to the US in 2022than it did to China for the first time since 2004, when China’s nominal gross domestic product was still less than that of the UK.Korea’s trade minister Ahn Duk-geun has said Beijing’s policy to “arbitrarily interfere with businesses” as well as its “dual circulation” import substitution policies were driving Korean companies to reduce their exposure to China. 

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The question for Korean policymakers, say observers, is whether the country’s leading companies can successfully exploit the rapidly changing geopolitical environment in which they find themselves — taking full advantage of the inducements on offer from the US while limiting the consequences of any potential backlash from Beijing.“The US-China tensions are making people nervous,” says Yeo Han-koo, who until last year served as South Korea’s trade minister and is now a senior fellow at the Peterson Institute for International Economics. “But they can be a big opportunity for South Korea.”Facing east and westSouth Korea’s economic relationship with China transformed after 1992, when the two countries established full diplomatic relations in the wake of the collapse of the Soviet Union.Since then, the annual value of Sino-South Korean trade has grown from $6bn to just over $300bn in 2022, when China accounted for more than a quarter of South Korean exports and the US less than 15 per cent.The economic relationship was powered by Chinese demand for Korean expertise in complex manufacturing processes for components consumed by China’s booming technology sector — above all in the semiconductor sector, which accounts for 20 per cent of the value of South Korea’s total exports.Until the mid-2010s, South Korea’s “dual approach” to the US and China, in which Washington served as its principal security partner and Beijing as its main economic partner, appeared to be meeting its needs in both spheres.Korean companies took full advantage of their access to both markets — absorbing American technologies and business practices while benefiting from China’s booming demand and manufacturing heft.Seoul could depend on US security guarantees in its ongoing stand-off with North Korea while Beijing served as a conduit for engagement with Pyongyang and co-operated with western attempts to slow the development of North Korea’s nuclear weapons.“At that time, we believed we had a really good relationship with China,” says Je Hyun-jung, chief representative of the Korea International Trade Association’s Washington office. “People in both countries felt that we are friends, that we share a common Asian or Confucian culture.”South Korea’s acquisition of the Thaad anti-ballistic missile system provoked a backlash from Beijing — as well as protests from locals over health concerns © Seung-il Ryu/NurPhoto/Getty ImagesKorean television shows and pop music enjoyed a boom in popularity in China, while millions of Chinese tourists visited South Korea to shop and travel.That amity was shattered in 2016 after South Korea acquired the US-made Terminal High Altitude Area Defense (Thaad) anti-ballistic missile system to protect itself against North Korean missile attacks.Claiming the Thaad system posed a direct threat to Chinese territory, Beijing imposed an unofficial economic blockade. Chinese tourism dried up, K-dramas were no longer picked up by Chinese TV stations and Korean brands were boycotted. “After the cold war, we thought we could separate economic issues from security issues — and for a while, that was possible,” says Yeo of the Peterson Institute. “But now, that separation is over. We cannot continue to draw comfort from a bygone era.”Troy Stangarone, a senior director and fellow of the Korea Economic Institute of America, says the US did nothing to show it “had Korea’s back” as it bore Beijing’s wrath. Separately, then-president Donald Trump threatened to pull US troops off the Korean peninsula, accusing Seoul of shirking its financial responsibilities.New presidents — Joe Biden in Washington, and the fiercely pro-American Yoon in Seoul — led to improved relations, with Biden pledging “ironclad commitment” to defending its East Asian allies and consulting them on its economic security agenda.But Yeo says anxieties remain about the possible consequences of a new era of US protectionist industrial policy and its impact on key Korean industries like semiconductors and carmaking.The $369bn questionThose anxieties burst into the open last summer after Biden’s flagship Inflation Reduction Act was signed into law, providing $369bn in state and federal support for clean energy and climate-related projects.Although the IRA offers a potential bonanza in subsidies for Korean companies making batteries for electric vehicles, there was consternation in Seoul when it emerged that the vehicles themselves would be excluded from generous consumer tax credits if they were assembled in Korea rather than in North America.

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“In Korea, the car industry remains a symbol of the country’s revival from the ashes of the Korean War, when we couldn’t even manufacture a bicycle,” says Yeo.Yeo notes the climate legislation came just after the US Congress passed the Chips and Science Act, which prohibits recipients of US subsidies from expanding or upgrading their advanced chip manufacturing capacity in China for 10 years. A few months later, the US imposed sweeping export controls on critical chip manufacturing tools to China.In 2022, more than half of South Korea’s chip shipments went to China. SK Hynix, which manufactures memory chips in China, could be hurt by US opposition to Dutch equipment maker ASML exporting the extreme ultraviolet lithography machines used in chipmaking to China.“It’s natural for Korean policymakers to be nervous because for decades, South Korea rode on the back of a fast-growing Chinese economy, without which we might have had to endure some painful structural changes,” says Yeo.However, there are many who believe that fears of being shut out of the Chinese market are overblown and that US efforts to reduce China’s presence in critical technology supply chains actually offer a lifeline to Korean companies threatened by Chinese competition. Joe Biden’s Inflation Reduction Act has fed anxieties over US protectionist industrial policy and its impact on key Korean industries like semiconductors and carmaking © Lee Jae-Won/AFLO/ReutersThey argue that Korean companies’ dependence on China was waning long before recent Sino-US tensions over technology. In the late 2000s, rising costs encouraged them to start moving production out of China, while competition from Chinese rivals intensified in sectors ranging from smartphones to shipbuilding. Beijing’s industrial policies were also a factor. A subsidy package for domestic manufacturers introduced in 2016 in effect forced Korean battery makers out of China’s booming EV market.As China’s own technological expertise has grown, so Chinese demand for Korean companies specialising in complex manufacturing has declined dramatically. “Many Chinese businesses are manufacturing intermediate goods, which we mainly export,” Rhee Chang-yong, the governor of the Bank of Korea, told lawmakers in May. “The decade-long support from the Chinese economic boom has disappeared.”Je of Kita notes that the US overtook China as a destination for Korean investment as long ago as 2011. “Washington offering inducements and protection from Chinese [rivals] complements a diversification strategy that Korean companies had already initiated,” she says, citing the example of Samsung’s mobile phone division. It is the world’s largest smartphone manufacturer but its market share in China is a mere 1 per cent. Samsung started moving production from China to Vietnam in 2008 and by 2019 had closed its last Chinese smartphone plant.

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“What Samsung showed is that you don’t need to manufacture in China, and you don’t even need to rely on the Chinese consumer — as long as you’re prepared to diversify,” says Yeo. Similarly, Hyundai Motor’s Chinese revenues dropped by 76 per cent between 2016 and 2022, according to Seoul-based market research firm CEO score. The automaker is selling two of its four remaining plants in China as it moves production to Indonesia and US, where strong demand powered it to a record second-quarter operating profit this year.Excluding the chips and batteries sectors, the revenue generated by Korean companies’ operations in China declined by 37.3 per cent between 2016 and 2022, says CEO score.Kwon Goo-hoon, a senior economist at Goldman Sachs in Hong Kong, notes that the ultimate source of demand for Korean components shipped to China very often lies outside China itself, and that the importance of the Chinese market for Korea “has been overstated”.Bank of Korea data shows that even in the chip sector, China accounts for approximately 22 per cent of the “final demand” for Korean exports — compared with 27 per cent from the US and just over 50 per cent from the rest of the world.Chris Miller, associate professor at Tufts University’s Fletcher School and author of Chip War: The Fight for the World’s Most Critical Technology, says that in areas where China cannot yet match Korean technology, such as in advanced “dynamic random access memory” (Dram) chips, it has no choice but to continue to buy from Korean suppliers.“China needs the chips, and it has repeatedly proven willing to buy foreign-made chips if its domestic firms are meaningfully behind, as they are with Dram today,” says Miller.“Beijing will only retaliate against you in places where it can replace you, and if it is in a position to replace you, it is going to go ahead and do that anyway,” Miller adds. “That’s been the strategy all along — tech war or no tech war.”The Korean semiconductor industry also stands to benefit from rising tensions between China and Taiwan, as foreign customers seek to reduce their dependence on the advanced foundry — or “non-memory” — chips produced by Taiwan’s TSMC, the global market leader.

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In July, the chief executive of US chipmaker AMD said it would “consider other manufacturing capabilities” besides those offered by TSMC, as it pursued greater “flexibility”.“Korea will benefit from companies and investors adopting a ‘China plus one’ strategy,” says Kwon. “But it can benefit from ‘Taiwan plus one’ as well.”America’s helping handKorean companies still depend on Chinese components, manufacturing knowhow and raw materials in several industries identified by the US as crucial to its economic security. But US and Korean officials acknowledge that in implementing its new rules, Washington has so far erred on the side of “flexibility”, allowing Korean companies to continue to work with Chinese partners when there is no realistic alternative to doing so.The US Treasury issued guidelines earlier this year making it easier for Korean companies to produce more battery components domestically and still qualify for US tax credits — even though Chinese companies have invested over $4bn in the Korean battery industry this year alone.Washington has also signalled to South Korea’s leading chip companies that it will extend permission for them to send all but the most sophisticated US chipmaking tools to their plants in China.Samsung’s semiconductor plant in Hwaseong, South Korea. Washington’s concessions have bought Samsung and the country’s other leading chip companies time to consider alternatives to their plants in China © SeongJoon Cho/BloombergThe concession will allow Samsung and SK Hynix to maintain their technological edge over their Chinese competitors while buying them time to identify possible long-term alternatives to their existing Chinese chip plants.“The current situation is forcing South Korea to do two things that it should be doing anyway — to reduce its dependence on China, and to invest more in Korea itself,” says Yeo of the Peterson Institute.Je describes how in recent years, Korean companies in sectors ranging from nuclear power to K-pop have been intensifying their efforts to break into markets in Europe, India, the Middle East, Latin America and south-east Asia.“Korea is a small country stuck between big countries,” she notes. “That feeds a perpetual sense of crisis, this negativity you can observe now. But it’s precisely this sense of crisis that drives the country to succeed.” More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyThe first half of 2023 witnessed striking economic and financial dispersion, both within countries and across them. With some of this dispersion reversed in July, there is a growing tendency to forecast convergence in the period ahead, and the favourable set of outcomes that would come with that, from better growth and inflation results to rewarding investment performance. Yet, doing so now would be premature and unwise.Signs of apparent convergence are multiplying in both economic and financial domains. Consider the following as an illustration:Long a laggard in significantly lowering its inflation rate, the UK favourably surprised with its lower-than-expected data released in July, fuelling hopes that it will now converge relatively quickly to the lower inflation rates prevailing in other G7 economies.With the widely expected policy action later this week, the Bank of England may join the European Central Bank and the Federal Reserve in converging to 25 basis points rate increases after a wide range of outcomes in June. These included a 50bp rise for the BoE, a 25bp increase for the ECB and an unchanged rate for the Fed.After slipping well behind the surging tech-heavy Nasdaq index, the Dow Jones index of more traditional industrial and consumer companies has been closing the gap in recent weeks.Internationally, after significantly underperforming those in advanced and emerging economies, Chinese stocks outperformed both of them in July.Finally, what some viewed as alarming talk of China-US “decoupling” has given way to the seemingly more comforting notion of a “de-risking” that would neither derail growth and trade nor cause much financial instability.This growing talk of less economic and financial dispersion naturally fuels economic and market optimism. Indeed, the longer it persists, the more it may reduce uncertainty and lessen volatility within and across countries. In turn, this would improve the prospects for soft landings at national and global levels, alleviate interest rate and currency pressures, and enable the next leg up in asset prices to be led by securities with less inflated valuations. Also, with the possibility of such a range of positive feedback loops among them, it is tempting to believe that the second half of the year will see a decisive lifting of the clouds of uncertainty that have been hanging menacingly over the global economy and markets.As much as we should hope for all this to materialise, it would be wiser to plan for a bumpy road ahead. Just consider some of the factors that complicate the convergence that appears to be taking place.Absent a greater contribution from supply-enhancing measures, the BoE still has a tough road ahead in its inflation fight. Meanwhile, as the more advanced ECB and Fed embark on the “last mile” of their anti-inflation mission, both will face trade-offs between meeting their common 2 per cent inflation target and maintaining financial and economic stability.The central banking challenges extend beyond this. In coming months, the Bank of Japan faces the delicate task of making more than a tweak to its increasingly distortive YCC (yield curve control) policy regime. Meanwhile, the cumulative impact of rate rises elsewhere is likely to hit harder a large set of maturing leveraged activities and zombie companies whose financial viability requires either financial restructurings or coercive reductions in debt.In a world where manufacturing is under pressure and surplus savings are being depleted, fundamental support for market-wide price gains will lack the energy of the small set of stocks riding a huge secular wave (think artificial intelligence and other structure-changing innovations) or having “all-weather” characteristics (think traditional Big Tech).Given that China’s growth challenges are both cyclical and secular, the government’s traditional strategy of turbocharging markets through fiscal and monetary stimulus will prove less effective and more distortive, frustrating a rapid market convergence.Finally, for the reasons set out in an earlier column, it is very difficult for the US to de-risk from China without a considerable degree of decoupling.We should do our utmost to moderate the pull of the comforting convergence narratives. Failure to do so would not only translate into a premature relaxation of the efforts needed to overcome remaining short-term challenges. It would also leave us in an even worse position to handle the secular and structural problems that face our generation and those of our children and grandchildren. More