Aurelia Butler

TOKYO (Reuters) – Japan’s top financial diplomat on Friday suggested the central bank may tweak its approach to monetary stimulus at its next policy meeting, due to “signs of changes” in corporate behaviour on wage growth and price rises. In rare remarks on monetary policy, Masato Kanda, vice finance minister for international affairs, said he expects the Bank of Japan (BOJ) to make a judgment on policy by analysing the conditions and outlook for prices at every review. The next meeting is on July 27-28.Kanda’s remarks came hours after government data showed core consumer inflation grew 3.3% in June – above the BOJ’s 2% target for the 15th straight month – and as Japanese firms offered the biggest pay hikes in three decades this year.Looking at the underlining trend of prices and wages, there are signs of changes in the corporate wage- and price-setting behaviour that has been in place during the period of deflation, Kanda told Reuters.”Various expectations and speculations are spreading about the possibility of some kind of tweak to monetary policy,” he said.The BOJ, under Governor Kazuo Ueda’s predecessor Haruhiko Kuroda, launched an unprecedented round of monetary stimulus in 2013, pledging to inflate the economy to meet a 2% inflation target in two years. That has been extended ever since with the inflation goal proving a tall order.The BOJ is leaning towards keeping its yield control policy unchanged at next week’s meeting, five sources familiar with its thinking said, as policymakers prefer to scrutinise more data to ensure wages and inflation keep rising.But there is no consensus within the central bank on how soon it should start phasing out its massive stimulus, which could make next week’s decision a close call.Earlier, the Jiji newsagency reported Kanda as saying he was watching the currency market with a sense of urgency after the yen fell versus the dollar, warning that authorities will consider all options to deal with excess volatility in the currency market. The dollar rose 1.3% at a nearly two-week high of 141.91 yen. More

Russia is pushing a plan to supply Africa with grain and cut Ukraine out of global markets after withdrawing from a UN-backed deal this week, according to three people familiar with the matter.President Vladimir Putin has proposed a replacement initiative whereby Qatar would pay Moscow to ship its grain to Turkey, which would distribute the crop to “countries in need”, the people said. Neither Qatar nor Turkey have agreed to the idea, which Moscow had not raised to formal levels, they added. Kyiv and its western backers are likely to be deeply suspicious of Russia’s offer, which would effectively secure Moscow’s naval blockade of Ukraine’s Black Sea ports that are a vital economic lifeline for the country.Russia first floated the idea of supplying its grain to Africa last year, the people familiar with the matter said, after it briefly pulled out of the Black Sea accord brokered by the UN and Turkey that has allowed 33mn tonnes of Ukrainian grain to be exported. Moscow rejoined the deal a few days later.Under that offer, according to a draft memorandum seen by the Financial Times, Russia was to send up to 1mn tonnes of grain to Turkey “on a preferential basis”. Qatar would foot the bill entirely and the grain would be supplied to Turkey to be shipped onwards to Africa. After Putin pulled out of the grain deal again this week, people involved in those talks said they expected Russia to push its own proposal at the summit with African leaders in St Petersburg next week and when he visits Turkey in August.“It’s quite a stunt,” a person involved in the grain talks said. “It’s macho, just to show they can.” A person familiar with the matter said Moscow had not formally approached Doha about the initiative, but added that Qatar would be unlikely to agree if it did. Dmitry Peskov, Putin’s spokesman, declined to comment. Turkey, Ukraine and Qatar did not immediately respond to requests for comment.Putin said Russia withdrew from the grain deal over the EU’s reluctance to roll back sanctions on payments, shipping and insurance for Moscow’s own agricultural exports. He claimed he would be prepared to rejoin as soon as those conditions were met.Turkey’s president Recep Tayyip Erdoğan said this week that Russia was still “in favour” of the Black Sea deal, and called on the west to offer concessions to Putin over the issue.Ukraine’s backers, however, believe the Russian proposal is in effect a way of putting additional pressure on Kyiv while exporting grain from parts of the country currently occupied by its army, two western diplomats said.“Last time they were mooting this [idea] we had very strong suspicions that the grain would effectively be grain stolen from Ukraine,” a senior EU official said.Moscow has publicly framed the idea as an offer of free grain for the poorest countries ahead of the Russia-Africa summit. It has used the grain issue as a wedge to rally sympathy for its position on Ukraine in the global south and create a groundswell of sentiment against western sanctions. Putin complained this week that western countries were blocking Moscow’s attempts to send free fertiliser to Africa. On grain, he said: “Our country is capable of replacing Ukrainian grain on a commercial and a gratuitous basis,” adding that “continuing the grain deal in its current form had lost all sense”.However, the exit from the Black Sea agreement has angered some governments in Africa, especially those facing pressure at home stemming from rising food prices since Russia’s full-scale invasion of Ukraine last year.Kenya, which is a consumer of Russian grain and fertiliser, said this week that the Russian move was a “stab on the back” that “disproportionately impacts countries” in its region. Other African leaders are coming under US pressure to condemn Russia on the grain issue and not to travel to St Petersburg, according to African officials. This creates a bind for some as they often need Russian and US assistance on economic and security issues.Additional reporting by Adam Samson in Istanbul More

SANTIAGO (Reuters) – Chilean President Gabriel Boric is struggling to replicate the success of other Latin American leftist leaders in reforming tax codes after vowing as a candidate in 2021 to undertake a restructuring of his country’s free-market system.Propelled into office by a popular revolt over the shortcomings of Chile’s longtime orthodox economic consensus, Boric was part of a pink tide of South American leaders elected on platforms that promised higher social spending and other policies to reduce inequality. Colombian President Gustavo Petro was able to pass a tax reform in the first few months of his administration and Brazilian President Luiz Inacio Lula da Silva has seen early success in doing the same.Boric, however, has faced a tougher climb passing a tax bill that he sees as key to funding investments in healthcare, education, public transportation and other elements of his government’s ambitious economic and social agenda.An initial legislative proposal, which included hikes on high earners and would have generated revenue equivalent to 2.7% of the country’s GDP, was rejected by lawmakers in March.Finance Minister Mario Marcel, who helped pass a mining royalty bill despite early opposition from industry and investors, has been meeting with political leaders, business groups and others to build support for a revised tax bill.That version, which is expected to be scaled down and includes measures to reduce tax evasion and the use of informal labor as well as boost investment incentives, faces an uncertain future.Unlike the mining royalty bill, the proposed tax reform will require a two-thirds majority in the opposition-controlled Senate before it can be sent to the lower house of Congress. Boric wants the Senate to take up the bill by the end of this month.”Today, those votes aren’t there,” said Jose Garcia Ruminot, a conservative senator, who added that Boric’s government would have to wait until next year to try to get a tax bill passed.That task may prove Herculean in light of an economic slowdown and political setbacks that have led to a sharp drop in public support for the government. A rebound in the fortunes of the political right and a recent scandal that led prosecutors to investigate high-ranking officials in Boric’s administration for possible embezzlement of funds or tax fraud have further clouded the tax reform agenda.Boric’s government now faces the tall order of convincing the country it won’t misuse public funds on top of getting the opposition on board with tax hikes during an economic downturn, said Nicholas Watson, a managing director at Teneo Consultancy in London.SLIPPERY PATHBoric is not the first leftist leader to find the path to tax reform slippery in Chile, a country that has largely attributed its economic success to free-market policies.Former President Michelle Bachelet faced opposition in her quest to pass a bill through a divided congress in 2014, prompting her government to pull back on many proposed tax hikes and other measures to secure its passage. Boric’s effort in that regard was dealt a blow last September when voters widely rejected a progressive new constitution that he had backed and which had dominated the early days of his administration.”Chile’s government was counting on the new constitution being approved,” said Andres Pardo, chief Latin America analyst for XP (NASDAQ:XP) Investments in Bogota. “And if that had happened, the political environment would be different now.” Senator Ricardo Lagos Weber, a pro-government center-left lawmaker who chairs the Senate Finance Committee, said that while the current situation is difficult, “the government cannot be paralyzed and must go ahead with the votes.”Many investors and Chilean business leaders opposed to the tax reform warn that passage of even a watered-down bill could dent the economy and point another dagger at its key mining sector. Analysts say there’s been a drop in mining investment and extraction in Colombia since its tax reform was passed.Opposition to the Lula government’s spending plans also has forced his government to tailor its proposed reform to focus on simplifying the current tax code and merging multiple taxes into a single value-added tax.”It will be difficult for the (Chilean) government to counter this reasoning given that public opinion has turned against Boric and (his coalition),” Teneo Consultancy’s Watson said. More

ANKARA (Reuters) – Turkey’s latest monetary and fiscal moves are steps in the right direction, though regaining credibility in economic policy remains a challenge, a European Bank for Reconstruction and Development (EBRD) executive said on Friday.Turkey’s central bank on Thursday hiked its benchmark interest rate by 250 basis points to 17.5% and promised more tightening. The country is beset by high inflation and a weak lira currency. It also introduced tax hikes this month in an effort to keep a growing budget deficit in check. EBRD vice president for policy and partnerships Mark Bowman said during a visit that the bank had been “impressed by the strength and resilience of private sector companies.”The policy steps of the last few weeks were “movements in the right direction”, though concerns remained about the macroeconomic backdrop.”Macroeconomic stability and regaining credibility in macro policy is an ongoing challenge and there is obviously more work that still needs to be to be done,” he told Reuters. After holding talks with Turkish officials, he said the EBRD had monitored the macroeconomic situation very closely, and all ministers were committed to the policy agendas that the bank discussed with them.The EBRD is the leading institutional investor in Turkey, having invested more than 18 billion euros in the country since 2009, mostly in the private sector.Bowman said the bank would support Turkey’s green transition and had provided 400 million euros ($445 million) in recovery funds for the region hit by devastating earthquakes in February, a sum it aimed to increase as quickly as possible.Damage caused by the earthquakes, which killed more than 50,000 people, is estimated at more than $100 billion.($1 = 0.8989 euros) More

It was the first time the bank had raised rates in more than a year, having gradually reversed an emergency hike to 20% made in February last year after Russia sent its armed forces into Ukraine, which prompted the West to impose sanctions on Moscow. Its last cut, to 7.5%, was in September.”Pro-inflationary risks have increased significantly over the medium-term horizon,” the bank said in a statement. “The increase in domestic demand surpasses the capacity to expand production, including due to the limited availability of labour resources.” This was reinforcing persistent inflationary pressure, it said, while the rouble’s depreciation this year was “significantly amplifying pro-inflationary risks”. The central bank raised its year-end forecast for inflation – now just below 4% – to 5.0-6.5% from 4.5-6.5%, and said it was holding open the possibility of further hikes at future meetings. SURPRISE DECISIONThe decision surprised analysts polled by Reuters, who had forecast a 50-basis-point hike.However, some analysts had revised their forecasts in recent days to anticipate an even larger rise as inflation data this week showed a jump in households’ inflationary expectations for July and an acceleration in Russia’s weekly consumer prices.”The much larger-than-expected 100bp interest rate hike … underscores policymakers’ concerns about inflation risks,” said William Jackson, Chief Emerging Markets Economist at Capital Economics. “And while we don’t think monetary tightening will continue quite as aggressively at subsequent meetings, we now expect at least another 100bp of hikes before the end of the year.”Annual inflation had fallen below the bank’s 4% target in recent months, due to the high base effect from last year when inflation spiked to its highest level for over 20 years.It is now running at 3.86%, the economy ministry said this week, and rising once more.Alfa Bank Chief Economist Natalia Orlova said the rate hike looked like a reaction to the situation on the currency market, given that the other inflation pressures mentioned had been evident at the previous central bank meeting on June 9.Pressure on the rouble has increased since an abortive armed mutiny by the Wagner mercenary group in late June. Attacks on Russian infrastructure, which Moscow has blamed on Ukraine, have also dampened risk appetite. Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.    The next rate-setting meeting is scheduled for Sept. 15. More