Aurelia Butler

TOKYO (Reuters) -Japanese authorities are facing renewed pressure to combat the yen’s fresh declines driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.Here are possible steps the government and the central bank could take to tackle further yen weakness, which gives exports a boost but hurts households and retailers by inflating already rising import costs for fuel and food.ESCALATE VERBAL INTERVENTION – HIGHLY LIKELYJapanese authorities began jawboning markets this week, describing recent yen falls as “sharp and one-sided”. Top currency diplomat Masato Kanda also said he would not rule out any options, when asked if intervention could become a possibility.If the pace of yen declines accelerates, authorities may escalate their warnings to promise “decisive action” against speculative moves.Such remarks, aired prior to Japan’s previous yen-buying intervention last year, would signal that Tokyo was edging closer to directly intervening in the currency market.CONDUCT YEN-BUYING INTERVENTION – LESS LIKELYTokyo made rare forays into the currency market to prop up the yen in September and October last year to stem a plunge in the currency that eventually hit a 32-year low of 151.94 to the dollar.While the yen is still well off that low, many market players see 145 as Tokyo’s line-in-the-sand and then 150 which, if breached, could trigger another round of intervention. The dollar stood around 144.63 yen in Asia on July 4.Authorities have said the speed of yen moves, rather than levels, were key to deciding whether to step into the market. This means the chance of intervention will rise if the yen’s declines are rapid and viewed as driven mostly by speculative trading.But yen-buying intervention would be costly as authorities must tap Japan’s foreign reserves for dollars to sell.Tokyo would also need consent from other major economies, particularly the United States, to ensure the scale of intervention is sufficient to turn the tide.BOJ RAISES INTEREST RATES – HIGHLY UNLIKELYThe Bank of Japan (BOJ) has vowed to keep interest rates ultra-low to support the economy, even as inflation exceeded its 2% target for more than a year.The dovish stance is partly driving the yen’s fall, as markets focus on the divergence between Japan and U.S. and European central banks, which have hiked rates aggressively.Some market players speculate the BOJ may allow interest rates to rise, such as by raising an implicit 0.5% cap on its 10-year bond yield target, as early as July.But BOJ policymakers are cautious of taking such steps too soon, given uncertainty on whether wages will keep rising, and the risk of a deeper global economic slump hitting Japan’s fragile, export-reliant recovery.The BOJ also has no intention of using monetary policy tools to directly curb yen declines – a move that could be interpreted as currency manipulation and would go beyond its remit.That means the BOJ will consider tweaking its yield control policy only if inflation rises for longer than expected, and prods firms to raise wages and prices on a sustained basis. More

TOKYO (Reuters) -Japanese authorities are facing renewed pressure to combat a continued yen fall driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.Aside from verbal intervention, Japan’s government has several options to stem what it considers excessive yen falls. Among them is to intervene directly in the currency market, buying large amounts of yen, usually selling dollars for the Japanese currency.Below are details on how yen-buying intervention could work, the likelihood of this happening and challenges of such a move:LAST YEN-BUYING INTERVENTION?Japan bought yen in September, its first foray in the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain ultra-loose policy drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.WHY STEP IN?Yen-buying intervention is rare. Far more often the Ministry of Finance has sold yen to prevent its rise from hurting the export-reliant economy by making Japanese goods less competitive overseas.But yen weakness is now seen as problematic, with Japanese firms having shifted production overseas and the economy heavily reliant on imports for goods ranging from fuel and raw materials to machinery parts.WHAT HAPPENS FIRST?When Japanese authorities escalate their verbal warnings to say they “stand ready to act decisively” against speculative moves, that is a sign intervention may be imminent.A rate check by the BOJ, a practice in which central bank officials call dealers and ask for the price of buying or selling yen, is seen by traders as a possible precursor to intervention.LINE IN THE SAND?Authorities say they look at the speed of yen falls, rather than levels, and whether the moves are driven by speculators, in deciding whether to step in.Market players, however, see the first threshold at 145 yen to the dollar, where Japan last intervened. If the dollar breaks above that, 150 yen could be the next line in the sand, analysts say.WHAT TRIGGER?The decision is highly political. When public anger over the weak yen and a subsequent rise in the cost of living is high, that puts pressure on the administration to respond. This was the case when Tokyo intervened last year.But while inflation remains above the BOJ’s 2% target, public pressure has declined as fuel and global commodity prices have fallen from last year’s peaks.If the pace of yen declines accelerates and draws the ire of media and public, the chance of intervention would rise again.The decision would not be easy. Intervention is costly and could easily fail, given that even a large burst of yen buying would pale next to the $7.5 trillion that change hands daily in the foreign exchange market.HOW WOULD IT WORK?When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills, raising yen it then sells to weaken the Japanese currency.To support the yen, however, the authorities must tap Japan’s foreign reserves for dollars to sell for yen.In either case, the finance minister issues the order to intervene, and the BOJ executes the order as the ministry’s agent.CHALLENGES?Yen-buying intervention is more difficult than yen-selling.While Japan holds nearly $1.3 trillion in foreign reserves, they could be substantially eroded if Tokyo repeatedly spent huge for yen.That means there are limits to how long Japan could keep defending the yen, unlike for yen-selling intervention – where Japan can essentially print yen by issuing bills.Japanese authorities also consider it important to seek the support of Group of Seven partners, notably the United States if the intervention involves the dollar.Washington gave tacit approval when Japan intervened last year, reflecting recent close bilateral relations.But stepping in repeatedly would be difficult, as Washington traditionally opposes intervention except in cases of extreme market volatility. More

The consumer price index rose 2.7% in June from a year earlier, compared with an increase of 3.3% in May and a median forecast of 2.85% in a Reuters survey of economists.It softened for a fifth consecutive month and marked the weakest annual increase since September 2021, according to Statistics Korea.Core inflation, which excludes volatile food and energy prices, slowed to 3.5% from 3.9% a month before, marking the slowest annual rise since May, 2022.The headline index was flat on a monthly basis, compared with a 0.3% rise in the previous month and a 0.2% increase expected by economists.Prices of petroleum products dropped 4.0% over a month and agricultural products fell 0.9%, but public utility prices rose 2.2%.Services prices rose 3.3% from a year earlier, weaker than 3.7% in May and the slowest in 14 months.South Korea’s central bank has kept monetary policy unchanged since its last interest rate hike in January and its tightening campaign is widely expected to be over. The bank next meets on July 13. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.The Reserve Bank of Australia takes center stage on Tuesday, with the consensus view of economist marginally tipping toward expecting a 25 basis point increase in the benchmark cash to a 12-year high of 4.35%. South Korean consumer price inflation for June will be the other main regional focal point for Asian markets, where trading activity will be much lighter than usual due to the July 4 holiday in the U.S.Investors look to have started the new trading quarter with a pretty aggressive appetite for risk. World stocks on Monday rose for a fifth day, pan-Asian stocks excluding Japan jumped 1.5% for their best day in a month, and a near-7% rally in Tesla (NASDAQ:TSLA) shares helped propel Wall Street higher.High-yield bond indexes are hovering around their highest levels in months – U.S. junk bond prices, in particular – suggesting investors see no imminent threat to markets or the economy from higher rates, bond yields and borrowing costs.They are also ignoring the red flags being waved by the U.S. yield curve as the spread between two- and 10-year yields rose to 110 basis points on Monday, the deepest inversion since 1981. An inverted curve usually signals an incoming recession.But that is for another day, it seems.Traders in Asia on Tuesday will turn their focus to Australia and the RBA. The decision is finely balanced, according to a Reuters poll – 16 of 31 economists surveyed expect the central bank to hike its official cash rate to 4.35%, and the remaining 15 predicted a pause.Another hike would be the 13th of the RBA’s tightening cycle. Unlucky for some? Interest rate swaps markets are only attaching a one-in-three probability of a hike, and around a two-in-three likelihood of no move.Inflation slowed to 5.6% in May from 6.8% in April, but that is still well above the RBA’s 2-3% target range, suggesting more tightening may be required. However, it was the biggest fall in two years and the RBA has surprised markets already by pausing in April.In another Reuters poll, economists said they expect annual consumer price inflation in South Korea to have slowed in June to 2.85% from 3.30%. That would be the lowest since September 2021. Figures on Monday showed that factory activity in South Korea shrank for a record 12th consecutive month in June. Here are key developments that could provide more direction to markets on Tuesday:- Australia interest rate decision- South Korea inflation (June)- Germany trade balance (May) (By Jamie McGeever; Editing by Marguerita Choy) More

Britain’s energy regulator has warned suppliers not to pay dividends unless they are financially stable, as it seeks to avoid a repeat of last year’s energy crisis.Jonathan Brearley, the chief executive of Ofgem, has written to company bosses warning them to “behave responsibly” as the price pressures ease in the wholesale energy markets.The intervention came after Jeremy Hunt, the chancellor, urged regulators last week to make sure businesses were passing cost cuts on to consumers, in an effort to address the mounting cost of living crisis.In an open letter to energy supplier bosses on Tuesday, Brearley told them that they should “reciprocate” the support given to the sector by taxpayers over the past year.The government stepped in last October to subsidise rising energy bills after wholesale prices surged in the months before and after Russia’s invasion of Ukraine in February, costing an estimated £27bn. The energy crisis led to the collapse of 30 suppliers, with households having to pick up the cost of transferring affected customers to other companies, which added a further £94 to domestic energy bills last year. As suppliers failed Ofgem was widely criticised for failing to monitor the sector effectively, having allowed dozens of poorly capitalised suppliers to enter the market to boost competition.It has since taken a tougher approach to financial resilience, including new capital requirements, though critics believe it should go further.The regulator’s warning came as energy prices are falling. From the start of July, the energy price cap, which normally governs the amount paid for gas and electricity bills for typical usage, fell to £2,074 per year, its lowest level since April 2022.However, the lower level still remains well above the pre-crisis average of almost £1,150 meaning many families will still struggle to pay their bills. The latest price cap level includes allowances for a slightly higher profit margin for retailers, from 1.9 per cent to 2.4 per cent. The increase, which Ofgem argued was needed to boost financial resilience, is expected to add about £10 to average annual bills from October.In the letter, Brearley acknowledged it was important to have an “energy sector where companies can make a reasonable profit” to ensure a sustainable, competitive market.

But he warned that “a return to the practices we saw before the energy crisis isn’t on the table — suppliers must reciprocate the support the sector was given by consumers and taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return”, adding: “I expect no return to paying out dividends before a supplier has met those essential capital requirements.”The letter did not mention individual suppliers by name. Following last year’s market rout, the market is concentrated in the hands of large suppliers, such as British Gas, owned by Centrica, as well as EDF, Octopus Energy and Ovo.The letter echoed a similar one from Ofgem in May that warned suppliers that any dividend payments had to be “within an appropriately responsible framework”.Energy UK, the industry trade group, said: “It’s right that the regulator ensures the financial resilience of companies operating in the retail market. It should be noted that in withstanding the energy crisis and an extended period of unprecedented volatility, those suppliers still operating have already demonstrated resilience and financial responsibility. “The energy industry will continue to work closely with Ofgem and the government to ensure a sustainable retail sector over the long term.” More