Aurelia Butler

TOKYO (Reuters) – The Bank of Japan is considering a projection for consumer prices for the 2025 fiscal year to rise 1.6-1.9%, the Jiji news agency reported on Monday, in a move seen to keep market players from betting on the central bank to head to exit from stimulus.Market players are closely watching fresh projection for the fiscal year that ends March 2026 to determine how BOJ board members are gauging inflation, which will be published in its quarterly report of forecasts for growth and prices.That will be the first policy-setting meeting under new BOJ Governor Kazuo Ueda, 71, who took over Haruhiko Kuroda on April 9.It was not immediately clear whether Jiji was referring to core consumer prices or narrower gauge of inflation.BOJ officials could not be reached outside the office hours. “If the BOJ board members’ median estimate reaches 2% in fiscal 2025, that would prompt market players to factor in the end of easing let alone negative interest rate policy,” said Izuru Kato, chief economist at Totan Research.”Governor Ueda doesn’t want it to happen at his debut policy setting meeting on April 27-28,” Kato said.With the new forecast, chances of the BOJ tweaking its yield curve control policy would probably be diminished for April or even July, he added.The BOJ relies on YCC policy to guide the 10-year government bond yield around 0% as part of efforts to sustainably and stably achieve its 2% inflation target.Speculation has been rife in markets that the BOJ may soon phase out yield curve control (YCC), a prolonged policy that caps the 10-year bond yield around zero, which has fuelled worries about side-effects and market distortions.Although inflation has nearly doubled the BOJ’s 2% target, the central bank has repeatedly said it was not the kind of desirable inflation driven by private demand and wage growth.Ueda has predicted the CPI growth will slow below 2% around the middle of this fiscal year as base effects fade away. More

Eswar Prasad has been thinking about China’s economy longer than most. The Cornell professor’s new paper — which examines whether the Chinese economy has gone from “miracle to malady” — makes for timely reading amid fears the Asian superpower has fallen into a classic middle-income trap that could morph into something more dangerous.Prasad’s basic argument is that Beijing has actually managed an “inefficient and risky growth model” surprisingly well, and while “unbalanced reforms, a schizophrenic approach to the role of the market versus the state, and strains in financial and property markets could result in significant volatility… a financial or economic collapse is not in the cards”. Here’s his conclusion:China has found a way to get results — generating sustained growth over a long period, improving the living standards of its people, avoiding a financial crisis, and pulling its economy through a number of perilous periods for the world economy. It has done all of this without a well-functioning financial system, a strong institutional framework, a market-oriented economy, or a democratic and open system of government. There is certainly cause for humility for anyone attempting to explain the China phenomenon based on the historical record and experiences of other countries. China’s growth model and approach to reforms have not hewed to conventional norms and arguably tensions are building up in the system, with a possibly explosive meltdown at some point. But so far the government has proved adept at navigating around such perils. There have undoubtedly been mishaps, often with significant consequences, but the government has left itself room for maneuver. And there have been many resources wasted over time, with a big bill left to pay at some point in the future. If the government’s goal is to sustain growth, it needs to find ways to improve the allocation of resources within the economy and enhance productivity growth. This will require a better financial system. Indeed, while there are legitimate concerns about China’s high rates of investment in physical capital, the capital-labor ratio is much lower than in advanced economies such as the United States and China still has vast needs for infrastructure in its interior provinces. The challenge is the efficient intermediation of domestic savings into domestic investment, so capital is allocated to its most productive uses. China would benefit from a financial system that does a better job of allocating resources to more productive uses and to dynamic parts of the economy, especially the services sector and small and medium enterprises. This requires fixing the banking system, improving depth and liquidity in bond markets, and tightening regulation to mitigate institution-specific and system-wide risks. Such reforms, in tandem with institutional and supply-side reforms, will help reduce unproductive investment, improve employment and household income growth, and promote more regionally balanced development. The underpinnings of China’s growth seem fragile from historical and analytical perspectives. Things that must end do often end suddenly and in unpredictable ways. Yet, if the government plays its cards right, one could equally well envision a more benign future for the Chinese economy — with growth that is more moderate by its own standards, but that is more sustainable from economic, social, and environmental perspectives. The problem is that China’s worsening demographics (coupled with the past decade’s debt binge and a rickety domestic financial system) mean growth is going to be harder to eke out in the coming decades — even if it avoids the kind of financial collapses that have often ended similar growth miracles. In response to these challenges, as Alphaville noted in February, the IMF recently took a chainsaw to its longer-term Chinese growth forecasts. On the other hand, Prasad notes, even though “speculating about China’s medium- and long-term growth prospects has been a growth industry in itself”, it has consistently done better than feared (with all the usual caveats around the accuracy of Chinese data).Maybe this current bout of concerns will also prove overdone? More

It was the most notable recommendation in a report commissioned by the ECB to evaluate its work on the key task as the euro zone’s top financial supervisor, namely to decide how much capital banks must have to absorb losses.The review was launched in September, well before problems at Silicon Valley Bank in the United States and Switzerland’s Credit Suisse raised questions about banking watchdogs. But its findings chime with recent calls for tougher checks.The ECB has been blending its analysis with the banks’ own to come up with capital requirements.But the five experts – all former bank supervisors from Japan, the United States, Ireland, Spain and Canada, respectively – said this approach was “conceptually weak” and banks’ own Internal Capital Adequacy Assessment Process (ICAAP) was often biased, so it shouldn’t be relied upon.”Banks’ self-evaluations are often subject to biases that may become even more significant when ICAAPs play a prominent role in the determination of P2R (Pillar 2 requirements),” the experts said in the report, referring to the second of three tiers of bank capital requirements set under global rules.”ICAAPs should be used as ancillary information, rather than the basis for the analysis.”They told the ECB to change the way it sets capital demands and focus “on specific risks requiring additional capital coverage, while significantly limiting the use of ICAAPs”.The ECB’s top supervisor Andrea Enria said the recommendations strengthened his “conviction that supervision needs to become more adaptable, intrusive and risk-focused”.Fellow ECB supervisor Elizabeth McCaul welcomed a recommendation to use more “qualitative measures” with banks, which she said could include “limitations on business activity, demanding changes in the board and management, and monetary sanctions”.Euro zone banks have come out unscathed from the recent turmoil in the banking sector, with Enria recently saying they were solid, also thanks to stricter rules in the European Union than in the United States.Still, in a podcast published on Monday, Germany’s central banker Joachim Nagel said recent events should spur supervisors to address the “black spots” in their vision. More

NEW DELHI (Reuters) -India and Russia are discussing a free trade agreement (FTA), the Russian trade minister said on Monday, an announcement that could deepen bilateral commercial ties that have flourished since war broke out in Ukraine.The FTA talks mark a step-up in economic relations between the two countries despite calls from Western countries for India to gradually distance itself from its dominant weapons supplier, Russia, over its February 2022 invasion of Ukraine. India’s imports from Russia more than quadrupled to $46.33 billion over the last fiscal year, mainly through oil.”We pay special attention to the issues of mutual access of production to the markets of our countries,” Russian Deputy Prime Minister Denis Manturov, who is also the trade minister, told an event in New Delhi.”Together with the Eurasian Economic Commission, we are looking forward to intensifying negotiations on a free trade agreement with India.”Indian Foreign Minister S. Jaishankar said the COVID pandemic had disrupted discussions on an FTA between India and the Russian-led Eurasian Economic Union, and that he hoped “our colleagues will pick up on this … because we do believe it will make a real difference to our trade relationship”.Manturov said road construction material and equipment and chemicals and pharmaceutical products were in demand in Russia and “I am sure that this will create opportunities for Indian companies to increase their supplies to Russia”.The announcement came at a time when New Delhi is also engaged in FTA discussions with Britain, the European Union and the Gulf Cooperation Council.Reuters reported in November that Russia was potentially seeking to import more than 500 products from India for key sectors including cars, aircraft and trains, given that Western sanctions imposed over Russia’s military action in Ukraine have undermined its ability to keep core industries operating.Manturov also said Russia would consider widening the use of “national currencies and currencies of friendly countries”. India has been keen on increasing the use of its rupee currency for trade with Russia.Russia describes its campaign in Ukraine as a “special military operation” against security threats, while pro-Western Ukraine calls it an unprovoked war of conquest.New Delhi has not explicitly criticised the Russian invasion and has called for a peaceful resolution of the conflict through dialogue. Russian-Indian bilateral trade has jumped as the war has progressed.Russia, traditionally India’s top source of military hardware, displaced Iraq last month to become India’s top supplier of crude oil. Before the war that began in February last year, India bought very little oil from Russia.Russia’s efforts to improve trade with India form part of its strategy to help evade the impact of Western sanctions by boosting commerce with Asian giants including China.Moscow is also trying to increase or maintain cooperation with other South Asian countries, most recently agreeing to settle payments in yuan for building a nuclear power plant in Bangladesh and discussing discounted oil exports to Pakistan.Jaishankar said Indian business could benefit from Russian technology and that New Delhi was working to iron out payments, certification and logistics issues. More

By Rozanna Latiff and Yantoultra NguiKUALA LUMPUR/SINGAPORE (Reuters) – Malaysia plans to introduce a second 5G network from next year, four sources told Reuters, in the latest policy shake-up aimed at dismantling monopolies and promoting competition by Prime Minister Anwar Ibrahim’s six-month-old administration. Malaysia’s 5G roll-out by state agency Digital Nasional Berhad (DNB) has seen repeated setbacks because of industry concerns over pricing and transparency, as well as worries that a single government-run network would result in a nationalised monopoly. Since taking office in November last year, Anwar has ordered reviews of billions of dollars in government projects as he looks to strengthen governance and minimise wasteful spending. He has also vowed to boost competition to ensure better services for the public. Anwar’s government is now planning to introduce a second 5G network from January 2024 to challenge DNB’s lock on the market, four sources familiar with discussions told Reuters, declining to be identified due to the sensitivity of the matter. The communications and digital ministry told Reuters no decision has yet been made on 5G. “The matter is still under review,” Ahmad Firdaus Mohd, press secretary to the communications minister, said in a text message, without elaborating. A recommendation by major carriers for a second 5G provider was rejected by the previous government in March last year. DNB deployed its network in late 2021 with the participation of two telecommunications firms on a trial basis. After months of protracted talks, all but one of the country’s five mobile operators agreed in October to use DNB’s network, opening 5G services to more customers. The roll-out came under scrutiny again, however, after Anwar took office in November and announced a review of the 5G plan, saying it had not been formulated transparently by the previous administration. DNB denied that claim. The plan for a second network will be contingent on DNB and mobile operators ensuring that 5G network coverage reaches the government’s target of 80% of the country’s populated areas by the end of this year, the sources said. A proposal on the plan is expected to be submitted to the cabinet on Wednesday, two of the sources said. Four Malaysian telco firms – Maxis Bhd, U Mobile, Telekom Malaysia and YTL Communications – did not immediately respond to requests for comment. DNB and a fifth firm, CelcomDigi, declined to comment. CelcomDigi directed further queries to the government. Communications Minister Fahmi Fadzil said on Friday he hoped to raise 5G matters in cabinet this week, media reported. Fahmi also said last week 5G network coverage had reached 55% in populated areas. DNB has said a single network would reduce costs, improve efficiency and accelerate the building of infrastructure.It was not clear how the proposal for a second 5G network would affect DNB’s existing agreements with its development partner Swedish telecoms giant Ericsson (BS:ERICAs), and other mobile operators. Three carriers – CelcomDigi, Telekom and YTL – agreed last year to take up a collective 65% stake in the agency, with the government holding the remaining 35%. Two major mobile operators – Maxis and U Mobile – declined to take up equity in DNB, Reuters reported. U Mobile later joined other telco firms in signing up to access DNB’s 5G network. Maxis has said it will wait until the government review of DNB is completed. More

WASHINGTON (Reuters) – Demand for sending satellites into space remains strong, but U.S. rocket startups are taking drastic measures to survive a tight funding environment where fears have been exacerbated by the bankruptcy of Virgin Orbit.The industry faces an interesting dichotomy. Demand has surged from launching a few satellites on small rockets to launching swarms of satellites at once using bigger rockets, even as investors shy away from the sector in search of safer bets.Venture investment in space startups has dropped 50% year-over-year in 2022 to $21.9 billion, according to VC firm Space Capital. As the cost of capital rises with the Federal Reserve’s interest rate hikes, investors are less incentivized to fund capital intensive projects that do not have a clear revenue stream or path to profitability, leaving many space startups scrambling for funds.”I’ve never raised capital in a harder market than the one we’re in right now,” Firefly Aerospace CEO Bill Weber said. “The I word and the R word – recession and inflation – make the investment market conservative and a little more cautious.” The failure of billionaire Richard Branson’s Virgin Orbit, which filed for bankruptcy this month, has only ratcheted up pressure on rivals trying to keep up with Elon Musk’s SpaceX, Rocket Lab and the Boeing-Lockheed Martin joint venture, United Launch Alliance. Texas-based Firefly is trying to mass-produce its medium-sized rocket, while developing a larger launcher under a new partnership with Northrop Grumman (NYSE:NOC). Fresh off celebrating its Alpha rocket’s orbital debut last October, Firefly tried to raise $300 million by year-end to become cash-flow positive. By mid-February, it had only raised $30 million according to regulatory filings, although Weber said since then the company had reached about 75% of target.Firefly expects to hold another funding round in mid-2024, Weber said.Relativity Space said last week it was ditching its centerpiece small rocket, Terran 1, for a larger planned rocket, Terran R, a decision roughly a year in the making as demand for small rockets faded, CEO Tim Ellis said in an interview. The Long beach, California company to date has raised $1.3 billion, compared to Firefly’s total $390 million which includes some funds from the ongoing fund-raising effort.”It was a lot better to just put those resources into Terran R because that’s going to be a way-more-profitable way to allocate the team that we have,” Ellis said.The bigger rocket’s planned debut in 2026 will leave the company without any missions for roughly three years, but Ellis said he is not worried about future funding and declined to say when the company would do another funding round.Astra Space, which ditched its small Rocket 3.3 for a planned, larger Rocket 4 in the next few years, has struggled to bring its stock price above $1, facing delisting threats from Nasdaq. Astra declined to comment on its financial struggles.Firefly and Astra have added other business lines to make up for lost revenue, while Relativity has said its 3D printers used in rocket construction will be eventually employed for other products.Firefly, which was forced by U.S. officials in 2021 to sever its Ukrainian ties through Noosphere Ventures over national security concerns, counts a lunar lander named Blue Ghost as a “very profitable” line of revenue, Weber said.”I know Firefly’s management is very proud and vocal about Blue Ghost, but let’s hope they can walk the walk without the Ukrainians,” Noosphere founder Max Polyakov told Reuters.Despite the startups’ struggles, launch demand has soared after sanctions following Russia’s invasion of Ukraine cut off access to Russian rockets. Recent failures with Europe’s Arianespace’s Vega-C rocket have added to demand in the U.S., outstripping the number of available rockets.Shared missions to space on SpaceX’s Falcon 9 rockets, a cheaper, so-called rideshare option for satellite companies that helped kill the business case for small rockets, have taken some of that demand, but much of it remains.Private plans to deploy mega-constellations, vast swarms of satellites in low-Earth orbit, have also given launch startups hope for future demand.”The industry is now behaving as a more rational, capitalistic industry,” Erich Fischer, a senior partner at Bain and Co who advises space companies, said. “It’s never behaved that way before, ever.” More

WASHINGTON (Reuters) – Just a month after the biggest banking crisis in more than a decade, the world’s top economic and financial policymakers gathered in Washington and said surprisingly little about financial system stability – at least publicly.With financial markets calmed by strong policy actions to stem the outflow of bank deposits, the International Monetary Fund and World Bank spring meetings were instead dominated by calls to keep up the fight against inflation, accelerate debt restructuring for poor countries and avoid geopolitical fragmentation of the global economy.Some officials conveyed a sense that banking system safety was further down the priority list of global economic problems.”One has managed to contain this crisis from spreading, so indeed there was not really so much focus during the IMF-World Bank meetings on this particular issue,” said European Commission Executive Vice President Valdis Dombrovskis.”But it’s still something where we need to stay vigilant and address potential risks which may emerge in our financial system,” Dombrovskis told reporters. He added that the European Union’s banking system was stable, well capitalized with ample liquidity.World Bank President David Malpass and the IMF’s Middle East director Jihad Azour both suggested their concerns about banking system strains were mostly in the context of potentially reducing the availability of credit for emerging markets at a time when rising interest rates already were causing capital outflows.”As banking systems come under strain … there needs to be redoubled efforts to have capital flow to working capital,” Malpass told reporters on Thursday.But other meeting participants said that behind closed doors there were more pointed questions about the potential for similar shocks like the failure of Silicon Valley Bank and the forced sale of global lender Credit Suisse.INFLATION PRIORITY The IMF opened the week by warning that a major new flare-up of banking system turmoil could slam global growth back to 1% this year, but urged priority for taming persistent inflation that has helped build interest rate stress on banks, including failed U.S. lenders Silicon Valley Bank and Signature Bank (OTC:SBNY).IMF Managing Director Kristalina Georgieva emphasized the need to overcome sticky inflation and low growth that threatens to last for years, warning that efforts to secure supply chains and rising geopolitical tensions could lead to a new Cold War, slowing growth further.The steering committees of the IMF and the World Bank warned in general terms of the need for vigilance and encouraged regulators to step up supervision.”Policymakers have taken swift actions to strengthen confidence in the banking system, which remains sound and resilient, supported by the reforms implemented after the 2008-09 global financial crisis,” the International Monetary and Financial Committee (IMFC) said in a chair’s statement.But during the IMFC’s closed meeting, the possible spillovers from financial stability risks were a main topic, Ukrainian Finance Minister Serhiy Marchenko told Reuters.He said IMFC members discussed three groups of countries: those with strong supervision and good tools to control inflation, those facing more risks to contain inflation, and those facing potential crisis emanating from inflation, recessions or bank runs.”I think all the ministers of finance, all the central bankers are trying to be on one page,” Marchenko told Reuters in an interview. “What is necessary is that all policymakers should agree on specific measures they should take.”A European Central Bank policymaker said the meetings made him more pessimistic about the financial stability outlook because the speed of rate hikes had sewn financial risk into banks’ asset bases, creating the potential for more SVB-like shocks.”My sense is that some felt there were major risks with respect to credit contraction, commercial real estate, further potential for gravitation of deposits, underwater long-term bonds, and economic slowing that could trigger further financial sector ructions,” said Mark Sobel, a former IMF and U.S. Treasury official who attended the meetings.”They also fretted about vulnerabilities in the non-bank financial sector,” said Sobel, who is U.S. chairman of the Official Monetary and Financial Institutions Forum think tank.U.S. Treasury Secretary Janet Yellen said she was working to address financial system vulnerabilities and economic risks, but cautioned against too much negativism in the outlook.A senior U.S. Treasury official said that Yellen’s discussions with counterparts broadly acknowledged that the financial system had weathered recent stresses but the search for pockets of leverage and risk needed to continue.”Without being complacent, people are saying it seems like the system is working in a way it was intended, as the reforms were put in place following the global financial crisis,” the official said. “And so I think that was kind of the internal message and I’d say that was the external message.” More