Aurelia Butler

TOKYO (Reuters) -Haruhiko Kuroda took a slightly less dovish tack in his farewell as Japan’s central bank chief on Friday, ending a decade of unconventional policy that included a “bazooka” of stimulus aimed at boosting inflation and sustainable growth.Handing the reins of the Bank of Japan (BOJ) to academic Kazuo Ueda, Kuroda pointed to progress under his radical easy-money policy, which featured a push to change public perceptions with a wall of money and Peter Pan metaphors.”Japan’s 15 years of deflation has created a strong perception among the public that prices and wages won’t rise,” Kuroda, 78, told a news conference marking the end on Saturday of his second five-year term.    “But such a perception, or norm, is starting to change. As such, I think the timing for achieving the BOJ’s inflation target stably and sustainably is nearing,” he said.Kuroda said it was “quite possible” for the BOJ to exit its monetary easing without upending the banking system.Shock therapy was among key features of Kuroda’s monetary experiment. When then-Prime Minister Shinzo Abe chose him in 2013, Kuroda led the BOJ in deploying a huge asset-buying programme, partly to convince the public that prices would finally start to rise after decades of deflation.Kuroda was not the first BOJ chief to attempt to influence public perceptions with monetary easing. Toshihiko Fukui, who presided from 2003 to 2008, frequently expanded quantitative easing to “show the BOJ’s determination to beat deflation” and “exert stronger influence on public expectations.”But Kuroda went a step further, binding policy to his 2% inflation target and setting a two-year timeframe for meeting the goal. The target remained elusive only until recently, when the war in Ukraine boosted global commodity prices and pushed Japan’s inflation well above 2%.’YOU CAN FLY’Simple communication was another feature of Kuroda’s policy. In 2015, he used the Peter Pan fairy tale in explaining that to fire up inflation, the BOJ needed to have the public believe in its monetary magic with massive stimulus.”I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘The moment you doubt whether you can fly, you cease forever to be able to do it’,” he said then. “Yes, what we need is a positive attitude and conviction.”In another speech that year, Kuroda described how, like a spacecraft attempting to move away from Earth’s gravitation, “tremendous velocity” was needed to end Japan’s deflationary equilibrium.When allusions to Peter Pan and spacecraft failed, the BOJ shifted to a defensive, long-term approach in 2016 with the introduction of yield curve control (YCC). The hope was that by capping long-term rates around zero and patiently reflating the economy, inflation would eventually perk up.The shift to YCC also sought to stop super-long yields from falling too much, a nod to growing concern that prolonged low rates could hurt financial institutions’ profits enough to discourage them from boosting lending.”The BOJ’s thinking on interest rates changed dramatically in 2016. It abandoned the idea that the lower the borrowing costs the better,” said former BOJ board member Takahide Kiuchi.If Japan sees inflation sustainably hitting 2%, incoming BOJ chief Ueda will face a fresh communication challenge of steering a smooth exit from his predecessor’s radical stimulus.Kuroda said managing expectations may be harder under a conventional policy targeting short-term rates than under unconventional policies, in which central banks can directly control long-term rates with asset purchases, instead of seeking to push them down through forward guidance.But central banks must accumulate expertise to make unconventional monetary policy more effective, said Kuroda, who said he may take on a teaching job after retiring from the BOJ.Some analysts, however, doubt whether central banks should continue to rely heavily on unconventional tools. “During Kuroda’s era, the BOJ put in place a mixed bag of unconventional measures,” Kiuchi said. “The BOJ’s failure to change public expectations raises a lot of questions about the effectiveness of unconventional monetary policy.” More

Chinese banks are estimated to have issued 3.24 trillion yuan ($471.30 billion) in net new yuan loans last month, up sharply from 1.81 trillion yuan in February, according to the median estimate in the survey of 20 economists.The expected new loans would be 3.5% higher than 3.13 trillion yuan issued in the same month a year earlier.After record growth in credit in January, new lending dropped sharply in February. Still, if the March reading meets forecasts, total lending in the first quarter would reach a record high of 9.95 trillion yuan.To spur growth, the central bank in March cut banks’ reserve requirement ratio (RRR) for the first time this year. The central bank has pledged to keep money supply and total social financing growth generally in line with nominal economic growth this year.Outstanding yuan loans were expected to grow by 11.7% in March from a year earlier, up from 11.6% in February, the poll showed. Broad M2 money supply growth in March was seen at 12.7%, down from 12.9% in February.China has set the 2023 quota for local government special bond issuance at 3.8 trillion yuan, up from 3.65 trillion yuan last year.Any acceleration in government bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity. Outstanding TSF was 9.9% higher at February-end than a year earlier, growing faster than the 9.4% annual rate seen at the end of January.In March, TSF is expected to rise to 4.5 trillion yuan from 3.16 trillion yuan in February, the survey showed.($1 = 6.8746 Chinese yuan renminbi) More

The situation is especially acute when it comes to transport liability insurance as reinsurers have withdrawn from the market, which poses a problem for logistics companies, said Michael Harms, managing director of the German Eastern Business Association.”The federal government has to take on more risk than usual,” Harms said, and it “shouldn’t relieve companies of business risk but should help with creative instruments.”The association’s demand follows German Economy Minister Robert Habeck’s promise during a visit to Kyiv this week to provide German companies investment guarantees in Ukraine as part of reconstruction efforts. Russia’s February 2022 invasion of Ukraine has caused large-scale damage.The group supports roughly 350 members who are active in 29 countries in eastern Europe.”Company representatives say that these investment guarantees are necessary in order to get investment decisions through the board of directors,” said Harms, who travelled with Habeck to Kyiv. More than 20 applications for such investment guarantees are in the pipeline, ministry sources said.In addition, the Ukrainian government needs to provide “reliable, stable and transparent framework conditions,” said Harms, who criticized Kyiv for putting pressure on many companies to abandon business in Russia, calling it “not wise.”He added that the corruption situation has improved significantly since 2014 and things are going in the right direction, based on feedback he has received from companies.”The Ukrainian leadership is young, Western-educated, it no longer has a ‘hidden agenda’ as it used to,” he said. More

LONDON (Reuters) -After the accuracy of Revolut Ltd.’s accounts drew scrutiny from regulators, the firm’s plan to secure a U.K. banking licence is facing delays, according to two people familiar with the company. Last month, audit firm BDO issued a so-called qualified opinion for Revolut’s 2021 accounts. While BDO said Revolut’s financial statements gave a “true and fair view of the state of the group,” it cautioned in the same filing that some information related to revenues may have been “materially misstated.”Media coverage of BDO’s warning on March 1 prompted immediate questions from financial regulators, a March 6 letter to Reuters from Revolut shows. In the letter, Revolut requested changes to Reuters’ article on the financial statements, which the news agency declined to make. Revolut’s lead counsel for disputes and investigations, Conal McFadyen, said the firm “had multiple enquiries from our regulators in the U.K. and overseas” seeking further explanation about the auditor’s opinion. He added that there is no question over the totality of Revolut’s income.The letter did not address the banking licence application nor its status. The concern from regulators around BDO’s warning will probably slow down the approval for its banking licence, according to one person familiar with Revolut, who has been advising the company on strategy.BDO’s warning over the accounts “casts a shadow on the board and shows a breakdown of trust between the auditor and the management,” said Stephen Kingsley, a veteran non-executive director who has chaired a number of audit committees at financial firms. “I would be astonished if the regulators go ahead with the banking licence,” he added.A spokesman for Revolut said the company does not comment on ongoing regulatory applications.”We are at the very final stage of the process,” Chief Financial Officer Mikko Salovaara told Reuters on March 1 as the company released its 2021 earnings.The Bank of England’s Prudential Regulatory Authority and the Financial Conduct Authority declined to comment on the status of the application. A spokeswoman for BDO declined to comment.Revolut applied for a banking licence about two years ago. Standards for obtaining one are high and require the approval of the Bank of England and the Financial Conduct Authority.With a banking licence, Revolut would become a more established player in the U.K. banking market and be able to draw more customers. Crucially, the deposits held at the fintech would be protected by the U.K.’s financial compensation scheme, boosting trust among clients. UNDER SCRUTINYBanking regulators everywhere are scrutinizing the financial health of lenders after the failure of some U.S. banks and Credit Suisse’s rescue by UBS. That increased scrutiny is holding up Revolut’s approval, one person involved in discussions with U.K. supervisors told Reuters. The bank runs sparked concerns about the sector’s solidity, rattling depositors.Revolut sought to reassure its investors about the soundness of its business after the 2021 accounts were published, according to several other people with knowledge of the situation, who also spoke on condition of anonymity.In the March 6 letter to Reuters, Revolut’s McFadyen acknowledged the jittery mood, saying, “We have received a number of messages from investors expressing concerns and requiring explanations from us regarding our accounts.” Revolut also told a British bank that works with the firm that BDO’s inability to verify certain revenue was due to the inadequacy of the audit firm’s systems, one source said. BDO declined to comment.Revolut is now considering changing its auditor and hiring a bigger accounting firm, another one of its investors was told.BDO earned 4.5 million pounds in fees for auditing Revolut’s accounts, the firm’s financial statements show. Since its 2015 debut, Revolut has raised about $1.7 billion from SoftBank and other investors, and posted its first full-year profit of 26 million pounds in 2021. Revolut in recent weeks told its backers that it doesn’t need to raise further funds, several investors said. Reuters could not establish whether the comments dated from after the collapse of Silicon Valley Bank in the U.S. in early March which prompted some depositors elsewhere to move their cash to bigger lenders.Revolut’s current principal supervisor, the Bank of Lithuania, which regulates Revolut’s operations across the European Union, said last month in response to questions about BDO’s opinion, that while the U.K. entities don’t fall under its direct supervision, it’s monitoring the firm.The central bank said it had nothing further to add when contacted on April 5. More

WASHINGTON (Reuters) – Federal Reserve officials counting on slower U.S. job growth to help them in their fight to lower high inflation will receive key employment and wage data on Friday, the last such download before their next interest rate decision in early May.Economists anticipate what from the Fed’s perspective will be a middling result for March, a month marred by the largest bank failures since the 2007-2009 financial crisis, events that for a brief time at least shifted policymakers’ main attention from inflation to financial stability.With the worst-case outcomes for the financial sector appearing to have been avoided, for now at least, the focus is returning to the real economy, including employment and wage growth seen likely to remain above what is considered consistent with the Fed’s 2% inflation target. (Graphic: Job gains remain strong – https://www.reuters.com/graphics/USA-FED/POWELL/xmvjkrbdgpr/chart.png)The details, such as expected tepid growth in manufacturing jobs and fewer industries adding jobs at all, may point to a deepening sense among businesses that the economy is slowing and consumer demand weakening, developments that could help ease the pace of price increases.But the headline numbers may give less comfort to the U.S. central bank. Economists polled by Reuters expect a gain of 239,000 jobs in March, with hourly wages rising at a 4.3% annual rate and the unemployment rate remaining at 3.6%, a level seen less than 20% of the time since World War Two. The Labor Department is due to release the report at 8:30 a.m. EDT (1230 GMT). (Graphic: Frequency of unemployment rates – https://www.reuters.com/graphics/USA-FED/JOBS/gdpzymnnavw/chart.png) By comparison, payroll growth in the decade before the COVID-19 pandemic averaged about 180,000 per month, and wage growth remained close to the 2%-3% range seen by Fed policymakers as consistent with their goal of a 2% annual increase in the Personal Consumption Expenditures price index.The PCE price index was rising 5% annually as of February, or 4.6% when volatile food and energy prices were excluded, too high for the Fed’s liking and with improvement coming only slowly in recent months.Gregory Daco, chief economist at EY Parthenon, anticipates job growth may have dropped as low as 150,000 for March, but other data, including a still-high level of job openings, indicate that “labor market tightness will remain a feature of this business cycle,” he wrote. That should keep the Fed on track to raise its benchmark overnight interest rate by another quarter of a percentage point at its May 2-3 meeting. (Graphic: Rising unemployment and recession – https://www.reuters.com/graphics/USA-ECONOMY/UNEMPLOYMENT/jnvwyjlgdvw/chart.png) STILL HOT?The question now is how long that business cycle might last, and whether the seeds of a serious slowdown are taking root.The median unemployment rate projected for the end of 2023 by Fed officials at their March meeting was 4.5%, implying a comparatively steep rise in joblessness that in the past would indicate a recession was underway.Fed officials would never say their aim is to cause a recession. But they’ve also been blunt that, as it stands, there are too many jobs chasing too few workers, a recipe for wage and price increases that could start to reinforce each other the longer the situation persists. “The labor markets still remain quite, I would say, hot. Unemployment is still at a very low level,” Boston Fed President Susan Collins said in an interview with Reuters last week. “Until the labor markets cool, at least to some degree, we’re not likely to see the slowdown that we probably need” to lower inflation back to the Fed’s target. (Graphic: More jobs than jobseekers in the US – https://www.reuters.com/graphics/USA-FED/JOBS/egvbkmeoepq/chart.png) Change, however, may be coming. Daco noted the 0.3% decline in the average number of weekly hours worked in February, a statistic he says bears watching for evidence of “a more concerning labor market slowdown.”Payroll provider UKG said shift work among its sample of 35,000 firms fell 1.6% in March, a non-seasonally adjusted figure that Dave Gilbertson, a vice president at the company, said indicated overall job growth that was positive but not “as overheated as it has been.” Job gains in January and February were larger than anticipated and produced a brief moment when Fed officials thought they might have to return to larger rate increases, a sentiment that died after the recent bank failures.Economists at the Conference Board, meanwhile, said a new index incorporating economic, monetary policy, and demographic data showed 11 of the 18 main industries at modest-to-high risk of outright layoffs this year.Conference Board economists have been bearish in contending that a recession is likely to start between now and the end of June, though “it could still take some time before there are going to be widespread job losses,” said Frank Steemers, a senior economist at the think tank. (Graphic: Conference Board Industry Layoff Risk Index – https://www.reuters.com/graphics/USA-FED/JOBS/jnvwylekmvw/chart.png) EYE ON SERVICESSome of that may be starting. The Labor Department on Thursday unveiled revisions to its measure of jobless benefits rolls showing that more than 100,000 additional people have recently been receiving unemployment assistance than previously estimated. Moreover, outplacement firm Challenger, Gray & Christmas said the roughly 270,000 layoffs announced this year through March were the highest quarterly total since 2009, outside of the pandemic.For the Fed, however, that is just one part of the puzzle. How “slack” in the labor market links to lower inflation may depend on where job growth slows, and over what timeline.New research from the Kansas City Fed suggested the process may prove stickier than expected because the service sector industries currently driving wage growth and inflation are the ones that are least sensitive to changes in monetary policy.If industries like manufacturing and home building follow familiar patterns as the Fed raises interest rates, credit gets more expensive and demand and employment slow. But the service industries that are responsible for most U.S. economic output are more labor-intensive and less sensitive to rate increases, Kansas City Fed economists Karlye Dilts Stedman and Emily Pollard wrote.”The services sector, in particular, has contributed substantially to recent inflation, reflecting ongoing imbalances in labor markets where supply remains impaired and demand remains robust,” they wrote. “Because service production tends to be less capital intensive and services consumption is less likely to be financed, it also tends to respond less quickly to rising interest rates. Thus, monetary policy may take longer to influence a key source of current inflation.” More

The cost of eating smoked salmon at London’s Wolseley restaurant has risen by over a fifth. Meanwhile, supplies of baked beans by Kraft Heinz to Tesco, the UK’s biggest supermarket chain, were temporarily imperilled. Persistent and rising double-digit inflation, higher than in all other G7 countries, is hitting UK businesses — and their customers — in myriad ways. With Andrew Bailey, the governor of the Bank of England, urging restraint on companies that may be too ready to pass rising day-to-day costs on to consumers, how businesses cope with stubborn inflation and higher interest rates is coming increasingly under scrutiny.Hospitality“It’s hard to conceive of a sector that’s taken more of a hit,” said Jonathan Neame, chief executive of Shepherd Neame, a Kent-based brewer and pub operator, of hospitality. “It is energy intensive, food intensive and people intensive.”The data bears him out: according to the Office for National Statistics, prices in restaurants and hotels rose by an annual rate of 12.1 per cent in February; the highest rate since data began in 1991.Shepherd Neame has increased prices by more than 20 per cent since 2019 to offset rising costs and protect profit margins, but opted to do so in incremental rises rather than one annual rise. At the Dalata Hotel Group, the wage bill has jumped 24 per cent compared with 2019, but it is wary of passing costs on to the customer.“The consumer ultimately will vote with their feet,” said the chief executive, Dermot Crowley. Dalata has instead cut down menu sizes in its restaurants and introduced cordless vacuums to speed up room cleaning, so the hotels need fewer housekeepers. Baton Berisha, managing director of the Wolseley Group, which runs the eponymous Mayfair restaurant among others, agrees: “If you just transfer that price to consumers then they may not return.”Reluctantly Berisha had to increase smoked salmon menu prices by 20 per cent last year and plans to do so again this May.

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Retailers Supermarkets have been raising shop-floor salaries to soften the sting of surging inflation. This is squeezing their profit margins, albeit some of this is being passed on to consumers.ONS data showed that the price of food and non-alcoholic beverages rose by 18.2 per cent, the steepest increase in 45 years.“Most people would be surprised by how much of their food bill is labour in stores and the supply chain — around 25 per cent,” said Justin King, the former Sainsbury’s boss and a non-executive director at Marks and Spencer. The largest supermarkets claim that they are not putting up prices by as much as the ONS’s headline food inflation figure. Ocado, the online grocer, said prices were up by about 9 per cent, with shoppers becoming more selective.Meanwhile, tense negotiations between retailers and suppliers over price hikes are expected to continue. Supermarkets have been accused of being slow to pay suppliers more, despite smaller businesses warning they could go bust as they grappled with soaring bills. Last summer, Kraft Heinz temporarily halted supplies of some products to Tesco in a row over pricing that has since been resolved.Consumer goodsMakers of everyday products have passed on as much of the financial pain to retailers and consumers as they can. “It’s the consumer who always pays,” said Martin Deboo, analyst at Jefferies.In pushing up prices, companies risk alienating cash-strapped shoppers who could seek out cheaper alternatives or simply buy less. Supermarkets’ own-brand sales were up 15.8 per cent over the year to March, according to Kantar.Scottish drinks maker AG Barr said volumes of its flagship product Irn-Bru fell 4 per cent in the year despite an 18 per cent rise in group revenues. The company’s cost of sales in the 12 months to the end of January were more than a quarter higher than the previous year.There are some signs the worst of the cost pressures may have passed, however.“Come the end of this year I think we’ll start to see the cost pressure really reduce,” said Tim Warrillow, co-founder of Fever-Tree Drinks, the producer of mixers for spirits. He pointed to a recent moderation in both sea-freight rates and the costs of energy used to make glass for its bottles.

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Housebuilders UK housebuilders have been squeezed by rising wage bills as well as the costs of raw materials such as timber, where supply was limited by the war in Ukraine. Some materials, including brick or plasterboard, take significant energy to produce and have been hit by rising prices for power. Smaller firms that lack economies of scale were particularly hit by high build costs.Housebuilder Vistry said build costs now appeared to have peaked, citing no major cost increases from its suppliers in the first quarter, falling prices for some raw goods and lower labour costs as construction and demand slow. Andy Murphy, analyst at Edison, said that “it seems possible that overall build cost inflation could turn negative this year”.BanksStubbornly high inflation is pushing up borrowing rates. UK banks reaped bumper profits from those rising interest rates in 2022, after years in which ultra-low base rates hampered their net interest margins — a measure of the difference between the interest received on loans and the rate paid for deposits. In their annual results, the major high street lenders — Lloyds, NatWest, Barclays and HSBC — guided that the boost from net interest margins might have peaked in 2022, but the rise in interest rates could change that.“There’s pressure . . . on all banks to disclose how much they’re making on [deposits] for their customers,” said one chief executive.MPs on the Treasury Select committee have accused big banks of being too slow to pass on the benefit from rate rises to savers, particularly for instant access accounts. Reporting by Oliver Barnes, Laura Onita, Alistair Gray, Joshua Oliver and Siddharth Venkataramakrishnan in London More

TORONTO (Reuters) -Canadian dealmakers are optimistic about a return to strength in the second half of the year after mergers and acquisitions in the first quarter dropped to pandemic levels, belayed by higher borrowing costs and panic around a banking crisis.The collapse of regional banks Silicon Valley Bank and Signature Bank (OTC:SBNY) in the U.S. tightened credit markets, making funding difficult for deals. As the banking crisis abates and many global central banks move to the sidelines to assess the impact of rapid interest rates hikes, bankers are, however, betting that appetite for dealmaking will return.”We expect the second half of the year really to be where stability hopefully comes back or some kind of certainty with respect to path forward and for M&A to return,” said Sean Rowe, national deals markets and value creation leader at PwC Canada.Canadian M&A volumes totalled $34.7 billion in the first quarter, down 52.3% from a year ago, with dealmaking off to the worst start since the same period in 2020.Global M&A volumes during the first quarter slumped 48% to $575.1 billion as of March 30, compared with $1.1 trillion during the same period last year, according to data from Dealogic.After eight successive interest rate hikes, the Bank of Canada paused raising rates, while the U.S. Federal Reserve raised interest rates minimally, by a quarter of a percentage point, in March and indicated it was on the verge of pausing further rate hikes.Sarfraz Visram, head of Canadian and international mergers and acquisitions at the Bank of Montreal, said having some certainty around where interest rates would settle helps dealmaking. He added that sellers need to reset their expectation on valuation – something that has not happened just yet. “Price expectations are, I’d say, 50-70% higher than where I think they should be.”Some market participants noted the second quarter is already off to a stronger start, with the mining sector gathering momentum.Copper miner Teck Resources (NYSE:TECK) rejected Glencore (OTC:GLNCY) Plc’s $22.5 billion offer on Monday. That overture came after Lundin Mining (OTC:LUNMF) Corp bought a 51% stake in Chile’s Caserones for $950 million last month. Of the deals announced in the first quarter, RBC Capital Markets, Bank of America Corp (NYSE:BAC)’s BofA Securities Inc and JP Morgan took the top three spots in the advisory rankings.Energy-focused deals led Canadian activity in the first quarter, including Alimentation Couche-Tard’s $3.3 billion bid for European gas stations from TotalEnergies.Corporate debt in Canada also fell 8.9% in the first quarter, hitting C$17.1 billion ($12.7 billion) from a year ago, the lowest first quarter since 2020.Abeed Ramji, head of Canadian Debt Capital Markets at TD, said the lack of issuance from banks impacted the corporate debt market, adding that global markets had become more expensive for financing. ($1 = 1.3462 Canadian dollars) More

TOKYO (Reuters) – The Bank of Japan (BOJ) should be cautious about changing its unconventional monetary policy for now, given financial market uncertainty due to problems in Western banks, former top financial diplomat Takehiko Nakao told Reuters in an interview.Nakao made the comments amid speculation the BOJ may abandon its yield curve control policy when new Governor Kazuo Ueda takes over incumbent Haruhiko Kuroda, whose term ends on April 8.U.S. bank failures and the buyout of Credit Suisse by UBS last month have driven financial market risk aversion.Nakao said the BOJ must carefully monitor market developments, for now, although credit anxiety was unlikely to morph into anything like the 2008/09 global financial crisis.Japan needs to start making adjustments towards normalising fiscal and monetary policies as financial markets stabilise, because prolonged stimulus inhibits necessary corporate restructuring and job turnover, he said.”The BOJ may need to tread even more cautiously in reconsidering and adjusting monetary policy in the face of new problems of financial market jitters,” said Nakao, former vice finance minister for international affairs, who coordinated with other countries in responding to the euro crisis in the 2010s.”Yet, the BOJ cannot continue unconventional monetary policy, including ETF and REIT purchases and YCC, indefinitely. Doing so won’t be in the interest of Japan in the long run.”Nakao was referring to the central bank’s purchases of assets such as exchange-traded funds and real estate investment trust and its policy targeting the bond yield curve.In Japan, the risk of a prolonged easing includes excessive yen weakening and deteriorating fiscal discipline, rather than falling behind the curve in fighting inflation, Nakao said in the interview conducted on Thursday.”Fiscal deficits and the BOJ’s assets have become so large in comparison with GDP that it could have potential risks of steep rises in interest rates and sudden currency falls, which leads to inflation.”Nakao was the president of the Asian Development Bank from 2013 through early 2020. He is now “Chairman of the Institute” at Mizuho Research and Technologies, part of Mizuho Financial Group Inc, Japan’s third-biggest commercial bank. More