Aurelia Butler

TOKYO (Reuters) – A future Bank of Japan (BOJ) interest rate hike could affect the country’s sovereign debt rating if firms struggle to absorb rising funding costs, an official at S&P Global (NYSE:SPGI) Ratings said on Thursday.Higher borrowing costs could also lead to a downturn in long-term economic growth, S&P said.Japanese bond yields have crept up on market expectations the BOJ will phase out its yield control policy and start raising interest rates under a new governor who succeeds incumbent Haruhiko Kuroda in April.While further rises in long-term interest rates could increase Japan’s already large debt burden, such factors are already taken into account in the current “A+” sovereign debt rating, said Kim Eng Tan, senior director of S&P’s sovereign ratings team in Asia-Pacific.The bigger concern is whether Japanese firms, accustomed to many years of ultra-low interest rates, could absorb higher funding costs that come from tighter monetary policy, he told Reuters in an interview.S&P expects the BOJ to tighten policy only gradually with the near-term impact on the economy likely limited, Tan added.But the longer-term effect on Japanese firms and the broader economy is a concern as “we’re now at a stage where interest rates seem to be rising, and there’s quite a bit of uncertainty about how far it will go before it stabilises again,” he said.Even a 1-2 percentage point increase in interest rates would have a big impact on Japanese firms, particularly those in the service-sector with low profits or high debt, Tan said.”They’ve been used to a very low interest rate environment for quite a while. So it is really the impact on the economy that could potentially have an impact on our ratings,” he said.S&P currently assigns an “A+” long-term and “A-1” short-term sovereign debt ratings on Japan. The outlook on the long-term rating is stable. More

German inflation hit a five-month low of 9.2 per cent in January, according to delayed data that could require an upward revision to last week’s eurozone-wide figure.The federal statistical agency said annual inflation fell from 9.6 per cent in December, but it gave no details on the main factors driving the change or how it accounted for government subsidies to cut consumers’ energy bills. Economists had expected an increase in German inflation to 10 per cent last month, according to a poll by Reuters.Publication of Germany’s inflation data was delayed last week because of “an unexpected technical problem”, which the federal statistical agency said on Thursday was linked to the change of its base year for price statistics from 2015 to 2020. This meant Eurostat, the EU’s statistics agency, had to estimate price growth in Europe’s largest economy in order to calculate inflation for the overall euro area. Germany makes up more than a quarter of all price data used to calculate eurozone inflation.Any change in eurozone inflation for January may alter the perception of how rapidly price pressures are receding in the region and shift market expectations of when the European Central Bank will stop raising interest rates. As part of its flash estimate that eurozone inflation fell from 9.2 per cent in December to 8.5 per cent last month, analysts calculated that Eurostat used an estimate of 8.7 per cent for Germany. Based on the higher inflation figure reported by Germany on Thursday, ING economist Carsten Brzeski estimated the eurozone figure for January was likely to be revised up by about 0.1 percentage points to 8.6 per cent.“We’re still left wondering exactly what happened to German prices at the start of the year,” said Claus Vistesen, an economist at Pantheon Macroeconomics, adding that the German inflation figure was “a slight upside surprise, but a minor one, in the end”.Germany’s central bank boss Joachim Nagel, who is a member of the ECB rate-setting governing council, warned this week there was “a great danger” that inflation could remain too high if it stopped raising rates too soon. The Bundesbank president told Börsen-Zeitung on Tuesday that “further, significant rate hikes” were still needed because even after it raised its deposit rate to 2.5 per cent last week, this did not yet seem “restrictive” to him.Calculating German inflation has been made harder by the role of government subsidies designed to cushion the impact of higher energy prices on households. In December, Berlin paid the gas bills of most German households. This was a one-off, meaning that when the scheme ended at the start of January consumer energy bills bounced back up.An extra complication is that the German government has announced plans to introduce a price brake in March to offset most of the increase in gas and electricity costs for households that will apply retrospectively to their bills since the start of the year.The Bundesbank has estimated that energy price caps and cheap public transport tickets will lower average German inflation by 1.5 percentage points this year. More

MUMBAI (Reuters) – The Reserve Bank of India is likely to raise interest rates once again in April as inflation pressures persist and the Federal Reserve continues to tighten, analysts said on Thursday, a day after the central bank delivered what many had expected to be its last hike in the current cycle.The RBI raised the repo rate by a widely expected 25 basis points (bps) on Wednesday, in its sixth straight rate hike in a row that took the total to 250 bps in the current fiscal year.However, the central bank surprised markets by leaving the door open to more tightening, saying the stickiness of core inflation was concerning.”A more aggressive projection of growth-inflation profile and (policymakers’) cautious commentary has led us to add another 25-bps hike in April 2023 to our base case,” said Samiran Chakraborty, Citi’s chief India economist.The RBI also kept its policy stance at ‘withdrawal of accommodation’, rather than shifting to ‘neutral’.”By retaining the stance, the RBI left room open for further tightening. We continue to expect the RBI to hike 25 bps further in the April meeting, on sticky core inflation and a reversal in vegetable prices,” said Santanu Sengupta, chief India economist at Goldman Sachs (NYSE:GS).ING and QuantanEco Research also now expect the RBI to hike the repo rate at its next policy decision, due on April 6.But that is not only due to worries about inflation.RUPEE PRESSURETraders said the rupee’s movement and the Fed’s rate outlook will also likely influence the RBI.”We think the developments on the external front played an equally important role in RBI taking a hawkish tone,” Pranjul Bhandari, chief India and Indonesia economist at HSBC, said in a note.She pointed out that the latest meeting came on the heels of foreign investors pulling $4.4 billion from Indian equities so far this year.”And even though the rupee has been amongst the more stable Asian currencies in 2022 (as per RBI’s analysis in its policy statement), we note that the rupee has underperformed the region in the last few weeks,” Bhandari said.The rupee is currently at 82.62 to the dollar, less than 1% away from the record low of 83.29 it hit last October.The change in expectations around the Fed rate outlook since the better-than-expected U.S. jobs report on Friday may keep the rupee and other Asian currencies under pressure.Investors now expect a 25-bps rate hike in each of the Fed’s next two meetings. There were doubts about even one before the jobs report.The continuous increase in Fed funds rate expectations, SBI Research said in a note, has made it a difficult proposition for central banks in emerging economies to take policy decisions. More

To say that the EU is showing new enthusiasm for industrial policy — government support for strategic industries — might surprise those, particularly Americans, who regard Europe’s economies as already hopelessly snarled in regulation and distorted by dirigisme.Yet when EU heads of government meet today and tomorrow in Brussels to plan their version of Joe Biden’s green tech splurge, they will be exploring some new territory. A growing number of leaders worry the traditional EU role of promoting internal competition is insufficient to create globally commanding positions in the investment-heavy technologies of the future.It’s true that European economies are often highly regulated, some mainly at EU level (product standards) and some by member states (laws on minimum wages and trade unions). It’s also true that some, particularly France, have long tried to promote individual companies, labelling them “national champions”. But decades of the accretion of state aid and competition (antitrust) law has prevented the EU creating anything like the state-driven strategic investment model followed by many east Asian countries — and increasingly the US under the Biden administration.Until now, economists have generally considered these restraints to be a virtue. Thomas Philippon, a French economist, has written persuasively and counter-intuitively about dynamic open European markets increasingly contrasting with the stultifying US regulations created by anti-competitive lobbying. He argues that powerful and assertive EU agencies like the competition directorate, currently headed by former Danish economy minister Margrethe Vestager, are stronger counterweights to market concentration and state control than their US counterparts. Despite a popular belief that Paris and Berlin essentially run the EU between them, Vestager’s directorate famously infuriated those capitals by blocking a merger between the rail companies Alstom and Siemens.Now, even instinctively liberal economists accept that more state-guided investment might be appropriate for green industries which have a fast-advancing technological frontier and early-mover advantage. But the EU is struggling to create new tools to fund and direct it.Loosening state aid rules at a national level has raised justifiable concerns about France and Germany poaching investment from other member states. In any case, nationally focused industrial policy doesn’t necessarily produce far-sighted strategic thinking. Germany, for example, has a powerful and tightly knit industrial-political complex — Volkswagen is part-owned by the regional government of Lower Saxony — but the German car industry has been painfully slow to start producing electric vehicles.France has traditionally focused on backing individual companies, with a highly porous career membrane between the government and corporate elites giving favoured businesses persuasive voices at court. But it’s hard to point at any systemic achievements. President Jacques Chirac in 2005 invited much international mockery for his “strategic yoghurt policy”, threatening to block a hostile takeover for France’s Danone food company by PepsiCo amid talk of the iniquities of American capitalism. In truth, that was a one-off tactical favour for Danone. When the company’s corporate strategy changed, it willingly and without fuss sold off its biscuits division to Kraft Foods two years later. Despite repeated official French invocations of the importance of its industrial sector, manufacturing is only 9 per cent of France’s GDP, the same as in the UK and lower than the US at 11 per cent.To promote the green transition and counter US subsidies, France has now shifted towards a broader approach. As well as supporting some loosening of EU state aid laws — the rules were criticised this week for excessive complexity by the French internal markets commissioner Thierry Breton — it is proposing an EU-wide fund to boost strategic industries. Laurence Boone, France’s Europe minister, told me: “For too long we have mixed up industrial policy with having national champions. We are moving from a company approach to a sector approach”.The idea of financing more joint initiatives in itself creates concern in fiscally conservative member states like Germany. It’s a sign of the sensitivities that France changed the initial name of its proposal, Fonds Souverain (Sovereign Fund) to Fonds de Souveraineté (Sovereignty Fund), mindful of resistance to the idea of pan-EU financing and wealth management. Boone says: “To convince many member states, you need to talk about projects before you talk about money.” Designing an EU-wide industrial policy which can address cross-border supply chains will involve a significant break with the philosophies and institutions of the past. It’s going to take time and encounter resistance. But the urge to respond to the US’s green investment binge, let alone China’s, should mean a lot of new ground can be [email protected] More

MIAMI (Reuters) -The chief executive of JPMorgan Chase & Co. (NYSE:JPM), the biggest U.S. bank, cautioned against declaring victory against inflation too early, warning the Federal Reserve could raise interest rates above the 5% mark if higher prices ended up “sticky.”Dimon’s warning came after Federal Reserve officials said more rate rises are on the cards, although none were ready to suggest that January’s hot jobs report could push them back to a more aggressive monetary policy stance.In reference to inflation, Dimon said “people should take a deep breath on this one before they declare victory because a month’s number looked good.””It’s perfectly reasonable for the Fed to go to 5% and wait a while,” Dimon said. But if inflation comes down to 3.5% or 4% and stays there, “you may have to go higher than 5% and that could affect short rates, longer rates,” he said.From a peak of nearly 7% in June, the Fed’s preferred measure of inflation stood at 5% in December – well above its 2% target but heading steadily downward.In a wide-ranging interview with Reuters, Jamie Dimon warned stricter regulation of credit card fees could prompt lenders to extend less credit. He also said he planned to visit China, saying it was important to maintain relations there.Dimon also said a default on U.S. debt – a prospect the country faces unless its debt ceiling is raised – would be potentially “catastrophic.””We cannot have a default,” Dimon said. It could cause permanent damage to America and “could destroy its future,” he said.President Joe Biden, in his address to a joint session of Congress on Tuesday, urged Republicans to raise the $31.4 trillion debt ceiling, which must be lifted in the coming months to avoid a default.JPMorgan said earlier it plans to hire more than 500 bankers catering to small businesses through 2024, boosting the bank’s workforce targeting the segment by 20% from more than 2,300 now.Asked about JPMorgan’s plans for jobs given cuts at other Wall Street banks, Dimon said the outlook for hiring remains up at the bank.”We’re still opening branches and in general around the world, we are still hiring bankers, consumer bankers, small business bankers, middle market bankers, folks overseas… we have more clients to cover,” he said.Wall Street giants, including Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS), have cut thousands of jobs as a worsening economic outlook depressed dealmaking, while mortgage lenders have also trimmed staff. More

Asked in an interview on the PBS NewsHour program whether he thought there would be a recession this year, Biden responded: “No, or next year. From the moment I got elected, how many of the experts are saying within the next six months there’s gonna be recession?”Economists for months have been warning of a possible recession as the U.S. Federal Reserve raised interest rates in order to tame decades-high inflation.Biden himself has said a recession was possible, and earlier this week he told reporters that the risk was very low.On the whole, economic data in recent months has moved in the president’s favor, particularly after inflation spiked to a 40-year high last summer and government reports showed the U.S. economy could be heading into a recession.Strong job numbers last week, which occurred despite layoffs in the technology sector as well as in interest-rate-sensitive sectors like housing and finance, poured cold water on market expectations that the U.S. central bank was close to pausing its monetary policy tightening cycle. More

SPRING HILL, Tenn./ WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen said on Wednesday that she still hoped to visit China but offered no details on plans or timing.A team of U.S. Treasury officials was scheduled to travel to China this month to prepare for a visit by Yellen, but that was before a diplomatic row over a Chinese balloon that Washington claims was spying on the United States. The United States shot down the balloon on Saturday.The United States held briefings in Washington and Beijing with foreign diplomats from 40 nations about the Chinese balloon. Its appearance over the U.S. last week caused political outrage in Washington and prompted Secretary of State Antony Blinken to cancel a trip to Beijing that both countries had hoped would patch their frayed relations. Blinken had been originally scheduled to arrive in Beijing on Sunday.Yellen, speaking to reporters on Wednesday, said it was important to improve communications with Chinese counterparts on economic issues.”I still hope to be able to visit China to meet with economic counterparts. But I don’t have any detail to offer you on just when, and I really think that’s up to State (department) and DOD (Department of Defense),” Yellen said, noting that she did meet with her Chinese counterpart in Zurich on the way to Africa.Yellen told reporters that the risk of recession remained low, largely because of the strong job market. “When you have a 3.4% unemployment rate, which is the lowest since 1969 and you have over 500,000 jobs created in January, this is not an economy that is anywhere near recession.”A U.S. Air Force fighter jet shot down the balloon off the South Carolina coast on Saturday, a week after it first entered U.S. airspace. China’s foreign ministry has said it was a weather balloon that had blown off course and accused the United States of overreacting.When Yellen met Chinese Vice Premier Liu He in January in Zurich, they both agreed to enhance communication about macroeconomic and financial issues. More