Aurelia Butler

If Haruhiko Kuroda hoped to engineer a smooth handover to his successor as governor of the Bank of Japan then he has blown it already. Kuroda’s decision in December to relax, but not abandon, his policy of capping the yield on Japanese 10-year bonds at zero per cent has given markets what they love best: a vulnerable, official peg against which to speculate. This half-pregnant policy — reaffirmed at Wednesday’s meeting of the central bank’s policy board — will be a vexed legacy for whoever comes next.The BoJ introduced yield curve control, as it is known, in September 2016. During the first half of Kuroda’s tenure, which began in 2013, the central bank bought massive amounts of government bonds in an effort to drive down long-term interest rates and kick-start the stagnant Japanese economy. Under YCC, the bank moved away from numerical targets for asset purchases, and promised instead to buy as many bonds as needed to keep 10-year yields close to zero. For several years, this policy was fairly successful. It kept rates low for borrowers, and because markets felt the cap on yields was credible, the BoJ did not have to buy many bonds to maintain it.That changed last year, as rising interest rates in the US and elsewhere created a yield gap with Japan. Investors sold the yen for higher-yielding alternatives, resulting in heavy downward pressure on the Japanese currency; it weakened past 150 against the dollar at one point. With high commodity prices creating some inflation in Japan, the bond market began to malfunction. A kink formed in the yield curve at the 10-year mark controlled by the BoJ. Even then, faith in YCC was strong until Kuroda suddenly shook it with December’s unheralded decision to let yields rise, but only as high as 0.5 per cent.That opened the floodgates. Now, passivity is no longer an option for the BoJ. It must either buy trillions of yen in bonds to defend its yield cap, or abandon YCC altogether. The central bank could also dilute YCC towards irrelevance by setting a cap so high as to be meaningless, or capping a short-term bond yield.There are arguments in both directions. In support of keeping YCC is Japan’s economic situation. The BoJ still expects core inflation, which excludes fresh food prices, to come in below its inflation target in the years to March 2024 and 2025. Indeed, Japanese workers still struggle to get a pay rise. This is markedly different to the US and Europe, where rates are rising to head off the risk of a wage-price spiral, and inflation is well above target. It would be somewhat perverse for Japan to engineer a monetary tightening, which is what abandoning YCC would mean, as the world economy slows down. Sustainably reaching 2 per cent inflation has been Kuroda’s mission for a decade. It is finally in sight. In support of scrapping YCC is the perilous position in which the BoJ now finds itself: in the crosshairs of every macro hedge fund looking to make its annual returns before the first quarter is out. If the BoJ tries to defend YCC and fails it will pay a bitter price in cash and credibility. Then, too, Japan’s policy mix did need some adjustment. The goal of monetary easing was to create a virtuous circle of rising demand, consumption, prices and wages. Creating demand via a weak yen, which hurts real incomes, is far from ideal. The task for the new BoJ governor — or Kuroda in his last few months — is to restore some coherence. The objective must remain to hit the 2 per cent inflation target, now and for years to come. The challenge is to recalibrate YCC, or judge the timing of its abandonment, in a manner that is both credible to markets and consistent with that goal. More

Today’s top storiesMicrosoft announced 10,000 job cuts, highlighting the difficulties felt by US companies even as economic data turn promising.The Bank of Japan defied market pressure and stuck with a core pillar of its ultra-loose monetary policy — yield curve control measures — sending the yen diving and stocks higher.Fourteen people, including Ukraine’s interior minister and one child, were killed when a helicopter crashed near a nursery school in Kyiv.For up-to-the-minute news updates, visit our live blogGood evening.Disrupted Times may have brought you plenty of downbeat prognostications about the economic outlook recently but a flurry of positive data have boosted hopes that a global recession can be avoided.The jet-setters of Davos seem to think so. Our team in the Swiss Alps has picked up signs of optimism as China drops its Covid controls, the US lays the way for a green investment boom and Europe adjusts to the impact of war in Ukraine. IMF deputy chief Gita Gopinath signalled to the assembled bigwigs yesterday that the fund would upgrade its economic forecasts — just weeks after predicting a “tougher” year.The International Energy Agency added today that global oil demand could hit an all-time high in 2023 as China reopens. And although the country’s GDP figures yesterday were disappointing, showing growth of 3 per cent in 2022, far below its 5.5 per cent target, analysts are betting the ending of pandemic restrictions can help the economy bounce back. Vice-premier Liu He has said that the country is returning to normal faster than expected. What is not in dispute is the damage caused by Beijing’s now ditched zero-Covid policy, particularly in sectors such as luxury goods — China is the world’s second biggest market — highlighted again today in results from Richemont and Burberry. Investors meanwhile seem to be warming to the idea that inflation has peaked. Even the UK, which has been lagging behind the rest of the world in positive economic indicators, reported a second consecutive fall today, bringing the December rate to 10.5 per cent, helped by easing fuel prices. However, an important caveat came last week from Bank of England chief economist Huw Pill, who warned that the UK could face persistently high inflation for longer than other advanced countries, meaning interest rates might have to stay higher for longer. The scale of the challenge was underlined yesterday by new data showing corporate insolvencies surging as business costs rise.There was also some positive news from the US today, with data showing producer price inflation cooling. Both the headline annual figure of 6.2 per cent and the reading excluding volatile food and energy costs of 4.6 per cent were lower than expected. Wall Street economists, however, are a little more pessimistic than the Federal Reserve about the prospect of recession, a point also highlighted by our interview with the head of Norway’s sovereign wealth fund — one of the biggest in the world — who warned of “very, very low” returns for stocks and a potential new cycle of rate rises from the Fed. In Europe, investors in Germany have turned positive while in Brussels, plans for “unprecedented” investments in clean technologies hope to offer similar help for EU industry to the generous subsidies on offer from the US government.Need to know: UK and Europe economyDespite today’s positive news on inflation, labour market data yesterday showed UK wages still failing to keep pace. The gap between public and private pay is still growing, adding fuel to the current wave of strike action: today’s walkout by nurses comes as new data show industrial disruption is now at a 30-year high. Think-tanks say Brexit’s ending of free movement has led to a worker shortfall of 330,000.Billions of pounds in UK tax are being left uncollected because almost 2,300 compliance staff have been diverted to Brexit and Covid-19 related work. Authorities expect to recover just £1.1bn of an estimated £4.5bn lost through Covid fraud.European Central Bank chief economist Philip Lane discusses the ECB’s response to global shocks in our latest Economists Exchange feature. Looking ahead, Lane says: “Our current assessment is that if there is a recession, it’s going to be mild and short lived.”Need to know: Global economyChief economics commentator Martin Wolf sounds the alarm (again) on the looming global debt crisis, branding the current system, as well as mechanisms for helping poor countries through adverse shocks and towards sustainable development, as unfit for purpose.Hopes for Chinese recovery are being pinned on the country’s small and medium-sized businesses, which account for 80 per cent of the country’s employment and 70 per cent of corporate revenue. The FT editorial board says Egyptian president Abdel Fattah al-Sisi needs to shrink the role of the state and military-owned companies to address the country’s deepening economic crisis.Need to know: businessProfits at Goldman Sachs fell by a more than expected two-thirds in the fourth quarter, led by a slowdown in investment banking. Net income was $1.3bn, down from $3.9bn last year. Morgan Stanley also suffered falls at its investment bank but these were partly offset by record wealth management revenues. Overall it recorded a 40 per cent year-on-year drop in net income to $2.2bn, but earnings of $1.26 a share beat analysts’ estimates.Our Big Read series examines how Apple spent two decades building sophisticated supply chains through China and asks the question: can it now disentangle itself? The UK government confirmed it would included the prosecution of tech bosses in its new online safety bill. Columnist Helen Thomas says the “world-leading” proposals seem to have lost their way.LockBit, the recent hacker of Royal Mail’s system, has become the world’s most prolific ransomware group, claiming to have hit 40 organisations in different countries in the past month.Britishvolt, a start-up that had hoped to turn the UK into a battery manufacturing powerhouse as part of former PM Boris Johnson’s drive for a “green industrial revolution”, collapsed into administration after talks failed to secure emergency funding.US business editor Andrew Edgecliffe-Johnson discusses potential obstacles to world trade in 2023, from an energy crisis hitting industrial exporters, to deteriorations in relations with China that could affect trade in rare earths, to tensions over Taiwan that could further damage semiconductor supply. The World of WorkWhy is there still a sense of stigma around taking time off to have a baby? Maternity leave and returning to work is the subject of the new Working It podcast.Fancy helping us find Britain’s healthiest workplace? The FT/Vitality annual survey aims to identify best practises that improve wellbeing and boost staff retention. Last year’s survey identified growing mental health concerns, the importance of quality as well as quantity of sleep, and the value of hybrid working.Some good newsWith so many people suffering serious hardship this winter, it’s good to occasionally highlight some of the contributions from Britain’s community groups and businesses. Here’s one example of a Leicestershire building society helping local food banks. More

China has said it would welcome a visit by Janet Yellen this year after the US Treasury secretary met vice-premier Liu He in Zurich, marking the first top level economic meeting between the powers since Joe Biden took office.The meeting, which comes as US-China relations remain fraught over issues from Taiwan to trade and technology, was described by both sides as “candid”. In separate statements, both sides sought to ease concerns about a further deterioration in ties between the world’s two largest economies. Chinese state-run news agency Xinhua said the two officials agreed in a three-hour meeting that their economic and trade teams would “continue to maintain communication at all levels” and that Beijing would welcome a visit from Yellen “at a suitable time this year”.The Treasury said both sides agreed that it was “important for the functioning of the global economy to further enhance communication around macroeconomic and financial issues”. It added that Yellen “looks forward to travelling to China” and to welcoming her Chinese counterparts in the US.The Zurich talks come two months after Biden and President Xi Jinping held their first in-person meeting as leaders at the G20 in Bali, Indonesia. The two tried to halt the deterioration in relations that reached a new low when China held huge military exercises around Taiwan in August.Secretary of state Antony Blinken will travel to China in early February, in what will be the first visit by a US cabinet official in more than two years. But tensions have remained elevated since Bali. In December, the US added three dozen Chinese companies to an export blacklist in a bid to prevent them from obtaining high-end American technology. That came two months after the US introduced sweeping new rules designed to make it much harder for China to obtain, or produce, high-end semiconductors.The Zurich meeting came one day after Liu spoke at the World Economic Forum in Davos where he reassured the business audience that China was mostly “recovering to a normal state of affairs” following its recent abrupt end to its zero-Covid regime. Yellen did not attend Davos.As the US and Chinese officials met, UBS chair Colm Kelleher said at Davos that a deterioration in US-China ties remained one of the biggest global risks, particularly an “event that could cause a geopolitical deterioration on the America-China relationship”. He sparked controversy last year when he told a forum in Hong Kong that global bankers were “very pro-China”.JPMorgan’s investment banking chief Daniel Pinto said on Tuesday that US-China tensions appeared to be easing with better communication, and as officials in Beijing and Washington focused more on domestic issues. Kurt Campbell, the top White House official for Asia, said last week that the two countries were trying to set a “floor” under the relationship. But Biden’s China policy is expected to attract scrutiny from Capitol Hill after the Republicans took control of the House of Representatives this month.In a separate discussion at Davos on Tuesday, Carmine Di Sibio, EY chief executive, put his level of concern about a potential decoupling of the US and Chinese economies at nine out of 10. He said companies were trying to convince the US administration that “we need investments from China, we need to invest in China”. 

“But the politics are really in the way here and I am worried that they’re not getting better,” Di Sibio said. “In particular, in the United States they’re not getting better because both sides of the [political] aisle have this as a major part of the agenda and . . . it’s the one thing that they can agree on.”However, Anne Richards, chief executive of Fidelity International, said the realisation that a complete economic decoupling would be catastrophic “means that there is a genuine desire on both the US and Chinese side to find the areas where co-operation can happen”. Yellen’s meeting with Liu came as she prepared to visit Senegal, Zambia and South Africa. She has criticised Beijing’s approach to debt relief in defaulting developing economies, saying that “the barrier to making greater progress is one important creditor country, namely China”.Additional reporting by Stephen Morris in Davos and Michael O’Dwyer in London More

The move will focus on sovereign bonds maturing in 2029 and 2030, the minister added, with the program set to start immediately he said as the country looks to take advantage of a “window of opportunity” after the its risk index fell.The unusual move, which Massa said could help boost the country’s access to capital markets, comes as Argentina battles to replenish foreign currency reserves, rein in rampant inflation and prop up a weakening local peso currency.In the last few years Argentina has restructured over a hundred billion dollars of debt with private creditors and the International Monetary Fund (IMF), with which it struck a $44 billion deal last year to push back repayments. More

BEIJING (Reuters) – President Xi Jinping said on Wednesday he was particularly concerned about China’s COVID-19 wave spreading to rural areas with poor medical facilities but he urged perseverance in stressful times, saying “light is ahead”. His comments came as millions of urban workers were travelling back to their home towns and reunite with families for the Lunar New Year (LNY) holidays, known before COVID as the greatest annual migration of people.”China’s COVID prevention and control is still in a time of stress, but the light is ahead, persistence is victory,” Xi said in his LNY greetings message carried by CCTV.”I am most worried about the rural areas and farmers. Medical facilities are relatively weak in rural areas, thus prevention is difficult and the task is arduous,” Xi said, adding that the elderly were a top priority.Xi had championed a strict zero-COVID strategy of lockdowns and other curbs on movement, which China imposed for three years at a high economic and psychological cost, before abruptly ditching it in early December soon after widespread protests.Unleashed among the country’s 1.4 billion people, the virus has disrupted factory output and consumption in the past two months, but some analysts say the deeper-than-expected shock may be followed by a faster-than-predicted recovery.Economists are scrutinising the holiday season for glimmers of rebounding consumption across the world’s second largest economy after new GDP data on Tuesday confirmed a sharp economic slowdown in China. Prolonged sluggishness could worsen the policy challenges facing Xi, who must pacify a pessimistic younger generation who led the November protests against COVID curbs.While some analysts expect that recovery to be slow and patchy, China’s Vice-Premier Liu He declared to the World Economic Forum in Switzerland on Tuesday that China was open to the world after three years of isolation.National Immigration Administration officials said that, on average, half a million people had moved in or out of China each day since its borders reopened on Jan. 8, state media reported. That is expected to rise to 600,000 a day once the holiday formally starts on Saturday. But as workers flood out of megacities such as Shanghai, where officials say the virus has peaked, many are heading to towns and villages where unvaccinated elderly have yet to be exposed to COVID and health care systems are less equipped.’LAST MILE’As the COVID surge intensified, some were putting the virus out of their mind as they headed for the departure gates.Travellers bustled through railway stations and subways in Beijing and Shanghai, many ferrying large wheeled suitcases and boxes stuffed with food and gifts.”I used to be a little worried (about COVID-19),” said migrant worker Jiang Zhiguang, waiting among the crowds at Shanghai’s Hongqiao Railway Station.”Now it doesn’t matter anymore. Now it’s okay if you get infected. You’ll just be sick for two days only,” Jiang, 30, told Reuters.Others will return to mourn relatives who have died. For some of those, that bereavement is mixed with anger over what they say was a lack of preparation to protect the vulnerable elderly before the sudden policy U-turn.In more isolated areas far from the swift urban outbreaks, state medical workers are this week going door-to-door in some outlying villages to vaccinate the elderly, with the official Xinhua news agency describing the effort as the “last mile”.Clinics in rural villages and towns are being fitted with oxygenators, and medical vehicles have also been deployed to places considered at risk.While authorities confirmed on Saturday a huge increase in deaths – announcing that nearly 60,000 people with COVID had died in hospitals between Dec. 8 and Jan. 12 – state media said that heath officials were not yet ready to give the World Health Organization (WHO) the extra data it is now seeking.Specifically, the U.N. agency wants information on so-called excess mortality – the number of all deaths beyond the norm during a crisis, the WHO told Reuters in a statement on Tuesday. The Global Times, a tabloid published by the official People’s Daily, quoted Chinese experts as saying the China Center for Disease Control and Prevention was already monitoring such data, but it would take time before it could be released.Doctors in both public and private hospitals are being actively discouraged from attributing deaths to COVID, Reuters reported on Tuesday. More