Aurelia Butler

TOKYO (Reuters) -The Bank of Japan (BOJ) has modified its stimulus measures to ease the transition away from an unconventional monetary policy when Governor Haruhiko Kuroda retires in April, former top currency diplomat Takehiko Nakao told Reuters in an interview.Prolonged monetary easing has amplified side effects such as blunting market functions, excessive yen weakening and looser fiscal discipline, at the expense of increases in real income, said the former vice finance minister for international affairs.The central bank surprised markets last week by relaxing its yield tolerance for 10-year Japanese government bonds (JGBs), a move aimed at easing the cost of prolonged economic stimulus.”The BOJ has not succeeded so much in raising inflation expectations and bringing down real interest rates while side-effects became larger. I was thinking the current framework must be modified sooner or later,” he said.”I am not sure about the reason for the latest action, but it may have an effect of alleviating burden for whoever succeeds Kuroda regarding all the negative shocks stemming from adjustments.    “It was good in a sense that it reduced the burdens of starting policy adjustment.”Altering the BOJ’s easy-money policy would cause shocks such as pushing up mortgage interest rates and JGB yields, but that needs be done at some point, Nakao said, also noting that the BOJ’s 2% inflation target – stipulated in a government accord – may be making monetary and fiscal policy inflexible.Nakao was president of the Asian Development Bank from 2013 through early 2020 and is now “Chairman of the Institute” at Mizuho Research and Technologies, part of Mizuho Financial Group Inc, Japan’s third-biggest commercial bank.RECESSION RISKNakao sounded cautiously sanguine about the global economic outlook next year.Speculation lingers about a global downturn due to the global tightening of monetary policy, but Nakao saw no need to be pessimistic, with the United States backed by solid domestic demand and a flexible job market which may lead to sustainable wage gains.There’s no need to think that a recession is inevitable, he said.Although the strong dollar may strain emerging-market debt, Nakao brushed aside the risk of return of the Asian financial crisis due to stable monetary policies, stricter fiscal discipline and financial regulation in the region.As the top currency diplomat, he intervened heavily to stem yen strength when the currency traded around 75 yen in 2011 in the aftermath of an earthquake, tsunami and nuclear crisis.”The yen was too strong back then, but now the yen is clearly too weak,” Nakao said, declining to specify preferred levels under current circumstances.In September, Japan intervened in currency markets for the first time in 24 years to back the yen which weakened against the U.S. dollar to a 32-year low of around 150 yen.Nakao said Japan’s waning economic power and its excessively expansionist policy are weighing on the yen and making Japanese assets vulnerable to takeovers by overseas investors.”It’s certain that excessive yen weakness is bad,” Nakao said. “It is helpful that raising interest rates lead to some strengthening of the yen.” More

LONDON (Reuters) – Stock markets gained on Tuesday after China said it would scrap its COVID-19 quarantine rule for inbound travellers – a major step in reopening its borders.MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, outperforming an index of global shares, which rose 0.2%. China’s bluechip gained 1%.The pan-European STOXX 600 index rose 0.5%, tracking the rally in Asia, a small gain against the nearly 12% it has lost this year, as central banks’ aggressive monetary policy tightening has hit European equities hard. U.S. stock futures, the S&P 500 e-minis, climbed 0.7%, indicating the market is set to rise as traders return to their terminals on Tuesday after the Christmas holiday.Markets in some regions including London, Dublin, Hong Kong and Australia remain shut.The value of bonds fell as yields, which move inversely to price, hit nine-week highs on Tuesday, with German two-year yields at their highest since 2008 to trade around 2.489%, while Italian bond yields rose 11 basis points to 4.622%.European bond markets have yet to reach peak rates, with the European Central Bank (ECB) lagging behind the U.S. Federal Reserve’s jumbo rate increases, according to Florian Ielpo, head of macro at Lombard Odier Investment Managers. The broader picture looks bullish, he said, pointing to prices on credit spreads and in broader derivatives markets. The, often seen as a gauge of risk aversion, has fallen 35% since the beginning of October, as investors have grown more confident about inflation having peaked. “What we are seeing today, with a China rally and bullish prices in commodities futures, is what played out in the summer of 2008 and it looks to us like an end-of-a-cycle moment,” Ielpo said. “With a total decline of around 20% this year, it will take a minor miracle for 2022 to not be the weakest year for global stock markets since the financial crisis of 2008,” said Lara Mohtadi, an analyst at SEB Bank.”Last week we also saw the biggest rise in U.S. 10-year yields since April and on Friday trading ended at 3.75%,” she said.The yield on two-year Japanese government bonds (JGBs) on Tuesday jumped to its highest in more than seven-and-a-half years, as an auction for the notes with the same maturity received relatively weak demand.The dollar fell 0.1% against a basket of major currencies. The euro rose about 0.25% versus the dollar to $1.066. Commodity currencies such as the New Zealand and Australian dollars also moved higher. Oil prices ticked up on thin trade, on concerns that winter storms across the United States were affecting logistics and production of petroleum products and shale oil.Brent crude was up 0.9% at $84.68 a barrel, while U.S. West Texas Intermediate crude was also up 0.8% at $80.22 a barrelU.S. Treasuries will resume trading on Tuesday after a public holiday on Monday. The benchmark 10-year yield climbed the most last week since early April, ending around 3.75%.The two-year JGB yield rose to as high as 0.040%, its highest since March 2015, before falling to 0.030%. Analysts from Citi flagged upside risk in a report on Friday that the Fed’s policy interest rate could reach 5.25% to 5.50% by the end of 2023.Their forecast was based largely on expectations that the labour market would keep adding jobs in the first months of 2023 despite already being very tight, which would put further upward pressure on wages and non-shelter service prices, thereby requiring the Fed to raise rates more quickly. More

The rouble lost about 8% against the dollar last week and is on course for a monthly decline after an oil embargo and price cap came into force. The finance ministry has said the recent slump was related to recovering imports. At 0742 GMT the rouble was 1.2% weaker against the dollar at 70.10, but still some way off the almost eight-month low of 72.6325 struck last week. “At the end of December, the rouble is likely to remain extremely volatile as the market will need to find a new equilibrium under changed trade flows and increased sanctions pressure,” BCS World of Investments said in a note.”This week, the rouble is expected to fluctuate in the range of 68-71 (per dollar).”Against the euro, the rouble lost 1.1% to 74.35. Against the yuan, it was down 1.9% at 9.95.The rouble remains the world’s best-performing major currency against the dollar this year, supported by capital controls and reduced imports. Now, with exports and revenues falling, a weaker rouble is more beneficial, the TASS news agency quoted First Deputy Prime Minister Andrei Belousov as saying on Tuesday. “The strong rouble has played its role,” Belousov said. “In these conditions … it would be good to have a rouble rate of 70-80 per dollar.”Brent crude oil, a global benchmark for Russia’s main export, was up 0.4% at $84.2 a barrel while Russian stock indexes were mixed.The dollar-denominated RTS index was down 1.6% at 961.3 points. The rouble-based MOEX Russian index was unchanged at 2,139.5 points after touching its highest in nearly two weeks in early trade.For Russian equities guide seeFor Russian treasury bonds see More

NEW YORK (Reuters) – Cathie Wood’s ARK Innovation Fund, which more than doubled during the pandemic rally, is on pace to finish near the very bottom of all U.S. mutual funds in 2022 after surging inflation and higher interest rates dried up appetite for high-growth shares.The ARK Innovation Fund has lost around 67% year to date, more than tripling the decline of the S&P 500 index. Its tumble has made it the worst-performing among all 537 U.S. mid-cap growth funds and put it near the bottom of all U.S. equity funds tracked by Morningstar, according to the firm’s Dec. 16 ranking. With the S&P 500 on pace for its biggest annual decline since the Great Financial Crisis, few funds are likely to escape 2022 unscathed. Stock portfolio managers trailed their benchmarks by 0.6% this year, leaving most behind the 19% drop in the S&P 500 for the year to date or the nearly 22% decline in the Russell 2000.”Portfolio managers got it wrong on inflation this year, and you could also say that the Fed got it wrong on inflation,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. Wood’s fund ranked 3,544 among all 3552 actively-managed U.S. equity mutual funds tracked by Morningstar. The worst performing fund of the year, by comparison, was the Voya Russia fund, which is down 92% for the year to date.The high-growth companies favored by Wood have fared especially badly as the Federal Reserve’s rate increases lifted bond yields, dulling the allure of high-growth stocks.Top-holdings such as Zoom Video Communications (NASDAQ:ZM) Inc, Tesla (NASDAQ:TSLA) Inc and Block Inc (formerly known as Square) are all down more than 60% this year, while Teladoc (NYSE:TDOC) Health IncN > and Roku (NASDAQ:ROKU) are both down more than 70%. Overall, each of the fund’s ten largest holdings is down 30% or more for the year to date. Wood also seemed to be caught off-guard by the staying power of inflation, saying a year ago that deflation was the true risk for markets in the year ahead. In September of this year, she called the Fed’s rate hikes a “mistake” and in December said that she believes that the U.S. economy has been in a recession “all year.” Consumer prices surged in 2022 to their highest level in four decades.The top 15 actively managed equity mutual funds this year, meanwhile, largely focused on energy or commodities, benefiting from a surge in prices for oil and other raw materials. The Invesco Energy Fund, which topped all diversified funds in Morningstar’s mid-December rankings, is up nearly 49% year to date.The MicroSectors U.S. Big Oil 3x Leveraged ETN, which offers a triple daily return of the equally-weighted stocks in its portfolio like Chevron Corp (NYSE:CVX) and Exxon Mobil Corp (NYSE:XOM), led all funds in Morningstar’s ranking. It is up 172% year to date.CRASH LANDING Other funds that soared in recent years on the backs of large bets on technology stocks fell on hard times in 2022. The $1.4 billion Morgan Stanley (NYSE:MS) Insight I fund, which has its largest position in cloud company Snowflake Inc, was among the worst performing large-cap fund in the Morningstar ranking and is down 61.3% year to date, while the $59 million Zevenbergen Genea Fund, which like ARK has an outsized bet on Tesla Inc, slumped 59% and was among the year’s worst performing diversified funds, according to Morningstar.Wood shot to prominence in 2020 as her portfolio of so-called “stay at home” stocks like Zoom and Teladoc soared, helping her fund at one time reach $27.6 billion in assets under management. The fund now has slightly less than $6.5 billion in assets.Memories of those heady days may be one of the reasons many investors have continued to buy into her futuristic vision.The ARK Innovation Fund has pulled in a net $1.6 billion in inflows this year despite its total assets under management shrinking by half due to poor market performance, according to Lipper data.”The investor loyalty in the fund is abnormal,” said Todd Rosenbluth, head of research at analytics firm VettaFi. “This is still one of the largest actively managed ETFs and there’s staying power for this fund if it turns around its performance in 2023.” More

A blizzard described by meteorologists as a “bomb cyclone” has killed more than two dozen people and left thousands without power in western New York state. States across the US have been struck by the storm, with the hardest-hit area being New York’s Erie County, which includes the city of Buffalo, the state’s second-largest city.New York governor Kathy Hochul, who was born in Buffalo, said yesterday that visiting the area was like “going to a war zone”, while US president Joe Biden has declared an emergency in New York, authorising the Federal Emergency Management Agency and Department of Homeland Security to co-ordinate relief efforts.Erie County executive Mark Poloncarz said the death count had risen overnight from 13 to 25 people, adding that the storm was potentially more deadly than New York’s blizzard of 1977 — and more ferocious.Three more stories in the news1. China’s decisive break with zero-Covid regime China is to remove quarantine requirements for inbound travellers from January 8 as the country dismantles the remnants of a zero-Covid regime that closed it off from the rest of the world for almost three years. The National Health Commission yesterday unveiled the move as part of a wider announcement that downgraded the country’s management of Covid-19 and definitively abandoned a host of other preventive measures.‘Made of flesh, not iron’: China’s medical staff are being asked to work while sick and retired workers are being recalled to duty, as frontline health professionals bear the brunt of Beijing’s about-face on its tough zero-Covid policy.2. Apple to start making MacBooks in Vietnam by mid-2023 The US tech group is continuing to diversify its production base away from China, tapping its top supplier, Taiwan’s Foxconn, to start making MacBooks in the south-east Asian nation as early as around May, sources briefed on the matter told Nikkei Asia. The shift to Vietnam comes amid not only rising geopolitical tensions but also production disruptions caused by China’s zero-Covid policies and uncertainty from their sudden loosening in recent weeks.3. Lee Myung-bak to be pardoned South Korea’s former president is to be pardoned tomorrow, after serving almost four years of a 17-year sentence for corruption, embezzlement and bribery, the country’s justice ministry has said. President Yoon Suk-yeol said the special pardon had been issued in the name of promoting national unity, though many South Koreans remain opposed to the move. Dig Deeper: Lee led the country from 2008 to 2013 after serving as mayor of Seoul, but why was he jailed?What else we’re readingBiden confounds critics The US president has ended the year more positively than he might have hoped, including a better than expected performance for Democrats in the midterm elections, the release of Brittney Griner, the US basketball star detained in Russia, and the announcement of a multibillion-dollar investment in semiconductor manufacturing in the swing state of Arizona. James Politi explains why what might have been a devastating year for Biden’s presidency — including grappling with Russia’s war in Ukraine — is instead ending on a high note.Carmakers quietly cut ties with China in supply chain shake-up European and US carmakers have launched a quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers. “There is a large-scale rethinking of logistics operations [across the industry],” said Ted Cannis, a senior executive at Ford. “The supply chain is going to be the focus of this decade.”Uruguay’s global ambitions shake up Latin America’s Mercosur trade bloc Uruguay’s pro-business leader, Luis Lacalle Pou, is creating tensions in the South American Mercosur customs union alliance, explains Lucinda Elliot in Montevideo. Lacalle Pou is keen to negotiate new trade deals outside the regional bloc but that has led to accusations of foul play and unsportsmanlike tactics. “Uruguay needs to choose if it is with Mercosur,” Argentina’s foreign minister, Santiago Cafiero, told the Financial Times.Most read FT story of the year: Russia’s invasion of Ukraine in mapsAs the year reaches its end, we are sharing some of our most read stories across different sections of the FT. Today’s is the most read story overall.Since the start of the full-scale Russian invasion of Ukraine in February, the Financial Times has been tracking movements of Ukrainian and Russian forces. Millions of readers have followed our visual guide to the war, which continues to show updates.The war in review: In March, Demetri Sevastopulo reported that Russia had asked China for military help in Ukraine, according to US officials. This was our second-most read story of the year. The latest: Five lessons from Russia’s invasion of Ukraine

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Time to go awayWe should stop worrying about those infuriated by the greeting “happy holidays”, writes Andrew Edgecliffe-Johnson, in this must-read column. Instead, what Americans should be complaining about is their lack of actual vacations. The US stands alone among OECD nations in having no minimum statutory amount of annual paid leave. And now, with the increases in work-related stress, depression and anxiety since the pandemic, isn’t it time to ask for more happy holidays . . .? More

The new year is a perfect time to rethink and reorganise your financial affairs — but where should you start? Podcast host Claer Barrett is joined by Iona Bain of Young Money blog, financial educator Timi Merriman-Johnson, also known as Mr Money Jar, and Sara Williams, the debt adviser behind the popular Debt Camel blog and Instagram account. They discuss their own new year resolutions, and give advice on setting and sticking to your financial goals in the year ahead. From finding smart ways to save to dealing with debts, the panel reveals plenty of digital tools that could help you keep better track of your budget in 2023. Plus, they debate whether it’s worth overpaying your mortgage as interest rates continue to rise, and pose a pension question that everyone over 45 needs to find out the answer to. To listen, click on the link above or search for Money Clinic wherever you get your podcasts. Got an idea or a Money Question you’d like to ask us on a future episode? Email us via [email protected] or send Claer a direct message on social media; she is @ClaerB on Twitter, Instagram and TikTok.

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Over the past 20 years, China has risen from obscurity to become a global leader in the car parts industry.Its growth was fuelled by European and American carmakers that farmed out the production of an increasing number of their components to China to save costs and establish links with the world’s largest car market.But international groups have now launched a quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers, according to industry executives and supply chain experts. “There is a large-scale rethinking of logistics operations [across the industry],” said Ted Cannis, a senior executive at Ford. “The supply chain is going to be the focus of this decade.”The move has been prompted by two developments. The first is uncertainty caused by China’s zero Covid-19 policy that forces plants to close at short notice.“The longer the pandemic stretches, the more uncertainty there is,” Volvo Car boss Jim Rowan said earlier this year, when announcing the Geely-backed carmaker was increasing its use of non-Chinese components.But the second is a longer-term concern about a larger political decoupling in the event of a breakdown in China’s relations with the international community, similar to Russia, that could threaten trade.Although most international groups are unlikely to abandon the Chinese market entirely because of its size, they expect the flow of components from the country to plants across the world to fall over time. Consequently, foreign manufacturers aim to make parts and cars inside China exclusively for use within the country. This cuts their reliance on Chinese factories for goods sold overseas, while retaining a secure local supply chain for their own plants inside the country.

An assembly line of Audi Q3 cars at the FAW-Volkswagen Tianjin plant. Foreign manufacturers are aiming to make parts and cars inside China exclusively for use within the country © REUTERS

A quarter of China’s exported car parts end up in US plants at present, said a report from Sheffield Hallam University in December, which highlighted the country’s rise as a global supplier over the past two decades.In private, car bosses draw parallels with their experience in Russia after President Vladimir Putin’s invasion of Ukraine.Then, groups from Renault to Mercedes-Benz were forced to wind down or sell plants in Russia, while key components, such as palladium, had to be sourced elsewhere.“I think that the [auto] world got surprised by Russia and Ukraine,” said Cannis. “The US-China relationship is more difficult than it has been previously . . . it’s a new world.”However, the supply chain shake-up will take time as carmakers rarely switch the sourcing of components until the end of a vehicle’s life, which is about seven years. It could also prove expensive for an industry that already operates on lean margins. “I don’t think the sourcing is the difficulty. It’s the price that winds up changing,” said Tom Narayan, an automotive analyst at RBC.“If everyone tries to shift to the same European or US providers, you’re limiting the supply, and the price will go up.”Ted Mabley, supply chain consultant at PolarixPartner, said moving away from China “will be looking at a price lift for both labour and material”.This means carmakers must make savings elsewhere, particularly with costs rising in the switch to electric, or risk becoming uncompetitive. “If we don’t fix the affordability issue, the middle classes won’t buy EVs [electric vehicles],” said Stellantis chief executive Carlos Tavares.“If 85 per cent of the total cost of a vehicle is parts, if you don’t act on that 85 per cent, you will have no impact,” he said, and that “requires us to use low cost countries”.China is “not the only one and not even the best”, he added, with “plenty of options” across India, Mexico, and parts of north Africa and Asia.However, carmakers are also aiming to be more rigorous over their choice of suppliers as they focus on the resilience of the supply chain, as well as costs, to make sure it does not break down.“It is no longer an era where cost is the major driving factor,” said Masahiro Moro, senior managing executive officer at Mazda. “Right now, robustness of our supply chain also needs to be considered to ensure the stable procurement of parts.”Mazda said it was shifting production of some components made in China to its home market in Japan.This is a sign that even Japanese carmakers, which tend to be less dependent on the country than their rivals in Europe or the US, have started to reduce their reliance on China-based supply chains. The company has already asked more than 200 of its suppliers that use components made in China to stock up on inventories in case there are disruptions ahead.Yet despite growing wariness behind boardroom doors, the industry remains reliant on sales to consumers in the Chinese market, making it hard for executives to talk openly about some of the changes.Executives said Mazda’s reallocation was driven mainly by concerns over the reliability of supplies as a result of the Covid lockdowns.Japan-based Honda admitted it was considering ways to cut supply chain risks, although it denied media reports that it was exploring the possibility of building cars and motorcycles with as few China-made parts as possible. “With a series of production supply impacts due to multiple factors, including the Shanghai lockdown, we are considering various ways to hedge supply chain risks. However, we are not specifically considering a scenario of decoupling in China,” the company said.Both Ford and General Motors have been proactively shifting parts out of the country for their US factories for more than a year, according to several people. GM said: “Most of the parts we use in North America are already sourced in North America, and supply chain challenges over the past few years have reinforced the value of the resilience of our sourcing.”The company added that “most of our sourcing in China is for production in China”, and “we plan to continue this approach”. Supply chain risks are greater for the German carmakers Mercedes, BMW and particularly Volkswagen.

The three are so deeply embedded in China that, alongside German chemicals group BASF, they accounted for a third of all European direct investment between 2018 and 2021.“The Germans are so tethered to China, not only for sourcing but on the customer side too,” said RBC’s Narayan. “That is actually right now the biggest risk that investors are looking at.”However, Jörg Burzer, head of supply chains at Mercedes-Benz, stressed any changes to the company’s sourcing of parts were not driven by political concerns. It is “not about China or the US”, but “about the best set-up of the supply chain and the operations”, he told the Financial Times Global Boardroom summit in December.“Obviously, we look at the sources which are nearby, which could also be from European suppliers or US suppliers or Mexican suppliers,” he added, stressing it was not about the nationality of a supplier.Additional reporting by Claire Bushey in Chicago More