Aurelia Butler

Japan needs bolder monetary and fiscal stimulus to seize “a once-in-a-lifetime opportunity” from global inflationary pressures to end its war on deflation, according to a Bank of Japan board member who recently left the central bank.The BoJ has come under market pressure in recent months to reassess its ultra-easy monetary policy as central banks globally race to raise interest rates to tame increasing food and commodity prices. With Japanese interest rates still at minus 0.1 per cent, a divergence in global yields earlier this year sent the yen to a 24-year low against the US dollar. But Goushi Kataoka, an aggressive reflationist who left the BoJ board last month and was appointed PwC Consulting’s chief economist in Japan, warned that any attempt to weaken the central bank’s efforts to hit and sustain its 2 per cent inflation target would have serious consequences for Asia’s largest advanced economy. After Japan’s economic bubble burst in 1990, the country became locked into a vicious cycle of slow growth and stagnant or falling prices, leading to a persistent lack of demand.The falling yen and surging oil prices have recently pushed Japanese headline inflation to 2.5 per cent. Excluding volatile commodity prices, however, underlying inflation is still weak and there has been no pass-through from rising prices to higher wages.“Japan is at an important crossroads where the trend in prices could dramatically change if both the government and the Bank of Japan took bold measures” to expand fiscal and monetary stimulus, Kataoka said in his first interview since leaving the BoJ’s board. “This is a once-in-a-lifetime opportunity for the BoJ.”Goushi Kataoka said any attempt to weaken the BoJ’s efforts to hit and sustain its 2% inflation target would have serious consequences for the Japanese economy © Issei Kato/ReutersWhen hedge funds piled up short positions on Japanese government bonds in June, the BoJ was forced to significantly increase bond purchases to enforce a cap on 10-year bond yields at close to zero, a policy called yield curve control. The pressure has since declined with the yen strengthening on recession concerns in the US.While some critics have called on the BoJ to widen the yield curve to address distortions in the financial sector, Kataoka said fixing the bond yield at zero at a time when global rates are rising is crucial in increasing the easing impact. But he acknowledged the limits to what the BoJ can do, saying the government needs to encourage companies to raise wages by offering bolder tax incentives. “There seems to be a profound lack of sense of crisis” within the administration of Prime Minister Fumio Kishida, he said.He noted that additional stimulus measures, such as tax cuts, were needed for companies and households to offset the impact of the weaker yen and the rising cost of imported goods.

Since Kataoka joined the BoJ’s policy board in 2017, he has consistently voted against the central bank’s monetary policy decisions, arguing that a more aggressive approach with interest rate cuts was necessary to avoid downward pressure on prices. As a lone dissenter on the board, he has also called for a more strongly stated commitment by the BoJ to reach its inflation objective. Kataoka was replaced by Hajime Takata, an economist who has been vocal about the negative side effects of BoJ’s easing programme and sceptical about the feasibility of its 2 per cent inflation target. The appointment was closely watched as a prelude to the Kishida administration’s selection of a successor to BoJ governor Haruhiko Kuroda when his term expires in April. “There is concern that there will be moves to make the inflation target in name only. That would destroy the legacy of what the BoJ has achieved so far,” Kataoka said. “The key issue is whether the new governor can overcome criticism from the public and elsewhere to carry out the crucial mission of maintaining and evolving Kuroda’s legacy to anchor inflation expectations at 2 per cent,” he added. More

Before China’s fighter jets roared and its ballistic missiles screamed into the seas off Taiwan last week, analysts had already begun laying out — from incursion to inaction — what investors could expect next. Consensus among those forecasters was in short supply, and if anything, there is even less of it now. Both the US and China have spent recent days arguing about the definition and condition of the status quo, but the status quo now feels unambiguously in motion. The safest-looking analytical bet, in that context, is on sharply accelerated economic decoupling between the US and China, but how likely is it to move from the current, highly selective form to a broader split? Beyond the three days of Chinese military exercises due to end on Sunday and the petulantly imposed sanctions on Nancy Pelosi herself, the possible consequences of the US House Speaker’s visit to Taiwan sit on a wide speculative spectrum. China’s abrupt suspension on Friday, of bilateral meetings and co-operative talks on everything from defence policy co-ordination to drug-smuggling, lengthens the list of bad plausible scenarios.Decoupling has a credible ring. There is already visible political momentum for it on both sides. There is nothing to suggest greater closeness is in prospect, and plenty that foreshadows the divergence expanding well beyond the two central players — including Chinese missiles landing in Japan’s exclusive economic zone for the first time. The decoupling narrative, though, is one with hard limits of both time and scale and they should not be overlooked because of the events of the past week.Proponents of the more rapid decoupling thesis have a fair stack of evidence on their side. The Made in China 2025 programme is all about technological self-containedness and the Biden administration has so far done little to reduce the tone of hawkishness on China established by its immediate predecessor. This week, in a decoupling milestone, the US president will sign the Chips and Science Act passed by Congress in late July. This dangles more than $50bn in federal grants to companies building advanced semiconductor manufacturing in the US, while requiring any recipients of that funding not to upgrade any China-based factories for a decade. Non-American companies are included and the decoupling lure for South Korean chipmakers could prove decisive. Japan, which could soon confront efforts by Beijing to force its high-tech companies to design certain products in China, may also feel stronger decoupling pressure building. The narrative may also be gaining traction outside the US and its closest Asian allies. In a note to clients last week, analysts at Gavekal Dragonomics identified a deepening consensus within the EU to treat China as both an economic and a security threat. Policy could turn increasingly defensive under that understanding, even as the lobbying power of European companies with heavy investments in China remains formidable and a fully fledged debate on decoupling remains some distance away.For now, at least, there are three significant constraints on the accelerated decoupling story. The first is that the US ability to bring others along with the programme may be more fragile than it looks, even with a close ally such as Japan. As decoupling is increasingly pushed through legislation or regulation, questions over the underlying intention will intensify. Efforts to protect national and economic security are fine; deliberate hobbling of the Chinese economy will win fewer converts.The second is that, on both the Chinese and US sides, corporate resistance to accelerated decoupling will be quietly substantial, however noisy the politics becomes. The business relationships, investments and supply chains are not trivial ties that can be quickly unwound, and the Chinese market is still the most attractive long-term growth bet. Chinese companies cannot yet afford a cliff-edge exit of foreign technology and a sudden break in their learning curve.The third issue is time. In late July, the US Senate proposed a new bill that could in theory create tax incentives that would draw the electric vehicle battery production chain out of China (which dominates in all key areas) and into the US. This is logical stuff, given where electric vehicle markets are heading. The bill would superficially fit the rapid decoupling story. The reality, according to analysts at Goldman Sachs, is a rather more sedate process that would involve lead times of between four and seven years for each of the six principal points in the supply chain.Decoupling is happening, and the past week may raise the political volume on decoupling to unprecedented levels. Any real acceleration, however, may be [email protected] More

Truss was considering accelerating by six months her plan to reverse this year’s increase in social security contributions which had been pencilled in for April 2023, the newspaper said.Advisors to Truss believed the cut could be introduced within days of an emergency budget that her government would deliver in September, if she wins the ruling Conservative Party’s leadership race that is due to end on Sept. 5, it said.Truss’s rival, former finance minister Rishi Sunak, says cutting taxes now would add more fuel to Britain’s soaring inflation rate which is set to surpass 13% in October, according to the Bank of England’s latest forecasts.The BoE has also said Britain is due to enter a 15-month recession starting later this year, something Truss says adds urgency to her plan to cut taxes.Truss, writing in the Sunday Telegraph, said she wanted to “immediately tackle the cost of living crisis by cutting taxes, reversing the rise on National Insurance and suspending the green levy on energy bills.”Sunak proposes a different approach by giving support directly to lower-income households that are most exposed to the surge in power bills which will rise sharply again in October.On Saturday, he reiterated that he wanted to “go further” than the support he provided as finance minister before he resigned in protest at the leadership of Prime Minister Boris Johnson in July.”It’s simply wrong to rule out further direct support at this time as Liz Truss has done and what’s more her tax proposals are not going to help very significantly, people like pensioners or those on low incomes,” he said.A recent poll by YouGov showed Truss held a 24-point lead over Sunak among Conservative Party members who will choose the party’s next leader and Britain’s next prime minister. In her Sunday Telegraph article, Truss kept up her criticisms of the BoE, saying it had exacerbated the jump in inflation and she would “work night and day” to fix the problem.”That is why I want to look around the world at what the best performing central banks are doing to control inflation and how we can ensure our Bank is delivering what we need it to deliver,” she said.BoE Governor Andrew Bailey has denied the BoE is to blame for the inflation surge, saying it began to raise interest rates earlier than other central banks and most of the recent acceleration of prices stems from Russia’s invasion of Ukraine. More

Petro appointed Irene Velez as Minister of Mines and Energy and Alfonso Prada (OTC:PRDSY) as Interior Minister, he said on Twitter (NYSE:TWTR). Petro, who opposes fracking and new oil contracts in favor of moving toward renewable energy, said Velez has extensive experience in the environmental sector and will take on the “difficult task” of leading the transition towards an economy not based on extraction.Prada’s task will be working with the legislative branch and drawing up policies on human rights. He oversaw the 2014 electoral campaign of former President Juan Manuel Santos and was a top aide in his administration, supporting legislative issues associated with the peace negotiations with the FARC guerrillas. More