Aurelia Butler

The governor of the Bank of Japan has been forced to retract his claim that consumers had become more “tolerant” of price rises after a public backlash overy soaring food and energy costs.The rare apology issued by Haruhiko Kuroda underscored the political sensitivity of price increases ahead of July elections to the upper house of Japan’s parliament that are likely to be largely fought over the rising cost of living. “My expression that households are becoming more tolerant of price rises was utterly inappropriate, so I will retract it,” Kuroda said in parliament on Wednesday.The retraction came on the same day the yen slid against the dollar to below ¥134, a fresh 20-year low that will drive up the cost of imported goods for the resource poor Japanese economy. Speaking at the Financial Times Global Boardroom conference on Wednesday, Kuroda suggested price rises would not be sustained and that downward pressures on the yen from increasing interest rate differentials with the US were likely to ease. The BoJ governor had said in a speech on Monday that Japanese households might have become more accepting of price rises due to “forced savings” accumulated as a result of Covid-19 restrictions. “The point to consider for the time being is how Japan . . . can maintain a favourable macroeconomic environment and make this lead to a full-fledged rise in wages, including base pay, from fiscal 2023 onward,” he said. Kuroda’s comments drew immediate criticism on social media and from members of opposition parties as being “insensitive to household pain”. The timing was also unfortunate, with prime minister Fumio Kishida having just compiled emergency measures to combat rising commodity prices that include subsidies for lower income households. “What the governor had tried to say was that there will be opportunities to raise wages if company profits increase by transferring the cost to consumers through price increases,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “But the flip side of that is households will suffer the pain of price rises, and the governor was insensitive to that part.”Greater tolerance of price increases among Japanese consumers would be a sea change for a country that has struggled with a deflationary mindset for decades. There has been almost no pass-through from rising prices to higher wages, despite the fact that Japan is heavily exposed to the increasing cost of imported commodities. Companies in Japan are hesitant to transfer those costs to consumers because they fear a public backlash if they raise prices, while workers — beaten down by decades of stagnant pay — do not demand the higher wages that would let them afford higher prices in the shops.While the US Federal Reserve and the Bank of England are raising interest rates, the BoJ has repeatedly said it will maintain its monetary easing, exacerbating a global divergence in yields that has pushed the yen to historic lows. At the Global Boardroom conference Kuroda repeated that the rise in prices was driven by energy costs and would not be sustained. “At this moment, Bank of Japan must continue its support for economic activity by continuing with the current monetary easing,” he told Financial Times chief economics commentator Martin Wolf.Asked about the sliding yen, Kuroda said market players had largely priced in how much the US Fed would like to increase interest rates. “Unless the Fed raises interest rates much faster than, or more than, what their forward guidance shows, the dollar rate may not be so much affected by [US-Japanese] interest rate differentials,” he added. More

(Reuters) -Money markets ramped up their bets on European Central Bank (ECB) interest rate rises on Wednesday to price in 75 basis points (bps) of hikes by September. With the bank largely expected to start rises in July and move in 25-bp increments, the pricing implies traders now expect its hikes to include a rare 50-bp move at a single meeting by September, brought forward from the October timing anticipated on Friday.The ECB’s next policy-setting meeting will be held on Thursday.Traders have steadily ramped up their bets on ECB hikes following a higher-than-expected euro area inflation report last week, which boosted the case for larger moves from the central bank. Several policymakers have said they are open to a 50-bp move.”It seemed inevitable to me that 50-basis-point hike bets would become more popular given that the ECB is widely perceived as being behind the curve and other central banks have started to move in 50-basis-point increments as well,” said Antoine Bouvet, senior rates strategist at ING, referring to the Reserve Bank of Australia. The Australian central bank raised interest rates by 50 bps on Tuesday in a hawkish surprise. “The key question ahead of tomorrow is whether the ECB can deliver on hawkish expectations. Clearly the April meeting was a puzzling one for markets with rhetoric failing to match market expectations and I suspect the same might be true at this meeting,” Bouvet said. Bond yields had dropped sharply following the ECB’s April meeting, when it refrained from making firm pledges regarding stimulus removal beyond what it had outlined in March.In the broader market, bond yields continued to rise on Wednesday.Germany’s 10-year yield, the benchmark for the euro area, rose to a new high since 2014 at 1.351% and was up 5 bps on the day by 1043 GMT.It extended its rise after data showed the euro zone economy grew much faster in the first quarter of the year than in the previous three months despite the impact of the war in Ukraine, with an earlier estimate revised sharply higher.Italy’s 10-year yield was up 5 bps at 3.45%, but below the highest since 2018 at 3.55% on Tuesday. The closely watched risk premium on 10-year Italian debt over Germany’s was at 210 bps, down from over 220 bps earlier this week. In the primary market, Germany raised 3.266 billion euros and Portugal 750 million euros from 10-year bond auctions. More

The five-member study group, as it is called, consists of outside experts, including the head of fixed income group at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities and professors at prominent universities.”While receiving opinions and advice from highly knowledgeable persons, we will begin discussions including technical aspects,” the ministry said in a statement on Wednesday, without elaborating.Japan’s public debt is twice the size of its economy after years of fiscal stimulus, including recent efforts to battle the COVID-19 pandemic, have strained public finances, making fiscal reform an urgent task. More

Investing.com – The Organization for Economic Co-operation and Development has lowered its global growth forecast for 2022, as the group warned that the war in Ukraine will take a “hefty” toll on the world economy.The OECD now expects global real GDP growth this year to be at 3%, down from its estimate of 4.5% in December. The Paris-based organization projects the figure will fall further to 2.8% in 2023.In a statement, OECD Chief Economist and Deputy Secretary-General Laurence Boone said Russia’s invasion of Ukraine has led to a recent spike in energy and food prices. She added that this could put particular pressure on low-income countries and Europe, while also impacting “firms’ profits and capacity to invest and create jobs.””The extent to which growth will be lower and inflation higher will depend on how the war evolves, but it is clear the poorest will be hit hardest. The price of this war is high and will need to be shared,” Boone said.At the same time, the OECD flagged that China’s zero-COVID policy could also weigh on the global economic outlook by lowering domestic growth and disrupting supply chains. More

Investing.com — Two major multilateral organizations cut their outlook for global economic growth this year, seeing lasting damage from Russia’s war in Ukraine and the West’s response to it. India becomes the latest central bank to join the 50-basis point club with a surprisingly large rate hike. U.S. stocks are back in cautious mode after Tuesday’s late rally, but Chinese tech roars ahead after fresh signs of the regulators relaxing their campaign against the sector. And oil prices drift as the market waits for corroboration of a surprising rise in U.S. inventories last week. Here’s what you need to know in financial markets on Wednesday, June 8.1. OECD, World Bank cut growth forecastsTwo major multilateral organizations cut their forecasts for the world’s economy within 24 hours, as the Organization for Economic Cooperation and Development joined the World Bank in slashing its estimates for 2023.The OECD cut its forecast for global growth this year to 3.0% from 4.5% in its last quarterly update, while also revising up its inflation forecast for its 38 advanced economy members to just under 9%.The Paris-based think-tank warned the world will pay a “hefty price” in sustained disruption of trade flows due to the war in Ukraine, the West’s sanctions response, and ongoing supply chain disruptions from China’s zero-COVID policy.The World Bank had cut its forecast for growth this year to 2.9%, warning that: “Even if a global recession is averted, the pain of stagflation could persist for several years.”2. India joins the 50bp club; Poland seen hiking by 75bpThe Reserve Bank of India joined the club of central banks taking bigger-than-usual steps to bring down inflation, raising its key rate by 50 basis points to 4.90%. The RBI was responding to a surge in inflation to 7.8%, well above its 6% tolerance threshold.  It said it expected inflation to stay above target for the rest of this year, but stayed by its existing growth forecasts which see the economy slowing to a growth rate of 4% by the first quarter of 2023, from an unsustainable 16% in the current quarter.Elsewhere, the central bank of Thailand kept its key rate unchanged, but the National Bank of Poland is expected to raise its key rate by 75 basis points to 6% at its meeting later Wednesday. That all comes one day before the European Central Bank’s next policy meeting. ECB hawks who want a 50 basis point hike in July were emboldened by a big upward revision to first-quarter Eurozone GDP earlier.3. Stocks set to open lower as markets rethink inflation outlook U.S. stock markets are set to open lower later, giving up some of Tuesday’s late gains as fears for the growth outlook dominate again.By 6:15 AM ET (1015 GMT), Dow Jones futures were down 170 points, or 0.5%, while S&P 500 futures and Nasdaq 100 futures were down in parallel.The three main cash indices had all risen by nearly 1% on Tuesday after taking a positive view on Target’s second profit warning in three weeks, which held out the prospect of discounting to reduce unsold inventory. That may take the edge off inflation gauges if it’s repeated by other retailers. Wholesale inventory data at 10 AM ET may shed more light on that.Brown-Forman (NYSE:BFb) and Campbell Soup (NYSE:CPB) head a thin earnings roster, while Credit Suisse ADRs (NYSE:CS) will also be in focus after an alarming profit warning from the Swiss-based bank. Novavax (NASDAQ:NVAX) is up strongly after getting FDA approval for its COVID-19 vaccine.  Weekly mortgage applications data are due at 7 AM ET. 4. Chinese tech rallies on gaming licenses awardMarket sentiment may get a boost from fresh signs of a change of heart in Beijing toward the technology sector.  Chinese tech stocks rallied hard on local markets overnight after regulators issued a batch of licenses for new videogames – an area that has been one of many targets of the Communist Party’s disapproval in recent years.The ADRs of gaming platform Bilibili (NASDAQ:BILI) rose 7.8% in premarket trading, adding to gains of 10% on Tuesday amid revived hopes of a more liberal attitude generally to the big fortunes amassed by owners of tech companies. Alibaba ADRs (NYSE:BABA) rose 5.2%, while Tencent ADRs (OTC:TCEHY) rose 2.3%.5. Oil pushes higher on UAE warning; EIA inventories eyedCrude oil prices resumed their upward march after grim forecasts from a major oil producer and the head of the International Energy Agency.The United Arab Emirates Energy Minister Suhail Al Mazroui warned that the global supply-demand balance threatened to worsen considerably as demand in China rebounds. He also warned at a conference that the West has the capacity to make a tight market situation much worse if it leans on other countries to refuse Russian oil supplies.The EU’s latest sanctions package not only foresees a phased end to imports of Russian fuel, but also bans European insurers (who dominate the global market) from insuring seaborne cargoes of Russian oil. That has triggered fears of a creep toward even more punitive ‘secondary sanctions’ on the sector.By 6:25 AM ET, U.S. crude futures were up 1.4% at $121.03 a barrel, while Brent futures were up 1.2% at $122.06 a barrel, shrugging off a surprise increase in U.S. stockpiles reported by the American Petroleum Institute. The government’s data are due at 10:30 AM ET. More

Economic growth in the UK will grind to a halt next year with only Russia, hobbled by western sanctions, performing worse among the G20 leading economies, the OECD forecast on Wednesday. The Paris-based organisation’s forecast highlighted the effects of high UK inflation still squeezing household and corporate incomes in 2023 alongside a further round of tax increases as the main drivers of the country’s expected weak economic activity. The forecasts underscore the difficulties a weakened Prime Minister Boris Johnson is likely to face in the months ahead as he tries to shore up support within his Conservative party after surviving a no-confidence vote on Monday and demonstrate the government can manage the economy effectively. Speaking about the specific weaknesses of the UK economy compared with other rich countries, Laurence Boone, chief economist of the OECD, said the UK was unique in simultaneously grappling with high inflation, rising interest rates and increasing taxes.“Inflation is high compared with other OECD countries in the G20 . . . that’s one thing. The other thing is there is fast monetary tightening, which is obviously responding to [the inflation], and there is fiscal consolidation, which is the highest in the G7,” she said. “There is the sensitivity of manufacturing to the global supply chain and there is also probably a bit of Brexit [in explaining the poor performance] although we are not really able to disentangle each of these factors specifically.” The OECD forecast that the UK economy would record growth of 3.6 per cent in 2022, although much of that reflected recovery from coronavirus at the end of last year. But this growth would fall to zero next year as households are increasingly squeezed. Inflation would remain high and average 7.4 per cent next year having hit double digits later this year. The OECD said the economy would be “stagnating in 2023 due to depressed demand”.In response to the OECD report, the Treasury said: “We recognise many people will be concerned by these forecasts,” adding that “we can’t insulate the UK from global pressures entirely . . . [but] we are supporting people with the cost of living”.The Treasury has hinted about tax cuts to come, something the OECD said it should implement. “The government should consider slowing fiscal consolidation to support growth,” it said. But it also stressed that there were many risks and most of these would make the situation even worse if these materialised. “Spillovers from economic sanctions and higher than expected energy prices as the Ukraine war drags on, and a deterioration in the public health situation due to new Covid strains are significant downside risks,” the report said.

It added that higher than expected goods and energy prices could reduce real incomes even further and there was no guarantee that the Bank of England would be able to get inflation quickly back to its 2 per cent target. “A prolonged period of acute supply and labour shortages could force firms into a more permanent reduction in their operating capacity or push up wage inflation further,” the OECD said.The organisation said it expected the BoE to raise interest rates from the current 1 per cent to 2.5 per cent as a result of the significant inflationary pressure and because it had noticed some “upward drift” in professional forecasters’ expectations of inflation in the UK, unlike in all other advanced economies except the US. More

The world will pay a necessary but “hefty price” for taking a stance against Russia’s invasion of Ukraine, the OECD said on Wednesday as it urged governments to ensure that the burden is shared fairly. The Paris-based international organisation said the conflict would lead to lower growth and higher inflation as it urged its members to protect the poorest households within their countries and guarantee grain supplies for the countries most affected by the war in Ukraine. The OECD represents the majority of the world’s advanced economies and its call to action came as it published much weaker economic forecasts, with large cuts to expectations of growth and big increases in expected inflation across rich countries. Laurence Boone, chief economist of the OECD, said: “There is a price [of Russia’s invasion] and the questions for policymakers are, how high is the price, and how should it be shared.”“If you don’t share it well, the price will be higher,” Boone added, highlighting the potential political fallout from famine in food-importing countries and polarisation in rich countries, if those on low incomes bore the burden of Moscow’s actions. Food prices have surged as Russia has “weaponised” supplies, prompting several countries to introduce export bans to safeguard their stocks for their citizens. “We have not been very good with [sharing Covid-19] vaccines and I hope we will be better this time,” Boone said. The report was published a day after the World Bank warned of a rise in extreme poverty among the poorest in the world and increased chances of a debt crisis in low- and middle-income countries. The OECD lowered its global growth forecast for 2022 to 3 per cent, from 4.5 per cent in December. That put it below the IMF’s 3.6 per cent estimate made in April and suggests the global economic pain as a result of the war is still increasing. In 2023, global growth would slip further to 2.8 per cent. Some countries would flirt with recession, it added, singling out the UK as the country most likely to contract as it forecast stagnation in 2023, the weakest performance of any economy in the G20 outside Russia.

The war’s ability to impose costs on other countries came as a result of the importance of Russia as a commodities and fossil fuel exporter, and both Russia and Ukraine as food exporters.Higher prices for these commodities as Europe, in particular, seeks to minimise its imports of oil and gas has fuelled the forces of inflation that were already growing across advanced economies, the OECD said. It expects inflation to average 8.5 per cent across OECD countries in 2022 and 6 per cent in 2023 and noted that energy price rises were now spreading out into other areas. Across the US, eurozone and the UK, more than half of the goods and services included in the inflation calculations had annual price increases of more than 4 per cent and there were signs that it was becoming a more persistent problem. Central banks should tighten policy, the OECD said. While significant interest rate rises in the US and UK were necessary, more “cautious” action was needed in the eurozone. However, it still called on the European Central Bank to begin to remove some of the extraordinary stimulus put in place over the past decade.“The question we should ask is do we need this extent of monetary policy accommodation and I don’t think we can answer ‘yes’,” Boone said.For the ECB, which meets on Thursday, the OECD recommended taking a data-driven approach, while in the US, where Boone said there was “over-buoyant demand”, the Federal Reserve could tighten policy at a faster pace. More