Aurelia Butler

TOKYO (Reuters) – More than three-quarters of Japanese firms say the yen has declined to the point of being detrimental to their business, a Reuters poll found, with almost half of companies expecting a hit to earnings. The results of the Reuters Corporate Survey are one of the clearest signs yet that much of Japan Inc is struggling with higher costs and worsening consumer demand caused by the yen’s weakness.The survey also showed almost 60% think the government should move quickly to restart nuclear reactors, evidence that higher energy costs – driven in part by the currency’s slide – may be changing opinion on nuclear policy. The currency fell to its lowest against the dollar in about 20 years on Wednesday, slumping past 126 yen. It has pared some losses and was trading at 125.6 yen on Thursday.While yen weakness is often a boon for Japan’s export-driven economy, at these levels companies are more worried about how it inflates fuel and raw material imports, which are already soaring due to the war in Ukraine. A decades-long shift to producing more goods overseas has also muted a weak yen’s benefits. “We see the surging energy and commodity costs that come with the weakening currency as a negative,” one manager at a ceramics maker wrote on condition of anonymity.”We are concerned that could lead to constraints on consumption and capital spending.”Forty-five percent of companies said they find it hard to cope with the currency weakening beyond 120 yen, while 31% described 125 yen as their pain threshold.This month’s survey was conducted between March 30 and April 8, when the yen moved between 122 and 124 to the dollar. It polled about 500 large and midsize Japanese non-financial firms, of which around half responded.EARNINGS HITNon-manufacturers, which tend to be more focused on the domestic economy, were more sensitive to the weak yen than manufacturers, but only by a thin margin, the survey showed. Food processing companies were the most sensitive overall, with 73% of respondents putting their threshold at 120 yen. They were followed by retailers, 64% of which had the same threshold.”The ongoing weakening in the yen has come on top of higher raw materials costs and dealt a double blow to our business,” a manager at a food processor said.Overall, 48% of firms expect the currency’s weakness to hit earnings, with 36% saying it would hurt profits “somewhat” and 12% saying the impact would be “considerable”.Some 23% said it would be a boost to profits, while 30% said it would have no impact.Many food processors and retailers expect a hit to earnings, as do many in fibre, paper and pulp manufacturing, steelmaking as well as automaking and auto parts.Fifty-seven percent of firms said the government should move quickly to restart nuclear reactors to address energy security, showing how the Ukraine crisis and higher energy costs have put the issue in sharp relief.”Surging electricity bills are hurting our business,” said one manager at a wholesaler, who was in favour of a restart.Nuclear power remains a difficult issue in Japan, where a decade after the Fukushima nuclear meltdown only a handful of the country’s 30-odd power plants are operating.A public opinion poll by the Nikkei newspaper last month showed 53% of voters believe the government should proceed with restarting nuclear reactors. That compared to 44% in a previous survey in September.”Nuclear power is a necessary evil,” wrote a manager at a machinery maker. “It would greatly contribute to the reduction of CO2 emissions and it should be carefully considered as an alternative to the energy sources we are currently depending on Russia for.” (This story refiles to add dropped word in first paragraph) More

BRASILIA (Reuters) -The Brazilian government plans an across-the-board 5% salary increase for public servants starting in July in an attempt to end protests and strikes affecting public services, three Economy Ministry sources said on Wednesday.According to two of the sources, who requested anonymity to discuss private deliberations, the increase will cost the federal government around 6 billion reais ($1.28 billion) this year. Brazil has a constitutional spending cap so the government will have to cut other expenses to increase salaries, as Congress approved the 2022 budget with only 1.7 billion reais for such raises. The government had also analyzed options within that limit, including boosting meal vouchers by 400 reais ($85) for all employees, a possibility that they largely rejected.Another alternative was to favor a few categories of civil servant, including those at the central bank and public revenue service, which were leading noisy protests after President Jair Bolsonaro said earlier this year that only civil servants providing public security would be allowed to receive raises.Behind the scenes, Economy Ministry officials strongly opposed that idea, arguing that privileging a few could set off a wave of new protests demanding more costly raises.”The biggest problem was giving raises to one category and not others,” said one of the sources familiar with discussions.Many public employees have not seen their wages rise in five years and protests have taken place as double-digit inflation erodes purchasing power in Latin America’s largest economy.A strike by central bank employees is delaying the release of economic data, while protesting tax auditors have delayed the processing of goods arriving in Brazil.($1 = 4.6899 reais) More

UNITED NATIONS (Reuters) – The United States is pushing the U.N. Security Council to further sanction North Korea over its renewed ballistic missile launches by banning tobacco and halving oil exports to the country and blacklisting the Lazarus hacking group, according to a draft resolution reviewed by Reuters on Wednesday. The United States circulated the draft to the 15 council members this week. It was not immediately clear if or when it could be put to a vote. A resolution needs nine “yes” votes and no vetoes by Russia, China, France, Britain or the United States.  Russia and China have already signaled opposition to strengthening sanctions in response to Pyongyang’s launch last month of an intercontinental ballistic missile – it’s first since 2017.U.S. special envoy on North Korea, Sung Kim, told reporters last week that the United States had discussed the draft U.N. text with China and Russia, but “unfortunately, I cannot report that we have had productive discussions with them thus far.”U.S. and South Korean officials and analysts have also said there are increasing signs that North Korea could also soon test a nuclear weapon for the first time since 2017.The U.S.-drafted U.N. resolution would extend a ban on ballistic missile launches to include cruise missiles or “any other delivery system capable of delivering nuclear weapons.”It would halve crude oil exports to North Korea to 2 million barrels annually and halve refined petroleum exports to 250,000 barrels. It also seeks to ban North Korean exports of “mineral fuels, mineral oils and products of their distillation.”North Korean leader Kim Jong Un is known as a chain smoker – frequently seen with a cigarette in hand in photographs in state media – and the draft resolution would ban exports to North Korea of tobacco and manufactured tobacco.North Korea has been subjected to U.N. sanctions since 2006, which the U.N. Security Council has steadily – and unanimously – stepped up over the years in a bid to cut off funding for Pyongyang’s nuclear weapons and ballistic missile programs.LAZURUS HACKERSThe council last tightened sanctions on Pyongyang in 2017, but since then Beijing and Moscow have pushed for an for an easing of the measures on humanitarian grounds.The United States and allies say Kim is to blame for the humanitarian situation, accusing him of diverting money to nuclear weapons and missile programs instead of spending it on the North Korean people.The hermit Asian state has successfully evaded some U.N. sanctions and continued developing its programs, according to independent U.N. sanctions monitors, who reported in February that North Korean cyberattacks on cryptocurrency exchanges were earning Pyongyang hundreds of millions of dollars.The draft resolution would impose an asset freeze on the Lazarus hacking group, which the United States says is controlled by the Reconnaissance General Bureau, North Korea’s primary intelligence bureau.The Lazarus group has been accused of involvement in the “WannaCry” ransomware attacks, hacking of international banks and customer accounts, and the 2014 cyber-attacks on Sony (NYSE:SONY) Pictures Entertainment.The draft resolution would also ban anyone from “procuring or facilitating the procurement of information and communication technology -related services” from North Korea. When asked about the U.S. push last week, China’s U.N. Ambassador Zhang Jun said: “We do not think that additional sanctions will be helpful in easing the tension, it might even make the situation worse.” More

FRANKFURT (Reuters) – The European Central Bank may outline on Thursday a clearer schedule for unwinding its extraordinary stimulus, as worries over record-high inflation trump concerns about a war-related recession. The ECB has been reducing the pace of its money-printing programme for months but it has so far avoided committing to an end date for the scheme, worried that the war in Ukraine and sky-high energy prices could suddenly change the outlook.For now, the bank plans to end bond purchases, commonly known as quantitative easing, at some point in the third quarter, with interest rates going up “some time” after that.Approved last month, this loosely worded schedule is already being challenged as opposing forces leave the rate-setting Governing Council in a dilemma. On the one hand, inflation is already at a record high 7.5%, with more increases still to come. On the other, the bloc’s economy is now stagnating, at best, with the impact of the war hurting both households and businesses.”Given the high levels of uncertainty, (the ECB) will likely want to maintain the optionality and flexibility,” ABN Amro economist Nick Kounis said. “However, the hawkish tone is likely to intensify, leaving no doubt that the most likely outcome in coming months is an end to net asset purchases and subsequently higher policy rates.”Indeed, a host of conservative policymakers, including the central bank governors of Germany, the Netherlands, Austria and Belgium have all made the case for higher interest rates, worried that high inflation could linger too long. Adding to the hawkish case, longer-term inflation expectations, a key gauge for the credibility of policy, have moved decisively above the ECB’s 2% target, even though wages have yet to respond to higher prices. RATE HIKES?So, although policy is expected to remain unchanged at Thursday’s meeting, ECB chief Christine Lagarde could come under pressure to signal more firmly that support will be rolled back in the coming months.”Lagarde could hint at a conditional end of (asset) purchases in June, opening up the possibility of a first rate hike in September,” Pictet Strategist Frederik Ducrozet said. “Alternatively, she might just refrain from pushing back against market pricing, which is consistent with lift-off in September anyway.”Lagarde contracted COVID-19 last week but said her symptoms were “reasonably mild”. Markets now price in a combined 70 basis points of hikes in the ECB’s minus 0.5% deposit rate this year, even though not one of the ECB’s 25 policymakers have called for such aggressive tightening. Fuelling policymakers’ caution is the economic outlook, which is deteriorating quickly.High energy prices are draining household savings and the uncertainty of the war is halting corporate investment. Banks are also tightening access to credit as they naturally do during wars, potentially exacerbating the downturn.Policy doves, meanwhile, argue that most of the inflation is a result of external supply shocks, so inflation will naturally fall over time. In fact, high energy prices tend to be deflationary over the longer term because they hold back growth, so there is a risk of inflation falling too low. “A key question is whether the flow of Russian energy to Europe will remain smooth. Should volume restrictions ensue, we would see a much-increased risk of a Eurozone recession, which would likely prompt the ECB towards greater caution,” UBS economist Reinhard Cluse said. Still, weighing the two opposing forces, the ECB is likely to see greater risk from higher inflation, even if policymakers will continue to move in small increments, standing ready to change course on short notice. More