Economy

TOKYO (Reuters) – Japan’s exit from ultra-easy monetary policy would mark a “regime change” for its banking system as lenders compete for deposits in a move that could trigger massive shifts in fund flows, a former banking regulator said.With inflation having exceeded its 2% target for well over a year, the Bank of Japan has dropped signs that it will end its negative interest rate policy and phase out other elements of its massive stimulus package in coming months.Tokio Morita, former vice minister for international affairs at the Financial Services Agency (FSA), said he expects the BOJ to steer a smooth exit from negative rates, and avoid any sharp policy tightening that could upend Japan’s banking system.But financial authorities should not under-estimate the impact of Japan’s shift away from decades of ultra-low interest rates, as it could cause major changes in the way financial institutions, depositors and borrowers act, he said.As domestic lending turns profitable, financial institutions may start competing for deposits by offering higher interest including those lacking financial soundness – a move that could lead to excessive risk-taking, Morita said.”The BOJ has suppressed not just short-term but long-term interest rates for a prolonged period. Loosening the grip would mark a regime change” for Japan’s banking industry, he told Reuters in an interview on Friday.”The priority for authorities would be to ensure the policy shift does not cause big shocks to markets and the financial system,” Morita said.Global debate on how the BOJ’s policy shift could affect fund flows worldwide would also be “very important,” he added.Well-versed in global financial regulation, Morita took part in policymakers’ efforts to contain the fallout from the collapse of Lehman Brothers in 2008.As part of efforts to reflate growth and fire up inflation to its 2% inflation target, the BOJ has guided short-term interest rates at -0.1% and the 10-year bond yield around 0% since 2016.The BOJ last year relaxed its tight control on 10-year bond yields and is likely to allow long-term rates to move more freely when it pulls short-term rates out of negative territory. More

SYDNEY, (Reuters) – Asian shares got off to a slow start on Monday as fading chances for early rate cuts globally soured the mood, though investors are hoping China markets return from holiday with a spring in their step.A holiday for U.S. markets also made for thin trading, while the latest surge in tech stocks is set to be tested by results from AI diva Nvidia (NASDAQ:NVDA) on Wednesday.MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%, after bouncing 2% last week. Japan’s Nikkei was flat, having surged more than 4% last week to stop just short of its all-time high. (T)There was promising news from China where tourism revenues during the Lunar New Year break surged by 47% on a year earlier as more than 61 million rail trips were taken.The country’s central bank skipped a chance to cut rates again on Sunday, likely to limit downward pressure on the yuan, but with deflation looming analysts see plenty of scope for further policy stimulus.The same cannot be said for the United States following high readings on producer and consumer prices, that saw markets sharply scale back pricing for rate cuts.Bruce Kasman, global head of economics at JPMorgan, warned the Federal Reserve’s favoured measure of core personal consumption inflation could now jump by 0.5% in January. Only a week ago, markets were hoping for a rise of just 0.2%.”While it is premature to place significant weight on noisy January data, risks have shifted in the direction that core inflation and labour market conditions both surprise the Fed in a hawkish direction in the first half of 2024,” Kasman wrote in a note.”This stall has been expected to delay the start of the developed world easing cycle to midyear, and curb enthusiasm about the overall magnitude of the easing cycle ahead.”Futures have sunk to imply just a 28% chance rates will be cut in May, when it was considered a done deal a couple of weeks ago. Markets have taken out two quarter point rate cuts for this year to imply less than 100 basis points of easing.HANGING ON NVIDIAThe surprise on inflation means the minutes of the Fed’s last policy meeting out this week now look dated, but any talk about the timing of potential cuts will be noted.There are plenty of Fed speakers out this week to comment on the outlook, with Fed Vice Chair Philip Jefferson and Governor Christopher Waller of particular interest.The market sea change on rates saw two-year Treasury yields spike to a new 2024 high of 4.72% on Friday before steadying at 4.65%. Treasury futures were little changed on Monday with the cash market closed.S&P 500 futures were up 0.1%, while Nasdaq futures added 0.2% on hopes Nvidia could somehow beat already stratospheric expectations.The chipmaker’s stock has surged 46% so far this year and accounted for more than a quarter of the S&P 500’s gains. There is reason for optimism given that of the 80% of S&P 500 reporting so far, 75% have beaten forecasts.Goldman Sachs cited profits in the tech sector last week when it raised its year-end S&P 500 index target to 5,200, from 5,100.”Our upgraded 2024 EPS forecast of $241 – 8% growth – stands above the median top-down strategist forecast of $235,” said Goldman. “We expect P/E valuation multiples will remain close to current levels, making earnings growth the primary driver of remaining upside this year.”Higher bond yields were underpinning the dollar at 150.07 yen, though the threat of intervention has so far capped it at 150.88. The euro has also reached its highest so far this year on the yen at 161.95. [FRX/]The single currency was steady on the dollar at $1.0784, having met resistance just above $1.0800.The rise in yields has been a burden for non-yielding gold, which was idling at $2,014 an ounce. [GOL/]Oil prices were softer in early trade as concerns about demand tussled with the threat of supply disruptions in the Middle East. [O/R]Brent slipped 32 cents to $83.15 a barrel, while U.S. crude for April fell 33 cents to $78.13 per barrel. More

Property website Rightmove (OTC:RTMVY) said on Monday that asking prices for homes rose 0.1% in February compared a year earlier, the first annual increase since August 2023. Prices increased by 0.9% from January, broadly in line with the 10-year average of a monthly 1.0% rise in February.After a slowdown, Britain’s property sector has picked up in recent months as mortgage interest rates fell on expectations that the Bank of England will lower borrowing costs this year.A measure of agreed sales in the first six weeks of 2024 was up 16% from a year earlier and was 3% higher compared with 2019, before the coronavirus pandemic, Rightmove said. Properties coming onto the market and buyer enquiries increased by 7%. Tim Bannister, Rightmove’s director of property science, said he was only cautiously optimistic with mortgage rates still elevated in historical terms.BoE officials have said they need to see further evidence of inflation pressures easing before cutting rates, despite the economy falling into a recession late last year. “While the mortgage market has recovered its stability, there are growing signs that the room for lenders to reduce rates further is narrowing, and that rates will settle at elevated levels for the near future,” Rightmove said. Monday’s survey chimed with other signs of an improvement in Britain’s housing market. The Royal Institution of Chartered Surveyors reported this month the biggest jump in new buyer enquiries in nearly two years. Mortgage lenders Nationwide and Halifax both reported a rise in house prices in January. More

(Reuters) -Westpac Banking Corp said it sees scope for monetary policy in Australia to become less restrictive within the next year, while reporting a drop in its first-quarter unaudited net profit versus the prior six-months’ quarterly average.Westpac’s shares were down 0.2% at A$24.515 as at 2324 GMT, after having fallen as much as 0.9% earlier in the session. Australia’s No. 2 mortgage provider says it expects the economy to remain resilient, supported by low unemployment and healthy balance sheets in the corporate sector.The country’s central bank has jacked up interest rates by 425 basis points since May 2022 to tame inflation, which is still well above the target of 2-3%. “The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year,” CEO Peter King said. The lender’s unaudited net profit for the three months ended Dec. 31 was A$1.5 billion ($978.60 million), down 6% from the quarterly average for the prior six months. It cited the impact of notable items related to hedge accounting as a reason for the fall in profit.”The massive exposure to the property sector coupled with a rapid rise in interest rates is now starting to bite,” said Brad Smoling, managing director at Smoling Stockbroking. “If we don’t have a reduction of interest rates this will be a major issue for Westpac and other Australian Banks to deal with,” Smoling added. Westpac’s margins also took a hit as nearly two years of high interest rates raised cost of mortgage repayments. That along with sticky inflation spurred intense competition among banks, which has flattened their profit margins.The lender’s core net interest margin for the three months ended Dec. 31 was 1.80%, down 4 basis points from second half of 2023.”From a credit quality perspective, we saw a reduction in business stress while a rise in 90+ day mortgage delinquencies reflects the tougher economic environment,” King said. Mortgage payments delayed for more than 90 days in terms of the bank’s total loan book for Australia stood at 0.95% as of end of December. That was 9 basis points higher than at the end of September. Henry Jennings, a senior analyst at Marcustoday Financial Newsletter, said a slight rise in the 90+ day delinquencies was hardly unexpected and shows the bank is managing the current economic environment well. The bank’s common equity tier 1 ratio, a closely watched measure of spare cash, stood at 12.3% as at December-end, down from 12.4% as at September-end.($1 = 1.5328 Australian dollars) More

(Reuters) – A look at the day ahead in Asian markets.China’s markets open on Monday after the Lunar New Year holiday, with investors hoping positive momentum across the region last week can continue despite signs that U.S. inflation, and therefore interest rates, may be stickier than thought.Asian stocks are on a decent run – the MSCI Asia & Pacific ex-Japan index posted its best week of the year last week, a gain of 2%, and its longest weekly winning streak in over a year of four ‘up’ weeks in a row. Was it a coincidence that China was closed? Investors may draw their conclusions on Monday as China reopens for trading. There are signs that the China gloom may be lifting, even if only temporarily. Equities have rebounded from five-year lows, and official figures on Sunday showed that tourism revenues in the Lunar New Year holidays beat pre-COVID levels.The data will offer relief to policymakers battling slowing growth, deflation risks, weak consumer demand and a property sector collapse, although the sustainability of the tourism boost remains uncertain.China’s central bank on Sunday left a key policy rate unchanged as expected when rolling over maturing medium-term loans, an indication that benchmark loan prime rates will also be kept on hold later this week.Beijing is striking a delicate balancing act to support the economy at a time when signs of persistent deflationary pressure call for more stimulus. But aggressive easing risks reviving depreciation pressure on the yuan and capital outflows.Surprisingly hot U.S. producer and consumer price inflation figures last week pushed up Treasury yields, strengthened the dollar and raised doubts on how much the Fed will cut rates this year. Is a second wave of inflation forming?This general tightening of financial conditions could temper any optimism in Asian market trading on Monday. Goldman Sachs’s emerging market financial conditions index last week touched its highest level in three months.The boom in Japanese markets, meanwhile, shows no sign of fading. The Nikkei rose 4.3% last week and is now up 15% so far this year, supported by growing optimism around corporate Japan’s earnings prospects, and a very weak currency.With the Nikkei within a few hundred points of new all-time highs, the market is probably ripe for a spot of profit-taking. But if the dollar holds above 150 yen and launches another test of its recent 33-year peak around 152 yen, a fresh record is on the cards.Asia’s economic calendar highlights on Monday are Thailand’s fourth-quarter GDP and Japanese machinery orders. China’s foreign direct investment data could also be released.Interest rate decisions in South Korea and Indonesia, a flood of PMI reports from across the continent, and Reserve Bank of Australia meeting minutes will help set the tone later in the week.Here are key developments that could provide more direction to markets on Monday:- Thailand GDP (Q4)- Thailand trade (January)- Japan machinery orders (December) (By Jamie McGeever; editing by Diane Craft) More

OSLO (Reuters) -Norway has agreed to help facilitate the transfer of frozen tax funds earmarked for the Palestinian Authority (PA) that were collected by Israel, the Norwegian government said on Sunday, providing vital funding to the Western-backed entity.Under interim peace accords reached in the 1990s, Israel’s finance ministry collects tax on behalf of the Palestinians and makes monthly transfers to the PA, but a dispute broke out over payments in the wake of the Oct. 7 attack by Hamas.The temporary solution will allow payments to resume and prevent a financial collapse for the PA, enabling it to pay salaries and provide essential services such as schools and healthcare, Norway said.”This is critical to promoting stability in the region and for the Palestinian Authority to have legitimacy among its people,” Norwegian Prime Minister Jonas Gahr Stoere said.Under the solution agreed with Israel and Palestinian officials, Norway will serve as an intermediary for holding revenues that Israel has withheld since Oct. 7.”The Palestinian Authority is then willing to accept the other funds,” Norway said.The portion of the revenue Norway will keep equals the portion that Israel estimates for Gaza, said a Norwegian foreign ministry spokesperson.Accessing the revenue is key to the survival of the PA, which exercises limited self-rule in the Israeli-occupied West Bank. Several Western countries, including the United States, also want the PA to play a role in the administration of the Gaza Strip should the war come to an end.On Nov. 2, Israel said it would proceed with a tax revenue transfer to the PA in the West Bank but would withhold funds bound for Gaza, ruled by Hamas but where the PA helps cover public sector wages as well as medicine and social assistance programmes.But on Nov. 6, the PA said it wanted the money in full and would not accept conditions that prevent it from paying its staff. It is estimated to spend some 30% of its budget in Gaza.On Jan. 21, Israeli officials said the Israeli cabinet had approved a plan for frozen tax funds earmarked for the Gaza Strip to be held by Norway instead of transferred to the PA. More

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According to the report, the devaluation of the peso currency carried out by President Javier Milei shortly after his inauguration in early December – and the price hikes caused by it – exacerbated poverty levels, which closed the year at 49.5%.”The true inheritance of the caste model: Six out of every 10 Argentines are poor,” Milei, a libertarian, said in a social media post late on Saturday.Milei took office promising to “dollarize” the economy, tame an annual inflation rate of more than 200%, eliminate the fiscal deficit and end benefits for Argentina’s political dynasties, which Milei calls “the caste.” In December, his government rolled out sweeping economic reforms, primarily a 54% peso devaluation against the U.S. dollar, causing Argentines’ incomes to collapse as prices shot up.Other measures included slashing energy and transportation subsidies and rolling out tax hikes aimed at reaching fiscal balance.On Friday, Argentina’s economy ministry reported a January budget surplus of 518.41 billion pesos ($620.85 million), the first time the number has been in the green since August 2012. Reuters was not immediately able to see a copy of the report. UCA did not respond to a request for comment.($1 = 835.00 Argentine pesos) More