Economy

TOKYO (Reuters) -Japanese authorities are facing renewed pressure to combat a continued yen fall driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.Aside from verbal intervention, Japan’s government has several options to stem what it considers excessive yen falls. Among them is to intervene directly in the currency market, buying large amounts of yen, usually selling dollars for the Japanese currency.Below are details on how yen-buying intervention could work, the likelihood of this happening and challenges of such a move:LAST YEN-BUYING INTERVENTION?Japan bought yen in September, its first foray in the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain ultra-loose policy drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.WHY STEP IN?Yen-buying intervention is rare. Far more often the Ministry of Finance has sold yen to prevent its rise from hurting the export-reliant economy by making Japanese goods less competitive overseas.But yen weakness is now seen as problematic, with Japanese firms having shifted production overseas and the economy heavily reliant on imports for goods ranging from fuel and raw materials to machinery parts.WHAT HAPPENS FIRST?When Japanese authorities escalate their verbal warnings to say they “stand ready to act decisively” against speculative moves, that is a sign intervention may be imminent.A rate check by the BOJ, a practice in which central bank officials call dealers and ask for the price of buying or selling yen, is seen by traders as a possible precursor to intervention.LINE IN THE SAND?Authorities say they look at the speed of yen falls, rather than levels, and whether the moves are driven by speculators, in deciding whether to step in.Market players, however, see the first threshold at 145 yen to the dollar, where Japan last intervened. If the dollar breaks above that, 150 yen could be the next line in the sand, analysts say.WHAT TRIGGER?The decision is highly political. When public anger over the weak yen and a subsequent rise in the cost of living is high, that puts pressure on the administration to respond. This was the case when Tokyo intervened last year.But while inflation remains above the BOJ’s 2% target, public pressure has declined as fuel and global commodity prices have fallen from last year’s peaks.If the pace of yen declines accelerates and draws the ire of media and public, the chance of intervention would rise again.The decision would not be easy. Intervention is costly and could easily fail, given that even a large burst of yen buying would pale next to the $7.5 trillion that change hands daily in the foreign exchange market.HOW WOULD IT WORK?When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills, raising yen it then sells to weaken the Japanese currency.To support the yen, however, the authorities must tap Japan’s foreign reserves for dollars to sell for yen.In either case, the finance minister issues the order to intervene, and the BOJ executes the order as the ministry’s agent.CHALLENGES?Yen-buying intervention is more difficult than yen-selling.While Japan holds nearly $1.3 trillion in foreign reserves, they could be substantially eroded if Tokyo repeatedly spent huge for yen.That means there are limits to how long Japan could keep defending the yen, unlike for yen-selling intervention – where Japan can essentially print yen by issuing bills.Japanese authorities also consider it important to seek the support of Group of Seven partners, notably the United States if the intervention involves the dollar.Washington gave tacit approval when Japan intervened last year, reflecting recent close bilateral relations.But stepping in repeatedly would be difficult, as Washington traditionally opposes intervention except in cases of extreme market volatility. More

The consumer price index rose 2.7% in June from a year earlier, compared with an increase of 3.3% in May and a median forecast of 2.85% in a Reuters survey of economists.It softened for a fifth consecutive month and marked the weakest annual increase since September 2021, according to Statistics Korea.Core inflation, which excludes volatile food and energy prices, slowed to 3.5% from 3.9% a month before, marking the slowest annual rise since May, 2022.The headline index was flat on a monthly basis, compared with a 0.3% rise in the previous month and a 0.2% increase expected by economists.Prices of petroleum products dropped 4.0% over a month and agricultural products fell 0.9%, but public utility prices rose 2.2%.Services prices rose 3.3% from a year earlier, weaker than 3.7% in May and the slowest in 14 months.South Korea’s central bank has kept monetary policy unchanged since its last interest rate hike in January and its tightening campaign is widely expected to be over. The bank next meets on July 13. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.The Reserve Bank of Australia takes center stage on Tuesday, with the consensus view of economist marginally tipping toward expecting a 25 basis point increase in the benchmark cash to a 12-year high of 4.35%. South Korean consumer price inflation for June will be the other main regional focal point for Asian markets, where trading activity will be much lighter than usual due to the July 4 holiday in the U.S.Investors look to have started the new trading quarter with a pretty aggressive appetite for risk. World stocks on Monday rose for a fifth day, pan-Asian stocks excluding Japan jumped 1.5% for their best day in a month, and a near-7% rally in Tesla (NASDAQ:TSLA) shares helped propel Wall Street higher.High-yield bond indexes are hovering around their highest levels in months – U.S. junk bond prices, in particular – suggesting investors see no imminent threat to markets or the economy from higher rates, bond yields and borrowing costs.They are also ignoring the red flags being waved by the U.S. yield curve as the spread between two- and 10-year yields rose to 110 basis points on Monday, the deepest inversion since 1981. An inverted curve usually signals an incoming recession.But that is for another day, it seems.Traders in Asia on Tuesday will turn their focus to Australia and the RBA. The decision is finely balanced, according to a Reuters poll – 16 of 31 economists surveyed expect the central bank to hike its official cash rate to 4.35%, and the remaining 15 predicted a pause.Another hike would be the 13th of the RBA’s tightening cycle. Unlucky for some? Interest rate swaps markets are only attaching a one-in-three probability of a hike, and around a two-in-three likelihood of no move.Inflation slowed to 5.6% in May from 6.8% in April, but that is still well above the RBA’s 2-3% target range, suggesting more tightening may be required. However, it was the biggest fall in two years and the RBA has surprised markets already by pausing in April.In another Reuters poll, economists said they expect annual consumer price inflation in South Korea to have slowed in June to 2.85% from 3.30%. That would be the lowest since September 2021. Figures on Monday showed that factory activity in South Korea shrank for a record 12th consecutive month in June. Here are key developments that could provide more direction to markets on Tuesday:- Australia interest rate decision- South Korea inflation (June)- Germany trade balance (May) (By Jamie McGeever; Editing by Marguerita Choy) More

Britain’s energy regulator has warned suppliers not to pay dividends unless they are financially stable, as it seeks to avoid a repeat of last year’s energy crisis.Jonathan Brearley, the chief executive of Ofgem, has written to company bosses warning them to “behave responsibly” as the price pressures ease in the wholesale energy markets.The intervention came after Jeremy Hunt, the chancellor, urged regulators last week to make sure businesses were passing cost cuts on to consumers, in an effort to address the mounting cost of living crisis.In an open letter to energy supplier bosses on Tuesday, Brearley told them that they should “reciprocate” the support given to the sector by taxpayers over the past year.The government stepped in last October to subsidise rising energy bills after wholesale prices surged in the months before and after Russia’s invasion of Ukraine in February, costing an estimated £27bn. The energy crisis led to the collapse of 30 suppliers, with households having to pick up the cost of transferring affected customers to other companies, which added a further £94 to domestic energy bills last year. As suppliers failed Ofgem was widely criticised for failing to monitor the sector effectively, having allowed dozens of poorly capitalised suppliers to enter the market to boost competition.It has since taken a tougher approach to financial resilience, including new capital requirements, though critics believe it should go further.The regulator’s warning came as energy prices are falling. From the start of July, the energy price cap, which normally governs the amount paid for gas and electricity bills for typical usage, fell to £2,074 per year, its lowest level since April 2022.However, the lower level still remains well above the pre-crisis average of almost £1,150 meaning many families will still struggle to pay their bills. The latest price cap level includes allowances for a slightly higher profit margin for retailers, from 1.9 per cent to 2.4 per cent. The increase, which Ofgem argued was needed to boost financial resilience, is expected to add about £10 to average annual bills from October.In the letter, Brearley acknowledged it was important to have an “energy sector where companies can make a reasonable profit” to ensure a sustainable, competitive market.

But he warned that “a return to the practices we saw before the energy crisis isn’t on the table — suppliers must reciprocate the support the sector was given by consumers and taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return”, adding: “I expect no return to paying out dividends before a supplier has met those essential capital requirements.”The letter did not mention individual suppliers by name. Following last year’s market rout, the market is concentrated in the hands of large suppliers, such as British Gas, owned by Centrica, as well as EDF, Octopus Energy and Ovo.The letter echoed a similar one from Ofgem in May that warned suppliers that any dividend payments had to be “within an appropriately responsible framework”.Energy UK, the industry trade group, said: “It’s right that the regulator ensures the financial resilience of companies operating in the retail market. It should be noted that in withstanding the energy crisis and an extended period of unprecedented volatility, those suppliers still operating have already demonstrated resilience and financial responsibility. “The energy industry will continue to work closely with Ofgem and the government to ensure a sustainable retail sector over the long term.” More

Good morning. US electric vehicle start-up Rivian Automotive revealed stronger-than-expected production figures a day after larger rivals Tesla and BYD reported robust deliveries, sending shares of the companies up sharply on Monday.Rivian said that it built 13,992 trucks and vans at its factory in Normal, Illinois, in the second quarter, well above Wall Street expectations of about 11,000, according to analysts polled by FactSet. The California company reaffirmed guidance for manufacturing 50,000 vehicles this year. The update came after Tesla, the US EV leader, on Sunday said it delivered a record 466,000 cars in the second quarter, up 83.5 per cent from a year before. Sales increased after Tesla cut prices in January and March. “Tesla and Rivian was major good news for the EV sector, as production and demand are humming despite many sceptics on the Street,” said Wedbush analyst Dan Ives. “This was a trophy-case quarter for Tesla, and Rivian added to the fireworks with very impressive results for the June quarter.”BYD, Tesla’s main rival in China, also reported sales volumes grew by almost double in the first half of 2023, as it sold 1.26mn vehicles in the six months to the end of June.Shares of Rivian closed 17.4 per cent higher in New York on Monday, in a shortened session ahead of the Independence Day holiday, while Tesla climbed 6.9 per cent. BYD closed up 4.5 per cent in Hong Kong.More EV news: US electric truck start-up Nikola is heading for a showdown this week with its founder Trevor Milton, who was convicted of securities fraud last year after he urged other shareholders to reject the company’s latest effort to raise cash. Here’s what else I’m keeping tabs on today:Australia: Australian Reserve Bank will announce its cash rate target. Economists are split over whether the central bank will raise the cash rate to 4.35 per cent or pause. (Reuters) Thailand: Parliament is expected to choose a House speaker. Progressive opposition party Move Forward and the biggest partner in its coalition, the Pheu Thai party, have wrangled over which will get the important position. (Associated Press)US: Markets are closed for Independence Day celebrations.Five more top stories1. US Treasury secretary Janet Yellen will visit China this week, becoming the second Biden cabinet official to travel to Beijing as the countries boost efforts to stabilise their turbulent relationship. A senior Treasury official cautioned that the trip was unlikely to produce “significant breakthroughs”. Read more on Yellen’s planned trip.More US-China news: China has hit back at US-led semiconductor restrictions by seeking to throttle exports of two metals used in chipmaking and communications equipment. 2. Israeli forces killed at least eight Palestinians and wounded dozens more as the Jewish state deployed armed drones and hundreds of troops in the largest military operation in the occupied West Bank in years. The assault on a Palestinian refugee camp in Jenin fuelled fears that the Israeli-Palestinian conflict is on the brink of a broader escalation.3. Apple has made drastic cuts to production forecasts for the mixed-reality Vision Pro headset less than a month after its launch. The complexity of the headset design and difficulties in production are behind the scaling back of targets. Read more about the Vision Pro’s production challenges. 4. HSBC is in advanced talks to poach a team of senior Middle East wealth managers from Credit Suisse, as it looks to challenge its rival in the Gulf. The loss of Credit Suisse Qatar chief executive Aladdin Hangari and up to five members of his team would be a blow to UBS, which last month completed the takeover of its Swiss rival and plans to build the biggest private bank in the region. Read the full story. More banks news: Bank of America has delayed a dividend announcement after the Federal Reserve’s annual stress test showed a significant discrepancy between how the regulator and the lender’s own risk managers predicted it would fare in an extreme downturn. 5. Saudi Arabia and Russia will extend or make additional cuts to oil production in August, the two most powerful members of Opec+ said, as they scrambled to boost the price of crude. Here are more details on the move by the Opec+ leaders. The Big ReadGunilla Osswald said neuroscience was risky for drugmakers. ‘It’s a difficult area. But the benefit can be so huge when you have something which is successful’ © Martina Holmberg/FTA decade ago, many big pharmaceutical companies stopped trying to find treatments for Alzheimer’s, with research considered too costly. Former AstraZeneca researcher Gunilla Osswald did not give up, however, taking the helm at BioArctic, a Swedish start-up devoted to tackling the disease. This week, the US Food and Drug Administration will decide whether to fully approve lecanemab, BioArctic’s first commercially available drug candidate.We’re also reading . . . $12 phone: India’s richest man Mukesh Ambani is launching a new model of internet-connected mobile phone for $12, in an attempt to disrupt a market for phones used by around a quarter of a billion peopleUS allies hedge against Trump: If Trump wins back the presidency in 2024, what happens in Washington would not stay in Washington, writes Gideon Rachman. Measuring progress: GDP should not be the only yardstick by which countries jealously compare their progress against one another, writes Sarah O’Connor.Chart of the day

Rising foreign investment in Vietnam is part of a growing “China plus one” strategy to redraw global supply chains. As rivalries grow between China and the US over technology and security, more companies fear curbs on what and where they can manufacture. As a result, many are supplementing production in China, still the world’s biggest manufacturing hub, with expansion to other countries.Take a break from the newsSince the Covid pandemic, the shift to remote working has transformed office life and with it the face-to-face experience of summer internships. Faced with the new hybrid workplace, managers and interns have had to adapt to help interns fit in and thrive.

© FT montage/Unsplash

Additional contributions by Gary Jones and Gordon Smith More

SVB Financial Group, Envision Healthcare Corp, Bed Bath & Beyond (OTC:BBBYQ), Party City Holdco (OTC:PRTYQ), Lordstown Motors and Kidde-Fenwal were among some casualties of decades-high interest rates and sticky inflation as the era of easy money drew to a close.”The growth in filings is reflective of more families and businesses facing surging debt loads due to rising interest rates, inflation, and increased borrowing costs,” American Bankruptcy Institute’s executive director Amy Quackenboss said in a statement.The Federal Reserve has raised its key interest rate to a target range of 5%-5.25% after 10 straight hikes, making borrowing more expensive for companies and individuals. The U.S. central bank left interest rates unchanged in June, but sees two more hikes by the end of 2023.A total of 2,973 commercial Chapter 11 bankruptcies were filed in the first six months of 2023, Epiq said, compared to 1,766 in the same period last year. Additionally, individual Chapter 13 filings also saw a 23% jump during the same time-period. Bankruptcy filings for small business, categorized as Subchapter V elections within Chapter 11, jumped 55%, according to the data. More

LONDON (Reuters) – The use of four dollar-denominated alternatives to the now scrapped Libor interest rate need restrictions to avoid threatening financial stability, a global securities watchdog said on Monday.IOSCO, a global securities watchdog group that includes the U.S. Securities and Exchange Commission as a member, said a review has identified “varying degrees of vulnerability” in these four unnamed rates.The final dollar-denominated London Interbank Offered Rate or Libor was published last Friday. Once dubbed the most important number in the world, Libor has been withdrawn after banks were fined for trying to rig a rate referenced in credit cards, business loans and mortgages worth trillions of dollars globally.Libor has largely been replaced by rates compiled by central banks, such as the dollar-denominated Secured Overnight Funding Rate, or SOFR, from the Federal Reserve.Several so-called credit sensitive rates (CSRs) and term SOFR rates are being offered as alternatives to SOFR, which has no forward ‘terms’ or credit component, though volume in them has been low.Regulators have previously warned that these alternatives could be vulnerable during periods of market stress, but Monday’s statement goes further in suggesting curbs.IOSCO said certain CSRs track bank commercial paper and certificates of deposit data which are not sufficiently deep, robust and reliable to underpin alternatives to Libor.”Absent modification, their use may threaten market integrity and financial stability,” IOSCO said.SOFR term rates also fell short of IOSCO standards given they rely on the continued existence of a deep and liquid derivatives market, IOSCO said.”Administrators should consider licensing restrictions for use of CSRs and Term SOFR rates within certain products or by certain user groups,” IOSCO said.Administrators should also consider improving the transparency of their rates, such as publishing input data, and not indicating in any way they are IOSCO-compliant, it added.Market participants should “proceed with caution” if using CSRs, and contact their regulator before doing, IOSCO said. More

The UK’s financial watchdog has summoned bank chief executives to address concerns that savings rates are lagging behind the surging cost of mortgages.Top bankers at HSBC, NatWest, Lloyds and Barclays are expected to attend a meeting at the Financial Conduct Authority on Thursday amid accusations they are profiteering from rising interest rates, according to people familiar with the matter.The Bank of England raised rates to 5 per cent last month, its 13th consecutive rise in a protracted battle with high inflation. While the average rate on a two-year fixed-rate mortgage has leapt to 6.42 per cent, according to Moneyfacts, the average rate on an easy-access savings account is only 2.43 per cent, with many large banks offering much lower levels.The FCA and the executives are planning to discuss the pricing of cash savings and how banks communicate with their customers on rates, according to people familiar with the agenda. The meeting could result in a “savings charter”, or set of commitments, the people said. “We do think there is more value that can be provided to consumers. We are not happy with some of the lower savings rates we see, and we want banks to be supporting customers . . . and people to be able to make informed choices,” said one person familiar with the FCA’s position.However, some of those due to attend the meeting, which includes smaller lenders, warned that the FCA intervention was a regulatory over-reach. “The worry is you end up in a situation where you have regulators trying to dictate price: that is a dangerous place to be,” said one chief executive.Another senior banker noted that lenders had signed up to a “mortgage charter” last week in a move orchestrated by the Treasury to help homeowners with the sharply rising cost of borrowing. “It now looks like they’re considering something similar on savings,” this person said. “They don’t want to be in a market-setting terms. Then it suddenly becomes a regulated market.”Senior politicians have sounded the alarm over savings rates as inflation remains high. The House of Commons Treasury select committee on Monday wrote to the chief executives of the big four banks, accusing them of “blatant profiteering” by “squeezing higher profits from their loyal savings customers”.The Consumer Duty, which comes into force at the end of July and mandates financial services firms to deliver good outcomes for their customers, gives the regulator a new basis on which to justify action if they believe banks are behaving unfairly by keeping rates low.Current accounts, which tend to offer lower rates compared with savings products, could also come under scrutiny at the meeting, another banker said.John Cronin, an analyst at Goodbody, said banks were likely to focus on the higher fixed-rate savings offers to deflect from criticism of easy-access rates.“We’ll probably see some movement — we’ve already started to see it, as is typical of these situations where they do start moving savings rates in advance of the showdown,” he added.The FCA has expressed concerns about the savings market before and put forward proposals for banks to make their interest rates simpler and more transparent in January 2020, but the work has been on pause since the pandemic.The FCA declined to comment on the meeting specifically and said it would report “by the end of the month on how well the cash savings market is supporting savers”. It added: “This includes requiring the largest banks and building societies to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting customers to switch to suitable high- interest rate products.”Barclays, Lloyds, HSBC and NatWest declined to comment. More