Economy

The writer is a former global head of asset allocation at a fund managerTime and time again, betting against Japanese government bonds has cost traders untold fortunes. The pay-off for going short on JGBs has always looked tempting and risks asymmetric. Potential losses appear limited given that yields, which move inversely to prices, cannot go too far into negative territory. At the same time, returns could be large as yields can rise a lot. This opportunity has almost always proved a delusion. Forecasts for inflation and bond yields in Japan to rise from long depressed levels have consistently proved misplaced.But with the return of inflation in the country, higher bond yields around the world, and new leadership at the Bank of Japan, is this time different? One reason to believe so is that yields are now being held down by the BoJ’s policy of capping government borrowing costs through massive bond purchases.This policy, known as Yield Curve Control, is incompatible with any central bank’s ultimate economic objectives. These involve getting firms and households to change their savings and borrowing behaviour, anchoring inflation expectations in positive territory — that sort of thing. To do this, interest rates need to be free to adjust to economic conditions, the opposite of pegged yields under YCC. There will be moments when a static bond yield curve happens to deliver something consistent with inflation targets, but these will be transitory. Achieving the central bank’s ultimate objectives can only mean breaking the peg when the time comes to prevent inflation overshooting targets.

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We’ve seen this film before. In 1942 the US Federal Reserve implemented its own version of YCC during the second world war, abandoning it only in 1951. Until then a 2.5 per cent yield ceiling remained in place for long-term Treasuries, with progressively lower caps for shorter-term bonds. More recently, the Reserve Bank of Australia had a brief affair with yield curve targeting during the Covid-19 pandemic. Rather than targeting the entire curve, the RBA’s policy between March 2020 and November 2021 was to keep the three-year government bond pinned to a 0.25 per cent yield — later reduced to 0.1 per cent. The experiences of the two central banks are similar in many ways. When expectations began to shift, the yield targets became ultimately unsustainable. In both cases, the central banks struggled to extricate themselves from a policy no longer appropriate for their economies and increasingly tested by twitchy bond traders.But there are important differences too, the most relevant of which concern the manner of policy exit. The Fed sought to defend its peg for several quarters, and in so doing outsourced the creation of its reserves to the whims of investor demand. When investors sold bonds, the Fed had to buy them to maintain the yield peg. To buy these bonds, the Fed created fresh bank reserves. As such, in committing to a peg, the central bank passed control over the volume of reserves to private actors in the bond market. This made for bad monetary policy, exacerbating inflation and it led to an institutional crisis. By contrast, the RBA’s defence of its targets crumbled relatively quickly. When the RBA changed tack, three-year bonds yielded more than seven times their target rate despite the central bank having bought 60 per cent of the bonds in question.Are there lessons for Japan? Bond traders are probing the BoJ’s commitment, and the JGB market is increasingly broken and dominated by the central bank’s holdings. Today policy rates in Japan are negative, although markets are pricing in expectations for them to rise a full 0.15 percentage points by year-end, and progressively thereafter. The market may be wrong, but it is betting that the decades-long battle against deflation is over and the YCC policy no longer appropriate.The financial stability risks of a break higher in JGB yields may lean more towards “slow burn” than “market chaos” — with the biggest impact perhaps felt in further diminishing Japanese demand for overseas government bonds. Yes, there will be paper losses for the BoJ as rates rise. But these are unlikely to translate into realised losses under the BoJ’s accounting rules, given their treatment of bonds held to maturity. And the maturity profile of the BoJ’s portfolio is surprisingly short, giving it flexibility to respond to conditions by adjusting its balance sheet by deciding whether and how to reinvest proceeds from maturing bonds. But the BoJ should never have adopted YCC in the first place. Its unravelling was inevitable.Tony Yates contributed to this column   More

The Netherlands is considering whether to allow maintenance of Dutch-made machines for making advanced semiconductors and exported to China despite a ban announced this week on sending new models.Liesje Schreinemacher, the trade minister, told journalists she had not yet decided on whether to permit servicing and replacement parts for existing machines after the clampdown on exports designed to restrict Chinese access to the most powerful semiconductors.The Hague is under pressure from the US to starve Beijing of the latest technology, while China has been lobbying it to keep supply lines open.Schreinemacher, speaking to reporters ahead of an EU ministerial meeting in Stockholm, said the “details still need to be worked out”.“The Chinese have asked us before . . . to not disturb value chains much when it comes to chips. And, of course, servicing is an important part when you have a machine. We do take those concerns very seriously.”She told the Dutch parliament on Wednesday that the government would introduce export controls on the “most advanced” machines because they could produce chips for sophisticated weapons. That would include some of the deep (DUV) immersion lithography tools made by Dutch company ASML, which would need licences for sale overseas. The government has never allowed the export of the most capable extreme (EUV) machines to China. ASML said it believed the new curbs would include the Twinscan NXT:2000i, which was first shipped in 2019, and later models that make high- capability chips.Schreinemacher said she would outline the full details of the regime before the summer. The deal was agreed with the US and Japan in January but the controls do not go as far as those imposed by Washington, which is trying to increase its technological lead over China.Tokyo has not yet made an announcement on its new measures. The Dutch minister denied the US had pressured her government. “This decision was really a unilateral decision. It was not a tit-for-tat deal,” she said.

However, she called for an increased role for the EU in co-ordinating export controls. National governments are in charge of them because they are a matter of national security. She said Brussels should amend its regulations this year so that member states can all choose to adopt the same restrictions.“I think to show that we are one united European Union and show that we are a geopolitical bloc, it would be preferable if all member states would adopt this legislation,” she said, although no others can make the most advanced chipmaking machines. The EU’s trade commissioner said on Thursday that he also favoured greater co-operation between the 27 member states. Valdis Dombrovskis said he was consulting them on an “EU approach”. “Russian aggression in Ukraine highlighted the risks of member states adopting national controls without much co-ordination to address their pressing national security considerations,” he said. “We need a stronger EU role to ensure coherence in our policy on security, trade and technology.” He said it was also necessary to ensure that member states did not undercut each other, with one sending products to a third country that were banned by another. He acknowledged that it was a “very sensitive matter”.Schreinemacher made clear that decisions should remain with national governments. “There are Dutch real economic interests involved as well,” she said. She was not prepared to “put them in a basket for Europe to negotiate with . . . That’s why I believe it’s a national competence.” More

(Reuters) – Bytedance’s TikTok Inc persuaded a federal jury in Los Angeles on Thursday that its Stitch feature does not violate trademark rights belonging to British video-editing company Stitch Editing Ltd.The jury rejected Stitch Editing’s argument that TikTok confuses consumers by using the Stitch name to brand the popular social-media platform’s technology for “stitching” videos together.A Stitch spokesperson said the company was disappointed with the verdict. A representative for TikTok had no immediate comment. Stitch Editing has edited commercials for Nike (NYSE:NKE), Samsung (KS:005930) and Louis Vuitton and music videos for artists like the Rolling Stones and Lady Gaga. It sued in 2021 over TikTok’s Stitch technology, which allows users to splice other videos on the platform into their own.Stitch Editing told the court that TikTok’s use of “Stitch” gave users the mistaken impression that the companies are affiliated and threatened to drown out its brand.TikTok has argued that Stitch Editing’s trademark in its name does not give it a “global monopoly on use of the word ‘Stitch’ to refer to the process of combining video clips together.”Stitch Editing had requested $116 million in damages, a spokesperson for the company said.The case is Stitch Editing Ltd v. TikTok Inc, U.S. District Court for the Central District of California, No. 2:21-cv-06636. More

As an economics professor, she found serious flaws in how government determines who is poor in America. As under secretary of commerce, she fixed them.As far as her husband knows, Rebecca Blank threw a party with strawberries and champagne only once in her life.It was spring of 2010, and Ms. Blank was then the under secretary of commerce for economic affairs. Her guests were statisticians and economists in the civil service, the sort of people who write public reports on out-of-pocket medical expenses.But they were not celebrating a technocratic victory so much as a moral one: the first major overhaul of the government’s system for measuring poverty in nearly 50 years.The result was a powerful new statistical view of America’s poor, one that was far more accurate and that quantified the value of social welfare programs, blunting criticism that they had no effect.And that achievement was thanks, mainly, to Ms. Blank.She died at 67 on Feb. 17 at a hospice in Fitchburg, Wis. The cause was pancreatic cancer, her husband, Hanns Kuttner, said.The story of the calculation that Ms. Blank sought to reform — the Official Poverty Measure — is a parable of how skittishness and inertia can dictate government policy.The government’s definition of the poverty line was determined in 1963 by Mollie Orshansky, a little-known civil servant. She conceived of the poverty line as three times a family’s “subsistence food budget,” using as inspiration a 1955 public survey that found that families spent a third of their after-tax income on food.As food prices fell and housing costs rose over the last 60 years, that proportion grew ever more detached from reality. At the same time, poor people gained new forms of purchasing power outside of cash income, like food stamps, tax credits and housing subsidies.Yet the Official Poverty Measure remained the same.“There is no other economic statistic in use today that relies on 1955 data and methods developed in the early 1960s,” Ms. Blank told Congress in 2008. “The official poverty thresholds are numbers without any valid conceptual basis.”Nonetheless, one presidential administration after another declined to change the measure. This reluctance was dramatized in a 2001 episode of “The West Wing,” in which two White House spokesmen, fearing the political risk of newly defining millions of Americans as “poor,” try to weasel out of adopting a more realistic formula.The persistence of the old Official Poverty Measure put some of the government’s chief antipoverty programs at risk.“SNAP — what we used to call food stamps — and the earned-income tax credit, those two particularly stand out,” Robert Greenstein, founder of the Center on Budget and Policy Priorities, a leading policy institute that advocates for the poor, said in a phone interview. “Under the Official Poverty Measure, it’s as if they don’t exist.”That mattered in Congress. “You’d have these very frustrating discussions,” Mr. Greenstein said. “A member would say, ‘I’m looking at the poverty rate now and 40 years ago, and they’re about the same, yet we have all these programs — they must be a failure.’ You’d have to explain, ‘Well the problem is in the poverty measure.’”In the 1990s, Ms. Blank, then an economics professor at Northwestern University, studied how to fix the poverty measure and recommended changes. For more than a decade, she got nowhere.But by the time of her 2008 congressional testimony, she had adopted a new approach. Rather than directly attack the Official Poverty Measure, she proposed that the government establish a revised measure alongside it. She hoped that this secondary measure would gradually replace the existing one, meanwhile providing a more accurate view.In 2009, after she joined the Department of Commerce under President Barack Obama, Ms. Blank set to work prodding the bureaucracy to implement something new.“Through her leadership, the Supplemental Poverty Measure was born,” David Johnson, the census bureau official in charge of computing the new measure, said in a phone interview.Beginning in 2011, the new measure joined the old one as features of annual Census Bureau reports. It changed the poverty calculus in numerous ways, for instance by using as a basis not merely food budgets but also an array of consumer expenditures, including on clothing and shelter. In addition, it updated the view of a family’s financial resources to take account of government benefits not issued as cash.Last year, when the Census Bureau wanted to determine the effect of the 2021 child tax credit on child poverty, it was able to do so thanks to the Supplemental Poverty Measure. (The tax credit helped bring child poverty to its lowest level on record, 5.2 percent, the bureau found. )“Becky Blank was a giant,” Mr. Greenstein said. “The introduction of the Supplemental Poverty Measure was probably without question the most important new development in poverty measurement in over 30 years.”It attracted bipartisan support. “There’s widespread agreement, that’s increased over the years, that the Supplemental Poverty Measure is a more accurate measure of people’s actual financial status,” said Ron Haskins, a former policy analyst for Republicans, including the former House speaker Paul Ryan and President George H.W. Bush.Rebecca Margaret Blank was born on Sept. 19, 1955, in Columbia, Mo., to Uel and Vernie (Backhaus) Blank. She grew up in Roseville, Minn., a suburb of the Twin Cities. Her father worked on behalf of the University of Minnesota to study and improve the local tourism industry. Her mother was a homemaker.Growing up, Becky participated in campaigns organized by the nonprofit advocacy group Bread for the World to write letters to members of Congress about the importance of combating hunger.She graduated from the University of Minnesota with a bachelor’s degree in economics in 1976 and earned a Ph.D. in the subject from the Massachusetts Institute of Technology in 1983.At the Commerce Department, she attained the post of acting secretary briefly in 2011 and again from 2012-2013. She left to become chancellor of the University of Wisconsin-Madison, where she tangled with state Republicans who were trying to cut funding. One achievement was her creation of a scholarship program for Wisconsin students from poor families.Last year, Ms. Blank was set to become the next president of Northwestern University, prompting her and her husband to take a trip beforehand to Europe. They found themselves returning to destinations from their honeymoon in 1994, including Lünersee, an alpine lake in western Austria.While strolling around the lake, she became ill. Upon returning home, she was diagnosed with cancer. On July 11 — the day she was set to start her new job — she announced that she would have to decline the offer.In addition to her husband, she is survived by their daughter, Emily Kuttner, and her brother, Grant.The Official Poverty Measure that Ms. Blank had hoped to jettison remains in place, a monument to bureaucratic stasis. But scholars and other analysts, Mr. Greenstein said, now overwhelmingly use the tool that Ms. Blank imagined, fought for and established. More

WASHINGTON (Reuters) – U.S. President Joe Biden’s budget proposal, released on Thursday, envisions a dramatic expansion of the federal safety net for children and families. Unlike programs that benefit older Americans, it stands little chance of gaining traction.Biden’s fellow Democrats widely back his family-focused proposals: Tax credits, free preschool, subsidies for child care and paid family leave.But Democrats failed to pass them into law when they controlled both chambers of Congress last year, and Republicans who now control the House of Representatives are considering steep cuts to existing family programs. At a total cost of $1.6 trillion over 10 years, Biden’s family programs would amount to roughly 2% of all federal spending, according to a Reuters analysis, a proposal that Republican House Speaker Kevin McCarthy called “completely unserious” on Thursday.That would be dwarfed by the $31.8 trillion spent on Social Security and Medicare, the retirement and health plans for people over 65, according to Biden’s budget.Those two programs are due to balloon as the Baby Boom generation ages, with Biden’s budget projecting they will account for 42% of federal spending in 2033, up from 34% today.But Republicans and Democrats have said any cuts to either program are off limits as they gird for difficult negotiations to raise the nation’s $31.4 trillion debt ceiling this year. “I guarantee you I will protect Social Security and Medicare,” Biden said at a rally in Philadelphia on Thursday.That makes good political sense. Republican proposals to scale the two programs back have been met with fierce resistance from Democrats and interest groups over the past 20 years. Even modest efforts to rein them in, such as by adjusting the way benefit increases are calculated, have gotten nowhere in Congress.The 60 Plus Association, a conservative group that backed then-President George W. Bush’s proposal to partially privatize Social Security, now says the program should be preserved as is.Lawmakers have reason to be wary: Older Americans are more likely to vote than their younger counterparts, with Census Bureau data showing that 76% of voters aged 65 to 74 cast a ballot in the 2020 elections, about 10 percentage points higher than the population at large.A presentation by the nonpartisan Congressional Budget Office to House lawmakers on Wednesday laid out options for addressing the deficit and projected that spending cuts would have substantially less effect on the deficit than increased tax collections.Biden’s budget proposal projects a deficit of $1.7 trillion for the current fiscal year. His proposal would address it by hiking taxes on wealthy Americans and corporations; Republicans have yet to put forward a budget of their own, but many are calling for steep domestic spending cuts.HEAD START: CUT OR EXPAND?One proposal by the conservative Republican Study Committee calls for phasing out the Head Start preschool program for low-income families over 10 years. Another plan circulated by Russell Vought, who served as former President Donald Trump’s budget director, would cut Head Start immediately by 50%.Biden, by contrast, would boost Head Start funding by 9% next year. His proposal comes after a surge of COVID-19 pandemic spending, including child tax credits and expanded benefits for antipoverty programs, that analysts say helped bring a record low child poverty rate of 5.2% in 2021.That tax credit expired at the end of 2021. If revived, it would cost the government $259 billion in the next fiscal year — equal to 4% of total federal spending.Federal spending on children is on track to decline from 9.4% of the budget in 2021 to 6.4% in coming years as growing entitlement spending eats up a growing share of the budget, according to a 2022 report from the Urban Institute think tank.Elaine Maag, who helped author that report, said lawmakers usually do not consider that safety-net programs for children can yield benefits later on, such as higher graduation rates and better physical health.”We generally don’t think about the benefits of these investments in children, we just think about the cost side,” she said. “If we thought more about the benefits, we might do more investing in kids.” More

WASHINGTON (Reuters) – The Biden administration’s budget plan put forward on Thursday includes requests for billions of dollars of funding for the Indo-Pacific region aimed at countering China through infrastructure investments and other support for U.S. partners and allies in the region.Acting Deputy Secretary of State for Management and Resources John Bass told reporters Washington’s competition with Beijing was “unusually broad and complex” and justified new forms of funding.”Our approach towards the generational challenge posed by the PRC focuses on investing in our own domestic capabilities, aligning our efforts with those of allies and partners and competing with the PRC where interests and values differ,” Bass said, referring to the People’s Republic of China.Biden’s budget proposal already faces stiff opposition from Republican lawmakers, although party leaders generally support efforts to counter China.The budget proposal for 2024 includes $400 million for a fund to “counter specific problematic PRC behaviors globally,” according to a State Department fact sheet.The administration is requesting mandatory spending, in addition to traditional discretionary funding, including $2 billion to support infrastructure projects and $2 billion to strengthen Indo-Pacific economies and support partners to push back against China, Bass said.The budget also includes funding to expand the U.S. presence in the Pacific Islands, a region where Washington is competing with growing Chinese influence, he said.The amount of funding is likely to pale in comparison with China’s own largess overseas through the Belt and Road infrastructure initiative, but officials say U.S. efforts are focused on “high-quality” infrastructure projects and would rally private sector investment.”We are not looking to match China dollar for dollar, in part because any number of Chinese investments… don’t make a lot of commercial sense,” Bass said. More

NEW YORK (Reuters) -New York’s attorney general on Thursday sued KuCoin for failing to register with the state before letting investors buy and sell cryptocurrencies on its platform, as part of her effort to rein in what she calls “shadowy” cryptocurrency companies.Attorney General Letitia James said the fourth-largest cryptocurrency platform violated the Martin Act, a powerful state securities law, by transacting in cryptocurrencies, selling the product “KuCoin Earn” to generate income for itself and investors, and wrongfully calling itself an “exchange.”In papers filed with a state court in Manhattan, James is seeking a permanent injunction to stop KuCoin from operating in New York until it complies with the law.KuCoin did not immediately respond to requests for comment.Launched in September 2017, KuCoin describes itself on its website as the “People’s Exchange,” with more than 27 million users across 207 countries and regions.KuCoin trails Binance, Coinbase (NASDAQ:COIN) and Kraken in trading volume among cryptocurrency spot exchanges, according to the data company CoinMarketCap. It raised $150 million in a funding round last May, giving it a $10 billion valuation.James said KuCoin has let investors trade popular virtual currencies such as ETH, LUNA and TerraUSD, and that her case is among the first by a regulator calling ETH a security.”One by one my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,” James said in a statement.Last month, James sued the CoinEx cryptocurrency platform for failing to register with the state.In January, 10 states including New York secured up to $24 million from the cryptocurrency company Nexo Inc, which they also accused of operating illegally.KuCoin is headquartered in the Seychelles. James said its owners are Mek Global Ltd, also based in the Seychelles, and PhoenixFin PTE Ltd, based in Singapore. More

Good morning. Today we start in the US, where Joe Biden’s administration has imposed fresh sanctions on Chinese companies it said was supplying parts for drones that Russia has used to fight its war in Ukraine. On the topic of sanctions, we also have an exclusive story that Russian billionaires Mikhail Fridman and Petr Aven are primed to offload their stakes in Alfa-Bank as they seek to free themselves from western penalties.Here’s what else I’m keeping tabs on in the coming days:Bank of Japan: The central bank will announce its decision on interest rates today. Rapid price growth of popular products — including chicken nuggets, tofu and bidets — exemplifies challenge for central bankers.UK-France summit: UK prime minister Rishi Sunak and his French counterpart, president Emmanuel Macron, will attend their first bilateral summit in five years.Canberra Balloon Spectacular: The week-long event begins in Australia on Saturday.Thank you for reading FirstFT. Have a great weekend. Today’s top news1. US president Joe Biden’s administration has imposed new sanctions against a group of Chinese companies it said was supplying parts for Iranian drones used by Russia to fight its war in Ukraine. The US Treasury on Thursday said five Chinese companies and one individual were “responsible”. 2. Scoop: Russian billionaires Mikhail Fridman and Petr Aven are primed to offload their stakes in Alfa-Bank in a $2.3bn sale of Russia’s largest private lender, as they seek to free themselves from western sanctions.3. Roger Ng, a former Goldman Sachs banker, was sentenced to 10 years in prison on Thursday in New York. The 50-year-old Malaysian citizen, who was convicted in connection with the multibillion-dollar embezzlement scheme at 1MDB, was found guilty on all three counts in his case. 4. JPMorgan Chase is suing Jes Staley over the Jeffrey Epstein lawsuits, in an attempt to make the former executive liable for penalties the bank might face if it is found to have facilitated the late sex offender’s trafficking crimes. Read more details from JPMorgan’s court filing.Explainer: Why the Epstein scandal continues to haunt JPMorgan and Barclays5. Cash-strapped local governments in China artificially boosted their revenues last year by selling swaths of land to their own investment vehicles, an official think-tank said, raising concerns about the extent of their financial woes. Some of the transactions, the Chinese Academy of Fiscal Sciences warned, “might be fake”.How well did you keep up with the news this week? Take our quiz.News in-depth

President Volodymyr Zelenskyy justified his stance in defending the city of Bakhmut by claiming Russia was suffering much heavier casualties than Ukraine © FT montage/Dpa/AFP/Getty

Despite western officials and even some Ukrainian soldiers suggesting it might be wise to pull back from the eastern city of Bakhmut, President Volodymyr Zelenskyy this week recommitted his forces to defending the city. Our reporters delve into why Zelenskyy has raised the stakes.We’re also reading . . . New cold war: Xi Jinping is not wrong about Washington’s “containment” of China, but encircling Beijing is not a viable long-term strategy, writes Edward Luce.Trade secrets: Being on the receiving end of coercive trade bullying from China isn’t much fun for exporters — and all the more reason to read Alan Beattie’s quick and easy guide for countries resisting Chinese trade coercion.Bad break-up: EY has been thrown into disarray by an internal war over its plan to split in two after its US boss said the deal would have to be paused.Chart of the dayPeanuts are no longer going for well, peanuts. They have become China’s best-performing agricultural commodity as dry weather and Beijing’s policies have eaten into supplies, raising traders’ fears that demand from the world’s largest importer of the legume will push up international prices.Take a break from the newsCal Newport, an MIT-trained computer scientist, has carved out a side career as a productivity evangelist for the masses, with teachings centred around the values of focused work, work-life balance and cutting out digital distractions. What does he know that we don’t?© Justin T Gellerson; Illustrations: Uijung KimAdditional contributions by Darren Dodd and Tee Zhuo More