Economy

TOKYO (Reuters) – The Bank of Japan holds a two-day policy meeting concluding on Oct. 31, days after a general election where new Prime Minister Shigeru Ishiba faces a key test on his agenda to prop up wages and revitalise the country’s weak regional economies.Here is a guide on what to expect and why the BOJ’s rate review matters:IS BOJ GOING TO RAISE INTEREST RATES?The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. It has signaled readiness to hike again, once the board has enough confidence that Japan will durably hit its 2% inflation target.With inflation stable around 2% and showing few signs of spiking, however, the BOJ is in no rush to pull the trigger.The central bank is widely expected to keep rates steady at the October meeting, as Governor Kazuo Ueda has stressed the need to spend time scrutinising risks such as uncertainty over the U.S. economy and the fallout from volatile markets.Central banks typically avoid changing policy around big political events. The BOJ has plenty of reason to stand pat with a domestic election scheduled on Oct. 27 and the U.S. presidential election looming early next month.WHAT SHOULD MARKETS LOOK OUT FOR?The BOJ has said it will hike rates again if the economy and prices move in line with its forecast. That means its quarterly report, which will include the board’s fresh growth and price forecasts, may offer clues on the next rate hike timing.Sources have told Reuters the BOJ is unlikely to make major changes to its forecast for inflation to hover around its 2% target through March 2027.While such projections would meet the prerequisite for more rate hikes, the BOJ may signal its readiness to go slow by highlighting risks such as slow global growth and the damage volatile markets could inflict on household and corporate mood.If the BOJ escalates warning over such risks or refers to them in the report’s portion on policy guidance, that could further diminish the chance of a year-end rate hike. Increased optimism over sustained wage hikes, by contrast, could be a sign the next rate hike is nearing.WHAT ELSE SHOULD MARKETS LOOK OUT FOR?Governor Ueda’s post-meeting briefing, to be held at 3:30 p.m. Tokyo time (0630GMT) on Oct. 31, may offer clues on the pace and timing of further rate hikes.In a briefing in September, Ueda dropped signs of a pause by saying the BOJ can “afford” to spend time scrutinising risks.His comments on the yen are also key as the currency’s sharp decline, which pushes up inflation via import costs, was among factors that led to the BOJ’s rate hike in July.While still off a three-decade trough near 162 hit in early July, the yen fell to a two-and-a-half-month low below 150 to the dollar on Thursday. Further yen falls could put renewed pressure on Ueda to drop hawkish signals on the rate outlook.WHAT DO ANALYSTS THINK ABOUT NEXT RATE HIKE TIMING?After the October meeting, the BOJ next meets for a policy meeting on Dec. 18-19 followed by a meeting on Jan. 23-24.A slim majority of economist polled by Reuters saw the BOJ forgoing a hike this year, with most expecting the central bank to raise rates again by March next year.WHAT COULD HAMPER FURTHER RATE HIKES?The BOJ has signaled readiness to raise rates to levels deemed neutral to the economy – seen by analysts as somewhere around 1% – by around late next year or early 2026.But the road could be bumpy. The BOJ hopes bumper wage hikes offered by firms this year will underpin consumption, and allow retailers to keep hiking prices. But slowing global demand may discourage manufacturers from offering big pay hikes next year.Political clouds also hang over the BOJ’s rate-hike path. While Ishiba has said he will not interfere in monetary policy, the premier may push back against further rate hikes if his ruling party fares poorly in the Oct. 27 election. More

(Reuters) – The EU’s five biggest members spend 42 billion euros ($45.60 billion) annually subsidizing fossil-fuel company cars, according to a study commissioned by environmental group Transport & Environment (T&E), which called for more subsidies for EVs instead.Company cars make up around 60% of new car sales in Europe.Italy provides 16 billion euros in subsidies for fossil-fuel company cars, followed by Germany, which provides 13.7 billion euros, the study by consultancy Environmental Resources Management (ERM), released on Monday, showed. France and Poland provided 6.4 billion euros and 6.1 billion euros annually respectively.Companies offer cars as perks for employees, often with significant benefit-in-kind subsidies including offsetting consumer taxes and fuel usage benefits.Around 15 billion euros across the four countries goes to subsidizing SUVs, the study found. Company car drivers receive an average annual tax benefit of 6,800 euros, ranging up to 21,600 euros for high-polluting larger models. “This is completely illogical and completely unacceptable, that we’re still pouring billions of taxpayer money into a technology that’s completely contradictory to the European Commission’s green transition agenda,” T&E’s director of fleets Stef Cornelis told Reuters. The study comes as Europe’s EV sales have fallen, in part because they are more expensive than fossil-fuel equivalent models and thus out of reach for many consumers. Sales of fully electric cars slumped 43.9% in the European Union in August, as its biggest EV markets Germany and France recorded drops of 68.8% and 33.1% respectively, according to industry data.The ERM study found that financial incentives for drivers of company cars to switch to EVs are only provided in former EU member the United Kingdom.European Commission President Ursula von der Leyen told the European Union’s new climate chief Wopke Hoekstra in a letter dated Sept. 17 that one of Hoekstra’s priorities will be to propose how to phase out fossil-fuel subsidies.($1 = 0.9211 euros) More

(Reuters) – A look at the day ahead in Asian markets. The trading week in Asia opens against an increasingly bullish global backdrop fueled by continued strength in U.S. stocks, but with local sentiment more circumspect due to the uncertainty surrounding China’s deep-rooted economic problems.The People’s Bank of China is expected to cut its loan prime rates on Monday, Beijing’s latest move in a series of monetary, fiscal and liquidity support measures to shore up the imploding property sector, revive growth and fight off deflation.PBOC Governor Pan Gongsheng told a financial forum in Beijing on Friday that the LPR will be reduced by 20 to 25 basis points on Monday, the official Xinhua news agency quoted Pan as saying.The PBOC also on Friday unveiled new measures to inject more than $100 billion into the country’s stock market, which helped lift Shanghai’s blue chip equity index by 3.6%, while the MSCI Asia ex-Japan index rose 1.6% for its best day since Sept. 26. China’s economic “data dump” on Friday wasn’t as bad as many feared it could have been, and annual GDP growth in the third quarter was slightly above consensus at 4.6%.But as economist Phil Suttle notes, the past two quarters have been unusually weak, delivering 2.75% growth on a seasonally-adjusted annualized basis, “the weakest two-quarter growth rate in modern times” outside of COVID-related shutdowns. Little wonder Beijing has sprung into action.Stocks have responded positively, but bond yields are sliding again. They initially spiked higher on hopes the support measures, which include substantial bond issuance, will reflate the economy but 10-year yield is once again within sight of 2.00%.U.S.-Sino trade wars have been pushed to the forefront of investors’ minds again after Republican presidential candidate Donald Trump said he would impose additional tariffs “at 150% to 200%” on China if China were to “go into Taiwan,” the Wall Street Journal reported on Friday.The U.S. juggernaut, meanwhile, keeps rolling on – economic data are beating expectations, GDP growth is tracking well over 3%, incoming earnings are strong, and Wall Street is hitting new highs. But perhaps the optimism is overdone. Analysts at Raymond James note that short-term options and technical indicators are getting skewed, suggesting the market may be “ripe for a period of consolidation or vulnerable to a near-term pullback.”Financial conditions are easing around the world, as central banks cut rates and stocks march higher. On that score, investors in Asia will keep close tabs on the dollar, which has recovered recently and is at a three-month high.Friday’s Morning Bid Asia newsletter incorrectly stated that Malaysia would announce GDP data later in the day. The preliminary GDP will be released on Monday, Oct. 21.Here are key developments that could provide more direction to markets on Monday:- China loan prime rate decision- Malaysia GDP (Q3)- Reserve Bank of Australia deputy governor Andrew Hauser speaks More

Egypt signed an $8 billion financial support package with the International Monetary Fund in March that requires it to reduce subsidies on fuel, electricity and other commodities and to allow its currency to float freely — measures that have triggered public fury. The IMF package unlocked billions of dollars of additional funds from the World Bank and the European Union. On Friday, Egypt raised prices on a wide range of fuel products for the third time this year, with diesel and gasoline prices increasing by between 11% to 17%. In June, it raised the price of subsidised bread by 300%. Prime Minister Mostafa Madbouly said in July that fuel prices would continue to rise gradually through to the end of 2025. “As for the programme we’re engaged in now, and this is a message we’re sending to ourselves and to concerned international institutions, the Fund and the World Bank and all the institutions, we are doing this under extremely difficult regional and global circumstances,” Sisi said at a conference. Egypt had lost $6-7 billion in revenues the last seven to 10 months, a situation could continue for at least another year, he added. Attacks on Red Sea shipping by Yemen’s Houthis, who say they are acting in solidarity with Palestinians in Gaza, has diverted traffic from the Suez Canal, causing revenue to fall to $870 million in the second quarter from $2.54 billion a year earlier. “The programme we have agreed upon with the fund — and that is an important matter that I am telling the government and myself — if this challenge will hurt public opinion, that people cannot bear it, we must re-evaluate our situation,” Sisi said.Egyptian officials are attending the IMF and World Bank annual meetings in Washington this week, when they are expected to hold talks with officials from the two institutions. More

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The bank argued that the growth effects of these stimulus initiatives will mirror past experiences, falling short of addressing the underlying issues.In recent weeks, China’s central bank eased monetary policy, and the Ministry of Finance has deployed fiscal resources aimed primarily at the struggling property sector and local banks. However, Wells Fargo believes that “with few fiscal resources deployed toward supporting broader domestic demand, we don’t think the growth impact of the latest stimulus announcements will be any different for China.”The analysts contend that the playbook used over the last fifteen years is insufficient for changing China’s short- or long-term economic outlook. They forecast annual GDP growth to remain around 4.5% in the coming years, highlighting that policies focused solely on stabilizing the property market and banking sector will not foster substantial consumer spending.“Any policy adjustments that do not include specific stimulus to spark domestic consumption in our view miss the mark and will ultimately not match authorities’ intentions,” wrote Wells Fargo. As the market optimistically reacts to these announcements, Wells Fargo warns that the enthusiasm may be fleeting. They caution that without robust measures to boost consumer confidence and spending, China could face persistent economic challenges. The analysts conclude that unless China shifts its focus toward stimulating domestic demand, the current policy responses will merely serve as temporary fixes rather than effective long-term solutions. More

NEW YORK (Reuters) -U.S. semiconductor companies will get a closer look from investors in coming weeks, after diverging reports from two industry leaders abroad set off a volatile few days of trading.Because semiconductors are key components in a broad array of products, chipmakers and related equipment companies are closely followed for insight into the economy. Wall Street also watches the stocks as indicators of overall market trends.This year, the industry has been at the center of the artificial intelligence enthusiasm powering the stock market to record highs, highlighted by massive gains for Nvidia (NASDAQ:NVDA), the AI poster child.”It’s vitally important that these chip stocks hold up,” said Matt Maley, chief market strategist at Miller Tabak. “If they go down, it weighs on the rest of the market.”The Philadelphia SE Semiconductor index has pulled back after climbing more than 40% in the first half of the year. It is now up about 25% in 2024 against a 22.5% gain for the benchmark S&P 500.Semiconductor and related equipment stocks account for 11.5% of the weight of the S&P 500. Nvidia, which is approaching Apple (NASDAQ:AAPL) as the largest company by market value, holds a 6.8% weight in the index.The sector had its share of drama in the past week. Chip shares tumbled on Tuesday after equipment maker ASML (AS:ASML), Europe’s biggest tech firm, projected lower-than-expected 2025 sales and bookings. But the group rebounded on Thursday after Taiwan Semiconductor Manufacturing Co, which produces advanced chips used in AI applications, reported a forecast-beating 54% jump in quarterly profit. Following the dueling announcements, the SOX semiconductor index is down 2.5% so far this week, with the S&P 500 up 0.5%.The semiconductor group could take its next cues from imminent corporate reports, including from Texas Instruments (NASDAQ:TXN) and equipment company Lam Research (NASDAQ:LRCX) next week. Texas Instruments’ products are used in a broad range of applications, including automotive and industrial, and could be a barometer for whether such areas that have been sluggish for the chip industry are starting to rebound, said Daniel Morgan, portfolio manager at Synovus (NYSE:SNV) Trust. Overall, Morgan said, the semiconductor group is trading at 5.6 times price-to-book valuation, which he said was fair, noting that group topped 8 times price-to-book levels in 2021. Advanced Micro Devices (NASDAQ:AMD)’ earnings report the following week will give some initial insight into AI-related demand ahead of Nvidia’s highly anticipated report due late next month. If AMD’s 2025 forecast for its AI chips is strong, “that’s going to be bullish for the sector,” Maley said. The semiconductor reports are due in a busy week for U.S. corporate earnings overall, with well over 100 S&P 500 companies set to report, including Tesla (NASDAQ:TSLA), Coca-Cola (NYSE:KO) and IBM (NYSE:IBM). “The (semiconductor) group is very important, if nothing else because of the market cap that it carries,” said Chuck Carlson, chief executive officer at Horizon Investment Services. More

BEIJING (Reuters) – The Beijing Stock Exchange will help small and medium-sized tech companies with training and access to finance so they can list on the bourse, it said on Sunday, as part of government plans to foster innovation.The stock exchange said its action plan would help SMEs, which are not profitable but have potential, to obtain financing from banks and market institutions, and it will also provide training and support.The bourse will also encourage listed companies as well as the newer SMEs to carry out merger and acquisitions and enhance listings through instruments including ordinary shares, preferred shares and convertible bonds. It will encourage policy institutions and market institutions to provide credit enhancement support, it said. More