Economy

TOKYO (Reuters) -Bank of Japan (BOJ) board members agreed that the central bank must scrutinise how the yen’s recent sharp moves could affect inflation, minutes of the BOJ’s July policy meeting showed on Wednesday.One member said the downward pressure on the yen may ease as the global economic slowdown begins to weigh on inflation and long-term interest rates across the world, the minutes showed.”If the global economy experiences a shock, there’s a chance the current weak-yen trend could change into a strong-yen trend,” another board member was quoted as saying.At the July 20-21 meeting, the BOJ projected inflation would exceed its 2% target this year in fresh forecasts, but maintained ultra-low interest rates and signalled its resolve to keep monetary super loose.Analysts blame the extremely low rates for accelerating the Japanese currency’s declines.In a surprise move last week, the government intervened in the currency market to stem yen weakness by selling dollars and buying yen for the first time since 1998. More

The IMF has launched a biting attack on the UK’s plan to implement £45bn of debt-funded tax cuts, urging the government to “re-evaluate” the plan and warning that the “untargeted” package threatens to stoke soaring inflation. The multilateral lender said it was “closely monitoring” developments in the UK and was “engaged with the authorities” after Chancellor Kwasi Kwarteng unveiled the tax cuts last week, sparking a collapse in the value of sterling and a surge in the country’s borrowing costs. “Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture,” the IMF said in a statement. “It is important that fiscal policy does not work at cross purposes to monetary policy.” Janet Yellen, US Treasury secretary, said the US was “monitoring developments very closely”. She declined to be drawn on the merits of the plan but noted that the US and the UK had “significant inflation problems and central banks focused on . . . bring[ing] inflation down”. She added the financial turmoil of recent days appeared to be confined to Britain rather than spreading to the global economy and that financial markets that had sold off sharply were “functioning well”. At an event hosted by the Economic Club of Washington DC, Brian Deese, director of the White House’s National Economic Council, said he “wasn’t surprised” by the reaction to the UK’s fiscal plan, saying “it puts the monetary authority in a position of potentially having to move even tighter”.He added: “It is particularly important to maintain a focus on fiscal prudence.”In its first assessment of the UK situation, Moody’s, the credit rating agency, offered critical commentary, saying that large unfunded tax cuts would lead to rising borrowing costs and lower growth.Though it did not change the UK’s credit rating, Moody’s warned that a “large unfunded fiscal stimulus . . . will prompt more aggressive monetary policy tightening, weighing on growth in the medium term”.The IMF’s pointed criticism of Kwarteng’s fiscal plan came as some business leaders in the UK hit out at the tax cuts, while the Bank of England’s chief economist warned it would need to react with a “significant monetary response”. The IMF said it understood the UK government’s desire to help “families and businesses deal with the energy [price] shock” while “boosting growth” with supply-side reforms. But it raised the concerns that the tax cuts, which will disproportionately benefit high earners, “will likely increase inequality”. It called on Kwarteng to use the budget on November 23 to “provide support that is more targeted and re-evaluate the tax measures”. Following the IMF statement, the UK Treasury said the November budget would “set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term”. It added the government had acted “at speed to protect households and businesses through this winter and the next”.The opposition Labour party seized on the IMF statement, with shadow chancellor Rachel Reeves saying it “should set alarm bells ringing in” Westminster and calling on the government to “urgently lay out how it will fix the problems it has created”.Eswar Prasad, a former senior IMF official, said: “This is a hard-hitting and pointed criticism that pulls few punches. This is as close as IMF language comes to calling a set of policies irresponsible, ill-advised and ill-timed.”Mark Sobel, a former US Treasury official and ex-IMF representative, said the statement was “unusual in its sharpness” but that he approved of the fund being “a ruthless truth teller”. Adnan Mazarei, former deputy director at the IMF, described the statement as “on the strong side” and said the fund was “concerned, especially about the risks of a spillover”, which he described as “tangible”. He added: “The UK authorities have embarked on an unnecessarily risky path.”

Ray Dalio, the billionaire founder of hedge fund Bridgewater, said the UK was “operating like the government of an emerging country”.Dalio’s remarks came after Larry Summers, former US Treasury secretary, on Monday called the policy “utterly irresponsible” and said the violent market reaction was “a hallmark of situations where credibility has been lost”.The pair joined Raphael Bostic, president of the Atlanta branch of the Federal Reserve, who this week warned that the UK’s plan increased economic uncertainty and raised the odds of a global recession.Last week, Jason Furman, an economic adviser to former US president Barack Obama, wrote on Twitter: “I can’t remember a more uniformly negative reaction to any policy announcement by both economists and financial markets than the UK’s policy.” More

BENGALURU (Reuters) – The Federal Reserve will hike its key interest rate to a much higher peak than predicted two weeks ago and the risks are skewed towards an even higher terminal rate, according to economists polled by Reuters.That change in expectations came after the Fed raised rates by 75 basis points last week for the third straight meeting and foresaw going higher than it had previously thought to tame inflation, which is running over four times above target.Since then, already battered global stocks went much deeper into bear market territory – a decline of 20% or more – on fears of recession and most currencies weakened further against the multi-decade high dollar.But that is unlikely to push the Fed to switch its policy path anytime soon as Fed Chair Jerome Powell and other policymakers have remained blunt about the “pain” to come.Indeed, over 70% of economists, 59 of 83, predicted the central bank would hike its fed funds rate by three-quarters of a percentage point for the fourth straight meeting in November, a Reuters poll taken after the Fed meeting last week showed.The survey predicted that would be followed by 50 basis points in December to end the year at 4.25%-4.50%.If realized, that would be the highest rate since early 2008, before the worst of the global financial crisis, and 75 basis points higher than 3.50%-3.75% predicted just two weeks ago. The forecasts are in line with the Fed’s dot-plot projection and current market pricing.”With inflation this high, history says you need to get at it sooner and you need to follow through. The real policy mistake is not bringing inflation back down to 2%,” said Michael Gapen, chief U.S. economist at BofA Securities.”If a near-term recession and a larger increase in the unemployment rate than they are projecting are needed to bring inflation down, that is not a policy error in their mind.”A poll taken earlier this month put the probability of a U.S. recession over the coming year at 45%, with the chance of one occurring over the next two years at 55%.NEUTRAL LEVELA majority, 45 of 83 economists, predicted the fed funds rate peaking at 4.50%-4.75% or higher in Q1 2023, the same as the dot plot projection and higher than the estimated neutral level of 2.4% that neither stimulates nor restricts economic activity.All but two of 51 economists who replied to an additional question said the risks were skewed towards a higher terminal rate than they currently expected.”The Fed reinforced their commitment to whatever it takes to get inflation under control, even if that means causing some pain in the economy,” said Justin Weidner, U.S. economist at Deutsche Bank (ETR:DBKGn), who expects the rate to peak at 4.75%-5.00%.”The short-run pain of recession would be better than the long-run pain of inflation expectations becoming unanchored.” Also, unlike most major central banks, the Fed has backing from a strong currency and a relatively strong economy compared with its peers. Among economists who had a view through end-2023, only 46% forecast at least one rate cut.With inflation not seen below the central bank’s target anytime soon and the unemployment rate, currently 3.7%, expected to increase at a much slower pace than in previous recessions, a premature cut might hurt the Fed’s credibility.More than 80% of respondents said once the fed funds rate reaches a peak, the central bank was more likely to leave it unchanged for an extended period rather than cut it quickly.Rates were predicted to remain in restrictive territory until at least 2026.”To get it (inflation) down, the economy needs to run below potential, bringing demand into better balance with supply capacity,” said James Knightley, chief international economist at ING.”The only way the Fed can do that is to hike rates and keep policy restrictive until that is achieved.”(For other stories from the Reuters global economic poll:) More

Prices rose by 5.7%, speeding up from 5.1% in the 12 months to August, led by an unprecedented 10.6% jump in food prices as the war in Ukraine inflated the costs of animal feed, fertiliser and vegetable oil, the BRC said.Market research firm NielsenIQ, which co-produces the data, said 76% of consumers expected to be moderately or severely affected by the cost-of-living crisis over the next three months, up from 57% in the summer. “So households will be looking for savings to help manage their personal finances this autumn and we expect shoppers to become more cautious about discretionary spend, adding to pressure in the retail sector,” Mike Watkins, NielsenIQ’s head of retailer and business insight, said.Britain’s consumer price index, which measures a broader range of prices than the BRC’s data, hit a 40-year high of 10.1% in July before easing back to 9.9% in August.The cost of imported goods in Britain faces further inflationary pressure after a slump in the value of the pound triggered by the announcement of tax cuts by new finance minister Kwasi Kwarteng last week. More

LONDON (Reuters) – Wall Street giant JPMorgan (NYSE:JPM) is planning to double the size of its workforce at fledgling British retail bank Chase to at least 2,000 within two years, the CEO of the venture told Reuters, despite losses and some investor scepticism.JPMorgan said it had attracted one million customers and more than 10 billion pounds ($10.8 billion) of deposits to its UK mobile app bank since its launch last September.It’s a template the bank wants to replicate in other international markets – despite an intensifying cost of living crisis that has soured the outlook for retail banks globally.Britain in particular has been gripped by a crisis of investor confidence after finance minister Kwasi Kwarteng sent the pound and government bonds into freefall on Friday with a fiscal plan that unnerved markets.”We want to be international, starting with the UK,” Sanjiv Somani, UK chief executive of Chase, said in an interview at the bank’s UK headquarters in Canary Wharf in London on Friday.”You have to look at a ten-year view. If you look at anything shorter it will not lead to the right conclusion … The retail banking revenue pool is in the trillions, even outside the U.S.”He declined to say where Chase might launch next. Reuters reported this month JPMorgan is hiring retail bankers in Germany ahead of a potential launch there.Chase already has 1,000 staff in Britain – out of a total 19,000 JPMorgan employees in the country – and Somani says this number will “at least double” by the end of 2024.The venture will expand from current and savings accounts by rolling out lending products – likely starting with a credit card – by the end of 2023, Somani said.JPMorgan will also look to integrate its investments business Nutmeg – which it bought for around 700 million pounds last year – into Chase over that timeframe, he added.Somani started his career in retail banking in India helping Citi launch a much simpler version of a ‘digital bank’ – one that would text you your bank balance.”The idea is in the medium term we want to be a full service bank,” he said of Chase, adding it had no immediate plans to roll out branches.INVESTOR CONCERNSThe venture’s rapid growth has come at a hefty price tag – albeit one the world’s largest bank can easily absorb. JPMorgan disclosed at its investor day in May that it expected to lose $450 million on the venture in 2022 and outlined cumulative losses north of $1 billion over several years, before projecting it would break even in 2027-28.Somani said the May investor day projections still held, but that revenues generated from lending and expansion of Nutmeg’s fee-based services would ultimately put it in the black.Investors have expressed concern about a lack of detail on JPMorgan’s digital investments and about their uncertain prospects, adding to pressure on the international consumer arm to succeed.”History is against JPMorgan’s attempt to build a digital online bank in the UK and elsewhere,” said Mike Mayo, a banking analyst at Wells Fargo (NYSE:WFC), though he added JPMorgan’s U.S. digital expertise and deep pockets could make the difference.The UK market has seen many aborted attempts to challenge the dominance of its main high street banks – which include Barclays (LON:BARC), Lloyds (LON:LLOY) and NatWest. Germany’s N26 quit the country after just two years, while Citi axed its UK retail bank last week.Chase also faces stiff competition from both local digital brands like Monzo and those offered by large institutions such as Goldman Sachs (NYSE:GS)’ savings bank Marcus. Marcus grew at a similar pace to Chase early on, amassing 13 billion pounds of deposits in Britain in its first 17 months.Somani said JPMorgan’s backing nonetheless gave Chase an edge.”We’re the best-funded fintech in the world,” he said. ($1 = 0.9235 pounds) More

WASHINGTON (Reuters) -A bipartisan group of U.S. lawmakers on Tuesday called on President Joe Biden to issue an executive order to boost oversight of investments by U.S. companies and individuals in China and other countries.The lawmakers including House Speaker Nancy Pelosi, Senate Majority Leader Chuck Schumer and Republican Senator John Cornyn urged Biden to issue an order to “safeguard our national security and supply chain resiliency on outbound investments to foreign adversaries.”Congress has been considering legislation that would give the U.S. government sweeping new powers to block billions in U.S. outbound investments into China. The proposal was removed from bipartisan legislation to subsidize U.S. semiconductor chips manufacturing and research in a bill approved in August.The lawmakers, including Democrats Bill Pascrell, House Appropriations chair Rosa DeLauro, Senator Bob Casey and Republicans Brian Fitzpatrick and Victoria Spartz, said in a letter to Biden that as negotiations continue, “our national security cannot afford to wait.” They urged the president “to safeguard our national security and supply chain resiliency on outbound investments to foreign adversaries.”The White House and Chinese Embassy did not immediately comment.White House national security official Peter Harrell earlier this month said that the Biden administration has not yet made a final decision on a potential outbound investment mechanism regulating U.S. investments in China.Harrell stressed that any measure targeting such investments should be narrowly tailored to address gaps in existing U.S. authorities and specific national security risks.”When we cede our manufacturing power and technological know-how to foreign adversaries, we are hurting our economy, our global competitiveness, American workers, industry and national security. Government action on this front is long overdue to address the scope and magnitude of these serious risks we face as a country,” the lawmakers wrote.The Senate Banking Committee on Thursday will hold a hearing on outbound investment that will feature testimony from Cornyn, Casey and several former government officials among them Information Technology Industry Council Executive Vice President Robert Strayer.The proposed legislation is intended to give the government greater visibility into U.S. investments. It would be mandatory to notify the government of investments that may fall under the new regulations, and the United States could use existing authorities to stop investments, or mitigate risk. If no action is taken, the investment can move forward. More

UK negotiators have the “difficult” task of winning greater access to the Indian market for financial companies in a trade deal they hope to seal with New Delhi next month, the Lord Mayor of London has said.Vincent Keaveny acknowledged in an interview with the Financial Times that India might reject British calls to ease its tight restrictions on foreign financial services firms.The Lord Mayor is a largely ceremonial figure who heads the City of London Corporation, the local authority for London’s financial district, and lobbies for the UK financial services industry internationally.“We’re hopeful that there’ll be a significant services component to the trade agreement. It’s clearly a difficult area from the negotiators’ point of view,” said Keaveny, who was briefed on the talks ahead of a visit to India last week.Negotiators are working to finalise a deal in time for the Diwali festival on October 24, a deadline that Indian prime minister Narendra Modi and former UK prime minister Boris Johnson set earlier this year. Officials from both countries have since indicated that talks were on track.“There would be some disappointment if we don’t get a significant services component,” said Keaveny, a partner in law firm DLA Piper’s finance practice. “It’s probably something that will be negotiated right up to the wire.”Keaveny said that even if the trade deal did not meet the UK financial services industry’s hopes, it would still promote more Indian business for City firms. “The positivity that it will introduce to the relationship will flow through to the harder to address areas,” he added.Among the UK’s demands is easier market access for British whisky, which incurs triple-digit tariffs in India. City firms face a range of rules that they argue limit their ability to do business in India. Indian regulations for financial and professional firms include caps on how much equity foreign investors can hold, as well as requirements to operate as joint ventures. Foreign banks also face higher taxes than local ones, the City of London Corporation said.New Delhi wants more UK visas for its skilled workers, along with greater access for Indian services and products such as pharmaceuticals.Keaveny said UK firms would benefit from being able to hire more Indian students and professionals. “We, from the tech and financial services sector, have been pushing the [UK] government for some time now to ensure there’s greater mobility and greater talent,” he added.

Leaders from both countries see an early deal as a political boon. The UK’s new prime minister Liz Truss can present a deal with India as a pillar of her post-Brexit strategy to expand trade beyond Europe. It could also help boost confidence in Britain at a time when investors have dumped the pound and UK debt.India, meanwhile, is pursuing several trade deals as part of a broader strategy that officials hope will diversify trade away from its geopolitical rival, China. New Delhi is in talks with Canada and the EU after signing deals with Australia and the United Arab Emirates this year.Piyush Goyal, India’s commerce minister, told the FT in July that the country offered vast growth potential to investors. India “will probably grow 10 times in the next 30 years, as against the developed world which will probably be two times or three times 30 years from now”, he said. More

Scott Galloway chronicles a decades-long crisis using graphs, data and some provocative hypotheses.You’re reading the On Politics newsletter, for Times subscribers only. More