Economy

TOKYO (Reuters) – The vast majority of Japanese companies expect the yen to firm against the dollar by year-end, a Reuters monthly poll showed on Thursday, suggesting further weakness in the local currency could catch businesses off guard.The yen’s downturn this year, which accelerated in recent weeks, has burdened households with higher costs of everything from food to fuel. The rapid declines have also raised alarm among big companies and policymakers, making it difficult for companies to plan for the future.The currency has lost about 20% versus the dollar since the start of this year, hitting a fresh 24-year low of just shy of 145 yen last week. The yen has been hammered against the dollar due to the growing gap between U.S. and Japanese interest rates.”The yen has weakened so rapidly that it has meant a big impact on business management,” wrote a manager at one manufacturer in the automotive industry, responding on the condition of anonymity.During the Aug. 31 – Sept. 9 survey period, the yen was trading in a range of 138-145 to the dollar.The survey was conducted before Japanese authorities this week gave strong indications that they were uncomfortable with the currency’s sharp declines and appeared to be preparing to intervene to prop it up. On Wednesday, the yen was at 143.62 to the dollar.”From the standpoint of sustaining economic growth and coping with the procurement costs of raw materials, moderate rises in the yen are desirable,” wrote a manager at a maker of industrial ceramics used in chips.Asked how they expected the yen to move against the dollar by year-end, 45% of firms – the biggest chunk – pegged it at 136-140, followed by 28% at 131-135, the survey showed.Some 11% put it at 126-130, while 3% set it at 120-125. Only 13% saw it weakening further from 141, meaning many firms could be put on the back foot if the currency were to weaken again.Separately, a slim majority of respondents want the yen to rise moderately while 28% want it to fall modestly.INBOUND TOURISMSo far, Japan has not been able to capitalise on one big potential benefit from the weak yen: inbound tourism. Thanks to strict border controls the world’s third-largest economy is still only seeing a trickle of foreign tourists.Prime Minister Fumio Kishida this month raised the daily cap for entrants into Japan to 50,000 and the government is now considering scrapping the cap altogether by October, the Nikkei business daily reported on Sunday.The government is also considering removing a requirement that only visitors on package tours are allowed in, the newspaper said.Still, the survey showed corporate Japan – which has broadly lobbied to ease restrictions on tourism – believes a recovery will be slow in coming. A slim majority said they don’t expect the government’s easing of border controls to help inbound tourism recover.Some 28% think inbound demand will return to pre-pandemic levels by end-2023 while 18% expect it to return to those levels in 2024 or later. A full 20% see it never returning to those levels.One-third said they were unaffected by inbound tourism.The Reuters Corporate Survey, conducted for Reuters by Nikkei Research, canvassed around 500 big non-financial Japanese firms on condition of anonymity, allowing them to speak more freely.Separately, the survey also found that three quarters of firms are concerned about the possibility of an incident in Taiwan, given the political sensitivies around the island claimed by China. More

MEXICO CITY (Reuters) -Mexico and the United States have resolved the latest in a series of labor complaints under a regional trade pact, saying on Wednesday that workers at auto-parts plant VU Manufacturing in northern Mexico were able to elect the union of their choice. U.S. officials in July called for a probe under the 2020 United States-Mexico-Canada Agreement (USMCA), the fifth such case aiming to improve workplace conditions in Mexico, after activists alleged the company interfered in workers’ efforts to select their union. Michigan-based VU Manufacturing, whose factory in the Mexican border city of Piedras Negras produces interior car parts including arm-rests and door upholstery, did not immediately reply to a request for comment.U.S. labor officials said the Mexican government educated workers and trained management to ensure a fair union election on Aug. 31, including asking the company to issue a statement vowing to stay neutral.The Mexican government also requested vote observers from Mexico’s electoral institute and the United Nations-backed International Labor Organization.Workers ultimately elected an independent union, La Liga Sindical Obrera Mexicana, which will negotiate the plant’s first collective contract, covering some 400 people.”Workers at Manufacturas VU Auto Components facility now have a union – chosen through a fair election – with whom they are consulting as they prepare for negotiations,” U.S. Labor Minister Marty Walsh said in a statement.Their rights to free association and collective bargaining had previously been denied, the statement added. Mexico’s economy and labor ministries said the peaceful vote ensured workers could elect the group they believed would best represent their interests, and officials would continue monitoring worker rights at the factory. Previous USMCA labor complaints led to probes at Mexican plants owned by companies including carmakers General Motors (NYSE:GM) and Stellantis. More

The Biden administration is considering executive action to try to avoid a shutdown of the nation’s rail network that would harm the economy ahead of the midterm elections.WASHINGTON — President Biden, desperate to avert a damaging freight rail strike that could exacerbate rapid inflation, is pushing rail companies and unions to reach an agreement ahead of a Friday deadline, while exploring whether he can do anything unilaterally to assuage workers’ concerns.Mr. Biden and his economic team have been inserting themselves into final-hour negotiations between rail unions and large rail companies, which are at loggerheads over scheduling and sick time. Labor groups have insisted that employees be able to take unpaid time off for physician appointments, a request railroad companies have been unwilling to grant.On Wednesday, in anticipation of a strike, Amtrak said it would cancel all long-distance passenger trains beginning on Thursday in order to avoid possibly stranding people given that many of its trains run on tracks operated and maintained by freight carriers.Also on Wednesday, members of a small rail union, whose leaders had reached a tentative deal with freight companies, voted down the agreement, signaling more difficulty in negotiations to come. And Mr. Biden’s labor secretary gathered union and company leaders in Washington to try to resolve the impasse, with little progress.The looming strike has plunged Mr. Biden into a difficult position at a critical moment, with midterm elections that will determine whether Democrats retain control of Congress rapidly approaching and rampant inflation chipping away at the president’s support. Mr. Biden, a longtime champion of labor leaders and union employees, is caught between his long-running push to reduce the pandemic-era supply chain snarls that have helped fuel inflation and his efforts to continue to win the enthusiastic support of labor unions.As a result, Mr. Biden is attempting to walk a careful line, taking pains to tell both unions and companies that they have an obligation to the public to keep rail service moving. While he has pushed to elevate the power of organized labor throughout his time in office, he is wary of hurting American consumers and the economy, which could experience shortages and price spikes from even a brief strike.President Biden and his economic team have been inserting themselves into final-hour negotiations between the rail unions and large rail companies.Erin Schaff/The New York TimesOn Monday, Mr. Biden phoned leaders on both sides of the table to urge a deal, stressing the same message to both sides, according to people familiar with the discussions: A strike will hurt rail customers and a broad swath of people and businesses across the country, and a negotiated agreement is the best way to avoid one.Martin J. Walsh, the labor secretary, and White House officials hosted union and company leaders in Washington on Wednesday in an attempt to broker a deal before Friday, when a federally imposed “cooling off period” for negotiations expires. Workers could go on strike immediately, though they will not automatically do so.Inflation F.A.Q.Card 1 of 5What is inflation? More

BRASILIA (Reuters) – Brazil’s Economy Ministry is studying a target for the country’s substantial foreign exchange reserves, two sources told Reuters, as inflation remains the top concern of voters ahead of a presidential election.The plan would set a target with a minimum and maximum amount of foreign currency Brazil should keep in its reserves, which currently totals $338.7 billion. The plan for the floating bands is preliminary and subject to change or the government could decide not to pursue the idea, the officials said, requesting anonymity due to its sensitive nature. The Economy Ministry and the central bank declined to comment.Foreign reserve sales by the central bank help to contain the dollar’s rise against the Brazilian real, easing inflationary pressures. The central bank, which is autonomous from the federal government, has said that it only operates in the foreign exchange market when it identifies sharp volatility. Spiking consumer prices are a major topic in Brazil ahead of the October elections, with President Jair Bolsonaro trailing leftist former President Luiz Inacio Lula da Silva in polls.The target was first reported on Tuesday by the newspaper O Globo.A target with floating bands would avoid political manipulation of the reserves, especially in an election year, one official said.This would directly interfere with the exchange rate policy that is entirely the responsibility of the central bank.The existence of such a plan surprised top-level technicians at the Economy Ministry, who said there was no agreement on a target for reserves. A central bank source criticized the idea, saying the exchange rate was “an external variable, you have no control over it.””It’s stupid,” said Alexandre Schwartsman, a former central bank director. He said the currency reflects economic fundamentals and it makes no sense to control its fluctuation.Lula has said he will not touch the country’s foreign exchange reserves if elected. More

BUENOS AIRES (Reuters) – Argentina’s monthly inflation blew past forecasts at 7% in August and soared to nearly 80% from a year earlier, a government agency reported on Wednesday, despite efforts by officials and central bankers to curb spiraling prices.The month-on-month inflation reading, reported by the INDEC statistics agency, was cooler than the 7.4% in July but above the 6.6% median analyst forecast in a Reuters poll.The South American country, a major grains producer, has one of the world’s highest inflation rates. The situation has been aggravated by rising global food and fuel costs and has dented the popularity of President Alberto Fernandez’s center-left government ahead of elections next year.The government has pushed retailers to freeze some prices, with some supermarkets rationing purchases of staples like flour, sugar and milk in a bid to control prices. Shopping costs have nonetheless soared.”From one week to the next, you seem to spend twice as much,” Graciela Negretti, a 67-year-old retiree in Buenos Aires, told Reuters.”Yesterday I went to the supermarket and I came home just sickened. I told my children that things surely could not increase this much in just a few days.”Inflation in the 12 months through August hit 78.5%, while prices were up 56.4% in the first eight months of the year. A central bank poll recently forecast that Argentina would end the year with an inflation rate of 95%, while some private analysts predict it will hit 100%.Lucia Estevez, 38, an interior designer, told Reuters that many people were not making it to the end of the month as inflation devalued their salaries, forcing people to cut out small luxuries they had enjoyed.”You’re always trying to just stay afloat,” she said. “You never have anything spare to be able to treat yourself.” More

For at least a couple of years, it has been clear that the wheels are coming off China’s Belt and Road Initiative, the $838bn programme launched by Beijing in 2013 to build infrastructure in about 160 mostly developing countries. Yet as Beijing seeks to contain the fallout from stalled projects and non-performing loans, it risks complicating matters with a surge in “emergency lending”.New data from AidData, a US-based research lab, has uncovered evidence of Chinese rescue loans to Pakistan, Argentina, Sri Lanka, Mongolia, Kenya, Venezuela, Ecuador, Laos, Angola, Suriname, Belarus, Egypt and Ukraine. Three of the largest recipients, Pakistan, Sri Lanka and Argentina, have together received as much as $32.83bn since 2017, AidData has found.This type of credit is very different from the infrastructure loans that dominate the BRI. It is intended to save countries from default on their foreign debt, including that borrowed from Chinese institutions and used to build ports, airports, roads, railways and other BRI infrastructure.In one respect, such assistance is to be applauded. The Covid-19 pandemic has hit many emerging markets hard and driven more than 100mn people into extreme poverty, according to World Bank estimates. If it were not for Chinese rescue loans, it is likely that financial crises would have erupted in more countries least able to deal with them.But a broad emerging market debt crisis remains a distinct possibility. Kristalina Georgieva, the IMF’s managing director, said this month that about a quarter of emerging countries and more than 60 per cent of low-income countries face difficulties, sometimes severe, in paying their debts.Georgieva called upon major creditors such as China to “prevent difficulties from arising”. What can and should China do? In the first instance, Beijing should co-operate with IMF-led rescue packages, as it has done in the case of Zambia and provisionally for Sri Lanka, under the auspices of a debt relief framework drawn up by the Group of 20 largest economies.But the next stages present a real test. Chinese creditors will have to put aside their longstanding aversion to recognising losses on their loans. What is more, such creditors will have to allow the terms of their lending, which have long remained largely hidden, to be exposed to public view. Such transparency will be necessary if all creditors are to be convinced they are carrying a fair share of the likely haircuts.However, the number of different Chinese creditors, which include the central bank, policy banks, state-owned commercial banks and others, may complicate the task of reaching early resolutions. With speed of the essence, such institutions should move quickly to agree on issues of seniority so as not to hold up proceedings. Over the longer term, the G20 is the best forum in which China can co-operate with other bilateral creditors over debt restructuring in emerging markets. Beijing has long favoured this forum in international affairs because its membership combines large emerging countries as well as wealthy western nations.Ultimately, however, it will be in everybody’s interests — including those of Beijing — to create an efficient system of debt resolution and emergency lending able to deal speedily with debt crises in emerging markets. This means bringing China’s “rescue lending” practices alongside those of other international creditor organisations such as the Paris Club and the IMF. The chances of averting crises, or dealing with them swiftly, will be greatly enhanced by such a spirit of co-operation between China and western-led agencies. More

Fast food restaurants burnt by red-hot inflation are turning to customers to cool down. From McDonald’s to Domino’s Pizza, big chain operators are raising menu prices and shrinking portions. So far that has not kept diners away. That is because an even steeper rise in grocery bills can make eating out a relative bargain. Keeping these price increases going will be a supersized challenge however, especially if more cash-strapped consumers trade down. At McDonald’s, same-store sales in the US rose nearly 4 per cent in the second quarter. The gain was driven mainly by price increases — which were in the “high single digits”, the company said. That comes after a similar percentage price hike in the first quarter. Elsewhere, rival Burger King has reduced the number of chicken nuggets from 10 to eight pieces per order. Domino’s Pizza has raised the price of its popular Mix & Match delivery deal by a dollar to $6.99. For now, McDonald’s and its ilk are benefiting from the fact that eating out can be a better deal than cooking at home. Grocery prices jumped 13.5 per cent year-on-year in August, compared to an 8 per cent rise in restaurant food prices, according to the Labor Department. This makes the gap between the two the widest since 1974, a Lex analysis of the data shows.The advantage provided by the trend is unlikely to last. Supermarket chains and grocers have noted that consumers are buying more private label brands and cheaper cuts of meats to save money. The average cost of a Big Mac in the US stood at $5.15 in June, according to The Economist’s Big Mac Index. That is 30 per cent higher than a decade ago. Yet the federal minimum wage has remained unchanged at $7.25 an hour since 2009.To put it another way: it once took a minimum-waged worker 33 minutes to earn the price of a Big Mac. It now takes 43 minutes. Investors who have loaded up their portfolios with burgers, fries and pizza could end up feeling queasy. More

The writer is an economist at Oxford university and London Business School, and author of ‘The Great Economists: How Their Ideas Can Help Us Today’Last week, the pound sank as low as $1.14. This year alone, sterling has fallen 15 per cent against the US dollar, dropping to its weakest level since 1985. The pound-dollar exchange rate has surpassed the lows reached in March 2020 at the onset of the pandemic. Against its trading partners, though, sterling’s low point was in October 2016. The pound’s weakness began with the financial crisis. After a brief and partial recovery, it fell to a record low following the Brexit referendum, about 30 per cent below its January 2007 level. Sterling’s weakness is therefore a reflection of the strong dollar and of the uncertain economic outlook. The former is beyond the control of British policymakers, but the latter is not. The fortunes of the pound highlight the need to set out a robust plan for economic growth.During times of uncertainty the dollar tends to strengthen as it is the world’s reserve currency. Also, dollar-denominated assets are bought as a safe haven. The start of 2022 has seen sizeable shocks, notably Russia’s invasion of Ukraine that compounded the cost of living crisis that was already under way due to pandemic-related supply chain disruptions. The US Federal Reserve’s aggressive interest rate rises have added support to the dollar, while the unwinding of quantitative easing further contributes to tighter monetary policy. However, the weakness of sterling is not solely due to the strong dollar. The pound has still not recovered to its pre-crisis level. That period of slow recovery was punctuated by the uncertainty around Brexit, followed by Covid-19. New data show that the economic effects of the pandemic were worse than originally estimated. The Office for National Statistics has revised down UK gross domestic product for 2020 to a contraction of 11 per cent, the biggest fall in national output since 1709 and the worst among G7 countries. What has also weighed down the pound is the forecasted lengthy recession. The Bank of England expects the economy to contract for 15 months from the last quarter of the year. That is longer than the average recession and comparable to the protracted downturn that followed the 2008 crisis. Worryingly, the bank estimates that growth is expected to be “very weak by historical standards”, so that by the third quarter of 2025, the economy would be 0.8 per cent smaller than before the pandemic. One consequence of a weak pound is more expensive imports. The UK is an open economy with a relatively high trade-to-GDP ratio. As BoE governor Andrew Bailey has stressed, 80 per cent or so of inflation is due to global factors. So, a weak pound adds to the cost of imports, which contributes to inflation being higher than in the rest of the G7 since more inflation is imported. The new government has stressed the centrality of economic growth to its fiscal and regulatory plans. Any such plans would need to increase investment and productivity growth, and the two are related. Business investment has been about 10 per cent of GDP versus 13 per cent in France, Germany and the US, all of which have higher productivity growth.Investment in the UK remains about 9 per cent below its pre-pandemic level, and 8 per cent below where it was in early 2016 before the EU referendum, reflecting high business uncertainty. Reducing uncertainty through a clear economic strategy would go a long way to raising productivity and therefore economic growth. While the weak pound reflects the strong dollar, it is also an indicator of how markets see the UK’s prospects. As the new government embarks on a pro-growth agenda, its success may well be first seen in the reaction of sterling. More