Economy

TOKYO (Reuters) -The Bank of Japan is likely to maintain ultra-low interest rates on Friday and stress its resolve to support a fragile economy with massive stimulus, a move that may spark a renewed yen fall by highlighting a policy divergence with the rest of the world.While a modest, technical tweak to its yield cap or guidance on the future policy path cannot be ruled out, the BOJ is seen sustaining its massive monetary support for now to ensure the economy is fully out of the doldrums.Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, in the wake of the U.S. Federal Reserve’s 75-basis-point hike.The likelihood that Japan will remain an outlier while global central banks tighten policy to combat inflation has pushed the yen down to 24-year lows, threatening to cool consumption by boosting already rising import costs.But rising concerns over the weak yen have not deterred the BOJ from defending an implicit 0.25% cap for its 10-year bond yield target through ramped-up bond purchases.”We expect the BOJ to continue efforts to achieve its inflation target in a stable and sustainable manner,” Finance Minister Shunichi Suzuki told reporters on Friday, signalling his support for the central bank’s ultra-loose monetary policy.At the two-day policy meeting ending on Friday, the BOJ is widely expected to maintain its -0.1% target for short-term rates and its pledge to guide the 10-year yield around 0%.The central bank may also deepen its resolve to defend the 0.25% upper limit by targetting a wider range of debt maturities for its unlimited fixed-rate bond-buying operation, which currently covers only 10-year bonds, some analysts said.”The BOJ could add a pledge to conduct emergency market operations targetting notes for a wider range of maturities,” said Hiroshi Ugai, chief Japan economist at JPMorgan (NYSE:JPM) Securities.”The central bank has no choice but to do this to control bond market moves, even though it probably doesn’t want to accelerate the dollar’s rises against the yen,” he said.The yen rebounded against the dollar, which took a beating after Thursday’s surprise rate hike by the Swiss central bank. It stood around 132.40 per dollar in Asia on Friday.The BOJ’s yield cap has faced attack by investors betting the central bank could give in to global market forces, as rising U.S. yields push up long-term rates across the globe.The benchmark 10-year Japanese government bond (JGB) yield rose to 0.265% on Friday, above the BOJ’s 0.25% cap and hitting the highest level since January 2016.”The yen is facing short-term upward pressure on expectations, mainly among overseas players, the BOJ could abandon yield curve control and raise rates,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.”But we expect the BOJ to maintain easy policy and even strengthen measures to curb yield rises” with no sign of a broad-based acceleration in wage growth, he said.The BOJ is caught in a dilemma. With Japan’s inflation well below that of Western economies, its focus is to support the stil-weak economy with low rates. But the dovish policy has triggered sharp yen falls, hurting an economy heavily reliant on fuel and raw material imports.BOJ Governor Haruhiko Kuroda has repeatedly stressed the need to keep interest rates ultra-loose, and that the central bank won’t target exchange-rates in guiding policy.Kuroda is likely to warn against a weak yen at his post-meeting briefing, such as by highlighting the damage the currency’s sharp falls could inflict on the economy, analysts said. More

TOKYO (Reuters) -Japan has reappointed Masato Kanda as vice finance minister for international affairs, the country’s top currency diplomat, as part of a mid-year personnel reshuffle, the Ministry of Finance said on Friday.The government wants to stabilise financial markets as the yen hits 24-year lows – beyond 135 to the dollar – this week and rising bond yields heap pressure on the Bank of Japan’s yield curve control.Kanda would oversee currency intervention to prevent excess volatility from hurting economic and financial stability, amid speculation that Tokyo may sell the dollar to buy yen.Under Kanda, Japan would host gatherings of financial leaders from the Group of Seven advanced nations next year in the run-up to the G7 leaders’ summit.Kanda is also tasked with coordinating with the broader G20 finance chiefs to respond to the COVID-19 pandemic, and tackle global tax and emerging-market debt.The appointment will take effect June 24 after approval from Prime Minister Fumio Kishida’s cabinet.Japan has not conducted dollar-selling intervention to back the yen since 1998 and it has stayed out of the market since the aftermath of the 2011 earthquake and nuclear crisis.Kanda is known for his broad international experience and close ties with policymakers, having worked with the BOJ as deputy vice minister for policy planning and coordination.Kanda is close to BOJ Governor Haruhiko Kuroda, who was vice finance minister for international affairs for 3-1/2 years to January 2003. Both Kanda and Kuroda graduated from the prestigious University of Tokyo and studied at the University of Oxford.The government’s annual reshuffle also named Eiji Chatani as administrative vice finance minister – the top bureaucrat at the finance ministry – to replace Koji Yano, the ministry said. More

The package, which director-general Ngozi Okonjo-Iweala described as “unprecedented”, did not include two of the most important deals under consideration: fisheries and a partial waiver for intellectual property rights for COVID-19 drugs.However, delegates said they may be added later, with negotiations ongoing at the WTO’s Geneva headquarters ahead of a final meeting scheduled for 0100 GMT on Friday.This week’s meeting with over 100 trade ministers is the body’s first such conference in over four years and is seen as a crucial test of its ability to strike multilateral trade deals amid high geopolitical tensions. It has already landed one, on maintaining a moratorium on e-commerce tariffs. [L1N2Y30KU]In the letter presenting the documents, signed by Okonjo-Iweala and two WTO chairs, she asked members to consider the “delicate balance” achieved over five days of nearly round-the-clock talks that have been at times been charged with anger and frustration. “The nature of compromise is that noone gets all of what they want,” the letter said. “Let us complete our work tonight so we can honor those out there waiting for the WTO to deliver.”Under WTO practices, its 164 members all have to agree by consensus and a blockage on one topic can derail other negotiations. More

Investors yanked billions of dollars out of corporate bond funds over the past week as unexpectedly high inflation data prompted an aggressive interest rate increase by the Federal Reserve, intensifying fears over a global economic downturn. For the week to June 15, $6.6bn was withdrawn from funds that buy lower-quality, US high-yield bonds, making it the most bruising week for fund managers since the worst of the coronavirus pandemic sell-off in March 2020 and taking year-to-date outflows to nearly $35bn, according to financial data provider EPFR.Outflows for funds that buy US investment-grade bonds reached $2.1bn, the largest one-week total since April 2021. Surprisingly high inflation data late last week prompted fund managers to re-evaluate previous assumptions that the rapid rise in prices had started to abate. It also raised expectations of aggressive monetary policy tightening by the Fed, which some investors fear could stamp out US growth and send the economy into recession. Fed chair Jay Powell reiterated the central bank’s commitment to tackling inflation at its meeting this week, while also acknowledging that some of the drivers — like soaring commodity prices stemming from war in Europe — were outside its control. “Banks led us into the [2008] financial crisis. I think central banks will lead us into this one,” said John McClain, a portfolio manager at Brandywine Investment Management. “Central banks don’t have the antidote for this market. Hiking rates will slow the economy, but it won’t stop war in Ukraine and it wont alleviate supply chains.”When interest rates are higher, prices for existing fixed-rate corporate bonds decline in order to make up for the lower interest rates investors earn on them compared to new debt. But there are growing concerns that a looming economic downturn could test companies’ ability to repay their debts, sending prices — which move in the opposite direction of bond yields — even lower this week. The yield on higher-quality, investment-grade bonds surpassed levels from the depths of the pandemic in March 2020 and came within a whisker of crossing 5 per cent, a level last seen in the aftermath of the global financial crisis in 2009, according to an index run by Ice Data Services. The additional yield above Treasuries on lower-quality “junk” bonds — which indicates the level of risk of lending to a private company versus the US government — has already risen 0.66 percentage points this week to 5.17 percentage points, putting the reassessment of credit risk on course for its biggest move in a single week since March 2020. 

Roughly $100bn of junk debt now trades with a spread of more than 10 percentage points above Treasuries, a commonly used definition of distress and a sign of how risky it is to lend to those companies, according to a $1.45tn index run by Ice Data Services. Fed officials “only have one way of killing inflation and that is the very grisly and bloody tool of crushing demand, crushing the housing industry, crushing investment [and] crushing exports”, said David Kelly, chief global strategist at JPMorgan Asset Management. “That’s the only way they can do it.” More

BUENOS AIRES (Reuters) -Argentina’s central bank raised its benchmark interest rate by the most in three years on Thursday, hot on the heels of a major hike by the U.S. Federal Reserve and as the South American country firefights sky-high inflation running at over 60%.The central bank upped the benchmark Leliq rate by 300 basis points to 52%, the sharpest rise since 2019, citing rising perception of financial risk, soaring global prices and the need to spur saving in the hard-hit local peso currency.The move by Argentina, which suffers one of the highest levels of inflation globally, comes as central banks around Europe and in giant neighbor Brazil have hiked rates in recent days to counter rising prices.”The rise in rates acts mainly by encouraging savings in pesos,” the central bank said, adding it would continue to calibrate monetary policy with an eye on inflation.Fueled initially by soaring oil prices in the wake of Russia’s invasion of Ukraine, global inflation has broadened out to everything from food to services with double digit readings in some countries around the world.Argentina, a major grains exporter which is trying to rebuild depleted foreign currency reserves, saw prices rise 5.1% in May alone and many anticipate annual inflation hitting above 70% this year, a major drag on savings and salaries.Government sources on Thursday said they expected inflation for the year to come in between 52% and 62%, which would be well below analyst forecasts but above targets agreed with the International Monetary Fund (IMF) as part of a recent deal.The central bank said it expected monthly inflation to “continue to decline gradually” after hitting a peak in March.Analysts said the sharp hike was a sign of the bank’s desperation to rein in inflation and ensure investors didn’t pull out of peso-denominated securities.”It feels like the central bank is playing catch in this fight,” said Christian Viand, a managing partner at settlements and clearing agent Criteria in Buenos Aires.Mariano Sardáns, chief executive of FDI Wealth Manager, said the hike was unlikely to tame inflation because confidence in the peso was already shot and few believed prices could be brought under control after years of high inflation.”What exists is full distrust,” he said.Argentina is a major exporter of soy, corn and wheat, which has increasingly come into focus amid a global supply crunch. It is also the largest debtor to the IMF, securing a new $44 billion deal earlier this year.^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Argentina: rate hikes https://tmsnrt.rs/3LENjXrArgentina: rate hikes (Interactive graphic) https://tmsnrt.rs/3oThh0g^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > More

How well did you keep up with the news this week? Take our quiz. Stocks sold off sharply in the US on Thursday after Switzerland and the UK joined a global rush to raise interest rates, stoking concerns that central banks’ attempts to tame high inflation could push economies across the globe into a downturn. The S&P 500 stock index slid 3.2 per cent for the day, a move that took the broad gauge to a 6 per cent fall this week. The declines have battered valuations in recent days as pessimism about the global economic outlook has spread, with many investors warning more restrictive monetary policies from central banks could stamp out the recovery.In a sign of the darkening outlook, almost every stock in the S&P 500 declined on Thursday, with losses pushing the share prices of hundreds of companies down to new 52-week lows. The technology-heavy Nasdaq Composite index tumbled 4.1 per cent. The S&P had closed the previous session 1.5 per cent higher after the Federal Reserve raised its main interest rate by a historic 0.75 percentage points, tempered by comments from chair Jay Powell saying he expected rises of this magnitude to be relatively uncommon.More on global inflation: Analysis: The Fed’s full-tilt inflation fight makes a “softish” landing harder to achieve, writes Colby Smith.News in depth: While the past week has revived memories of the eurozone debt crisis, there are big differences between then and now.Opinion: In the fight against inflation, Fed chair Jay Powell is not just waging a battle in the markets, but also with consumers’ minds, writes Gillian Tett. Tracker: See how your country compares on rising prices with our global inflation tracker.

Thanks for reading FirstFT Asia and here is the rest of the day’s news — EmilyFive more stories in the news1. European leaders back Ukraine’s bid for EU membership The leaders of France, Germany, Italy and Romania pledged on Thursday to back Ukraine’s bid to apply for EU membership after travelling to Kyiv and meeting president Volodymyr Zelenskyy to show support in the face of Russia’s invasion. For more on the latest news on how the war is impacting business and the economy, sign up to our Disrupted Times newsletter.2. Trump was told overturning election was illegal Donald Trump pressured his vice-president Mike Pence to overturn the 2020 election despite having been told repeatedly that doing so would be illegal, a Congressional committee has heard. Members of the bipartisan panel investigating the attack on the US Congress were told that Pence made clear his opposition to the former president’s plan, including in a heated telephone call on the morning of January 6.3. Musk tells Twitter staffers his plan for company’s future Elon Musk warned Twitter staffers its business needed to “get healthy” and undergo a “rationalisation of headcount” as he addressed the social media platform’s employees directly for the first time since launching his $44bn takeover bid.4. China to set up centralised iron ore buyer China is moving to consolidate the country’s iron ore imports through a new centrally controlled group by the end of this year, as Xi Jinping’s administration seeks to increase Beijing’s pricing power over the industry — and particularly to counter Australia’s dominance. 5. Reliance targets diesel exports using cheap Russian crude Indian refiners including Mukesh Ambani’s Reliance Industries are using cheap Russian crude to try to boost diesel exports, including to destinations such as the EU with sanctions on Russian oil.More energy news: The US is urging European capitals to seek ways of easing the impact of their ban on insuring Russian oil cargoes, arguing the measure could cause global crude prices to soar.The days aheadJapan interest rate decision The Bank of Japan Monetary Policy Committee will announce its interest rate decision today. Governor Haruhiko Kuroda is expected to remain one of the lone doves amid an increasingly hawkish outlook globally. (Bloomberg) Solomon Islands PM hosts Australian foreign minister Prime Minister Manasseh Sogavare will meet Australia’s Penny Wong to discuss concerns over the nation’s security agreement with China. (Reuters) European officials expected to issue recommendation on Ukraine The European Commission is expected to recommend today that Ukraine should be granted EU candidate status, a first step towards membership.Sunday elections Colombia will hold its second round of voting in its presidential election on Sunday. In France, which is set to hold its second round of voting in its parliamentary election, the contest has been dominated by three individuals. What does this mean for the country’s stability?What else we’re reading‘Let it rot’: China’s tech workers struggle to find jobs Over the past year, China’s once overworked but well-compensated tech workers have seen an erosion of office perks, job cuts, headcount freezes and stalling or falling pay. Trouble at smaller, unprofitable companies gradually expanded to highly profitable groups including social media group Tencent and ecommerce leader Alibaba.Sales slow down in Sydney’s suburbia-on-sea Harder bargains are becoming more common in Sydney as home prices fall. The median sale price for a home dropped 1.5 per cent between January and May, after increasing 25.5 per cent in the previous 12 months, according to the index of CoreLogic, a property data provider. Rising interest rates are an important element of Sydney’s slowdown.Related reads: New Zealand’s housing price boom cools as rate rises bite, while US home mortgage rates jumped by the most since 1987. Sign up here to receive our House & Home newsletter.

Why we trust fraudsters From Enron to Wirecard, elaborate scams can remain undetected long after the warning signs appear. Left behind in the ashes, however, is a much larger question that haunts all victims of such financial fraud: how on earth did they get away with it for so long?Chinese courts flex intellectual property muscle across borders Since 2020, companies in the world’s second-biggest economy have been outpacing their American rivals in the number of new patents they secure each year. There are also signs that Chinese companies are turning the tables on foreign counterparts in aggressive IP litigation — a move that appears to have been backed by the country’s courts.Inside ‘gentle parenting’ Today’s parents largely believe that physical punishment such as spanking does little to change a child’s bad behaviour and should be avoided, in part because toddlers struggle to control their impulses as their prefrontal cortexes are not fully developed. Here’s why the movement is stressing some parents out.Thanks to readers who took our poll yesterday. Forty-six per cent of respondents said President Joe Biden was right to visit Saudi Arabia. TravelJapan’s long-awaited lifting of the ban on foreign tourists coincides with the launch of striking new works — and a new hotel — on Naoshima Island.

One of the six rooms, accessed by a private monorail, that make up the Oval building at Benesse House © © Osamu Watanabe More

WASHINGTON (Reuters) -State securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington are investigating crypto lender Celsius Network’s decision this week to suspend customer redemptions, Joseph Rotunda, enforcement director at the Texas State Securities Board told Reuters on Thursday.Officials met and began investigating the matter first thing Monday morning, Rotunda said, adding he considered the probe to be a “priority.” Celsius said that due to extreme market conditions, it was pausing withdrawals, swaps and transfers between accounts. The company said that doing so would put it “in a better position to honor, over time, its withdrawal obligations.””I am very concerned that clients – including many retail investors – may need to immediately access their assets yet are unable to withdraw from their accounts. The inability to access their investment may result in significant financial consequences,” he said. Alabama Securities Commission Director Joseph Borg also told Reuters that Alabama, Texas, New Jersey and Kentucky securities regulators were probing the matter. Celsius has been responsive to questions from the regulators, but that the investigation is in the initial stages, he said. Borg added that U.S. Securities and Exchange Commission has also been in communication with Celsius. The SEC declined to comment. The New Jersey and Washington state securities regulators did not immediately respond to requests for comment. A spokesperson for the Kentucky Department of Financial Institutions said it was their policy to not comment on ongoing enforcement actions and investigations. Celsius and CEO Alex Mashinsky did not immediately respond to a request for comment. Rotunda said he and his team learned of the move by New Jersey-based Celsius to freeze user withdrawals from the company’s blog post and announcement on Twitter (NYSE:TWTR) on Sunday night, which said the company needed to take action to “stabilize liquidity.”In September, regulators in Kentucky, New Jersey and Texas hit Celsius with a cease and desist order, arguing its interest-bearing products should be registered as a security. In February, the SEC and those same state regulators fined BlockFi $100 million for failing to register its crypto lending product. Similar to a bank, Celsius gathers crypto deposits from retail customers and invests them in the equivalent of the wholesale crypto market, including “decentralized finance,” or DeFi, sites that use blockchain technology to offer services from loans to insurance outside the traditional financial sector. Celsius promises retail customers huge returns, sometimes as much as 18.6% annually. The lure of big profits has led individual investors to pour assets into Celsius and platforms like it. Mashinsky said in October Celsius had $25 billion in assets. That figure had fallen to around $11.8 billion as of last month, the Celsius website https://celsius.network/about-us showed.Celsius appears to have stumbled on some of its wholesale crypto investments, according to public blockchain information and analysts who track such data. As those investments soured, the company was unable to meet redemptions from customers fleeing amid the broader crypto market slump, analysts said.Cryptocurrencies have lost more than $400 billion since TerraUSD, a major stablecoin pegged to the U.S. dollar, collapsed in May. Bitcoin sank to an 18-month low on Wednesday to $20,079.72. It has slumped about 70% from its record high of $69,000 in November. More

The big three inputs to the consumer price index, the most widely followed inflation measure, are food, energy and shelter.
But when it comes to breaking down where CPI inflation really comes from, the answer is more complicated. “Services less energy services” is actually the biggest component for the index.

Meat is seen in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.
Lucy Nicholson | Reuters

Inflation doesn’t just happen at the gas pump and the grocery store. There are literally hundreds of avenues that filter into broader measures the government uses to gauge price increases.
The big three inputs for the consumer price index, the most widely followed inflation measure, are food, energy and shelter.

Combined, they make up about 54% of the CPI. More importantly, though, they are the main inputs into perceptions of inflation.
Because going to the grocery store and filling up the gas tank are activities people do a lot, they tend to notice price fluctuations in them even more. That’s particularly true for gas prices, although they actually make up only a small part of the household budget.
“Those are the basics,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “That’s what you have to spend money on. You have to spend money on shelter, you have to spend money on food, and most of us have to spend money on energy. [Inflation] represents a meaningful challenge for consumer spending.”

But when it comes to breaking down where CPI inflation really comes from, the answer is more complicated.
In fact, the biggest component is what the Bureau of Labor Statistics calls “services less energy services.” Think big-ticket items such as shelter but also more obscure ones such as lawn care companies, veterinarian bills and car rentals. Together, that group amounts to 57% of CPI and has risen 5.2% over the past 12 months.

The next-biggest category: “commodities less food and energy commodities.” That’s household supplies, appliances and clothing, and that category makes up 21.4% of the index. and is up 8.5%.
In fact, despite all the headlines that gas prices get, the two smallest weightings on the CPI both involve energy: Energy commodities, such as fuel oil and propane, make up 4.8%, while energy services, including electricity and piped gas, contribute 3.4% to CPI. However, those two categories are respectively up 50.3% and 16.2% this year, headline-grabbing numbers.
The other major groups are food at home, up 11.9%, and food away from home, which has increased 7.4%.
Economists, such as those at the Federal Reserve, will strip out food and energy costs and look at “core” inflation to get what they think is a better picture of inflation that excludes prices that fluctuate a lot. Core inflation in May rose 6% over the past year, while headline inflation was up 8.6%.
Even Fed Chair Jerome Powell on Wednesday acknowledged that now is probably a good time to focus on the whole of inflation.
“The public’s expectations, why would they be distinguishing between core inflation and headline inflation?” the central bank leader said at his post-meeting news conference. “Core inflation is something we think about because it is a better predictor of future inflation, but headline inflation is what people experience. They don’t know what core is. Why would they?”
The Fed is trying to tame inflation by raising interest rates, but that hasn’t made much of a dent so far.

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