Economy

TOKYO (Reuters) – The Bank of Japan’s rare reappointment of a veteran technocrat behind the country’s massive monetary stimulus positions the bank for an eventual exit from governor Haruhiko Kuroda’s radical policies when his term ends next year.Having spent most of his career at the BOJ’s elite monetary affairs department, Shinichi Uchida, 59, was instrumental in drafting Kuroda’s “bazooka” asset-buying programme in 2013 and negative interest policy in 2016.While those policies create an image of him being a proponent of heavy monetary stimulus, Uchida also led the BOJ’s drive to slow its huge bond buying by introducing yield curve control in 2016 – a policy that caps long-term interest rates at zero but also relieved the central bank from buying bonds at a set pace.As its balance sheet became bloated and the financial sector’s pain from prolonged easing became more apparent, Uchida was instrumental in crafting steps to slow the BOJ’s purchases of risky assets and ease the strain on banks from low rates.The reappointment for another four-year term as the BOJ’s executive director, announced this month, will have Uchida, who joined the bank in 1986, oversee monetary policy design well beyond the end of Kuroda’s term in April next year.Uchida’s technical expertise and deep experience mean the dismantling of YCC, whenever it happens, will go smoothly, while his bi-partisan nature mean he will be a help, not a hindrance, to the rollback of Kuroda’s stimulus, say three sources familiar with the matter.”Because he’s created this complex framework, he’s probably the best person to roll it back,” said Mari Iwashita, chief market economist at Daiwa Securities and a veteran BOJ watcher.”That’s his strength, as well as his ability to quickly change tack on policy when he sees fit.”The BOJ has six executive directors that assist the board in making decisions on key matters. The roles are highly sought after and offered to only a handful of top BOJ staff.Uchida’s reappointment is unusual – historically, such positions last only a single four-year term, after which the officials retire from the BOJ for private sector jobs.NEITHER HAWK NOR DOVEHaving spent most of his career at the monetary affairs department, Uchida made his mark with a knack for designing complex policy frameworks and his ability to navigate BOJ leadership transitions.People who know him say Uchida is sharp-minded and worked well under both the dovish Kuroda and his predecessor Masaaki Shirakawa, who was wary of ramping up stimulus too much.”He’s a genius in crafting sophisticated policy ideas,” one of people said. “It’s hard to brand him as a hawk or dove.”That means Uchida is well placed to craft plans to either prolong the lifespan of YCC, or gradually phase it out.To be sure, the BOJ is in no rush to withdraw stimulus as it focuses on underpinning a fragile economic recovery, rather than fret about the prospect of too-high inflation.But some in the BOJ are wary of Japan becoming increasingly isolated in a global shift in central banking towards tighter monetary policy.While Japan’s comparably subdued inflation allows the BOJ to keep rates low for longer than its counterparts, there is near consensus within the bank its next move will be to dial back – not ramp up – stimulus, the sources say.Untangling YCC, a complex patchwork of measures to keep rates low while addressing the side-effects of prolonged easing without upending markets, is no easy task.The BOJ traditionally spends years brainstorming scenarios on its next possible move, a process in which Uchida will likely be deeply involved, the sources say.”If there’s even a slim chance of a policy tweak in the long run, the BOJ needs to be ready,” a second source said. “Uchida will certainly play a key role in the process.” More

BENGALURU (Reuters) – New Zealand’s central bank will opt for a modest 25 basis point interest rate rise on April 13, but is set to raise by slightly more this year as a whole than previously thought to head off rapidly-rising inflation, a Reuters poll of economists found.The survey puts the RBNZ, which has already raised rates by a quarter point at each of its past three policy meetings, in a slightly more dovish mode than the U.S. Federal Reserve, which is set to lift borrowing costs by a half point this month.All but six of 21 economists polled expected the RBNZ to raise the official cash rate (OCR) by 25 basis points to 1.25% at its Wednesday meeting, taking it above where it was before the start of the COVID-19 pandemic.But more than a quarter of respondents, or six of 21, forecast a bigger half-point increase to 1.50%.Pervasive supply chain disruptions and a tight labour market had already pushed up inflation to a three-decade high of 5.9% in the fourth quarter, almost double the top of the central bank’s 1-3% target range.Along with runaway house prices, there are also growing concerns Russia’s war in Ukraine will push up commodity prices, including food, even faster.”At this stage, it’s a case of pick your poison,” said Sharon Zollner, chief economist at ANZ who forecast a 50 basis point hike on Wednesday. “Yes, aggressive hikes now raise the odds of a hard landing for the economy in the near term, but going too slowly would raise the risks of an even harder landing further down the track. “The RBNZ has a big job to do to rein in runaway inflation, and the sooner they rip into it, the lower the economic cost is likely to be,” Zollner added.FINE LINE But Moody’s (NYSE:MCO) Analytics economist Illiana Jain, who like the majority of respondents expects a 25 basis point move, said: “The RBNZ will need to toe a fine line between controlling decades-high inflation and not stifling economic growth.”Still, economists brought forward their rate hike expectations for the fourth Reuters poll in a row, and a majority, 12 of 21, now expect the OCR to reach 2.50% or higher by the end of this year. That is still below where it was in 2014 after the RBNZ last delivered four consecutive quarter-point rate hikes.More than half of respondents in the latest poll who had a view on rates as far as the end of next year, 9 of 15, forecast the OCR to climb to 2.75% or higher by then.”Inflation is running at its hottest in a generation, and inflation expectations have become unanchored by the lack of urgency by the RBNZ and a belief that higher inflation is settling in,” said Brad Olsen, senior economist at Infometrics.Olsen added the current policy setting is still stimulating the economy and “the OCR must rise, faster and harder … to realign expectations and stop pouring more fuel on an already-accelerating inferno.”The poll also showed inflation would remain well above the RBNZ’s target range of 1-3% until the second quarter of 2023. It was forecast to average 6.2% this year and slip to 2.8% in 2023, a sharp upgrade from 3.3% and 2.1% predicted in January.New Zealand’s economy, which returned to growth in the final quarter of 2021 on the back of increased consumer and government spending as pandemic restrictions were lifted, was expected to grow 3.1% this year and 2.7% next.(For other stories from the Reuters global long-term economic outlook polls package:) More

WASHINGTON (Reuters) -The U.S. Congress voted to impose further economic pain on Russia over the invasion of Ukraine on Thursday, passing one measure to remove its “most favored nation” trade status and another to ban oil imports.The Senate voted 100-0 in favor of the measure removing Permanent Normal Trade Relations (PNTR) status for both Russia and its close ally Belarus. Shortly afterward, it backed the energy measure, also by a 100-0 tally.Senate approval sent the legislation to the House of Representatives, which quickly passed the trade measure by 420 to 3, and the energy legislation by 413 to 9. President Joe Biden supports the measures and will sign them into law, White House press secretary Jen Psaki told reporters.The trade bill clears the way for Biden’s administration to raise tariffs on imports from Russia and Belarus. The energy measure puts into law Biden’s previous executive order banning imports of Russian oil, natural gas and coal.”This package is about bringing every tool of economic pressure to bear on (Russian President) Vladimir Putin and his oligarch cronies. Putin’s Russia does not deserve to be a part of the economic order that has existed since the end of World War Two,” Senator Ron Wyden, chairman of the Senate Finance Committee, said in a statement.The House passed both bills earlier this year, but they stalled in the Senate as Republicans and Democrats argued over when to vote on the energy measure and wording of a provision in the trade bill reauthorizing the Magnitsky Act, which allows sanctions over human rights violations.U.S. law mandates that Congress must approve the change in Russia and Belarus’ trade status. Under a compromise forged late on Wednesday senators agreed to consider both the trade measure and the energy bill. The House had to approve amendments to both measures because of technical changes made in the Senate.Russia calls the assault on Ukraine a “special military operation.” More

MEXICO CITY/WASHINGTON (Reuters) -Inter-American Development Bank directors have met to discuss accusations in an anonymous email that the bank’s president, Mauricio Claver-Carone, carried out an intimate relationship with a staffer, three sources said.One of the sources, a person at the IDB with direct knowledge of the matter, said the directors had debated the possibility of hiring an outside firm to investigate the allegations and asking Claver-Carone to temporarily step aside.The two other sources confirmed that the bank’s 14 directors, its general counsel and its deputy secretary met to discuss the allegations and how to proceed in a two-and-a-half-hour virtual meeting on Tuesday.The directors met again on Thursday to draft a resolution to hire an external firm to investigate the allegations, the bank source said. The directors decided not to propose removing Claver-Carone from his duties, the person at the IDB with direct knowledge said. Reuters was unable to confirm the claims about the alleged relationship, which, if verified, would appear to be against the bank’s rules.The IDB did not comment when asked about both meetings and the allegations. Claver-Carone, a former White House official nominated to the IDB role by President Donald Trump, did not respond to repeated emails or calls seeking comment.Before coming to the IDB in 2020, Claver-Carone served under Trump as senior director for Western Hemisphere affairs at the National Security Council.The IDB is a development bank that, while far smaller than the International Monetary Fund or World Bank, is a key player in Latin America. It was responsible for $23.4 billion in financing and other financial commitments to Latin America and the Caribbean in 2021, according to bank figures. An anonymous email sent to the board of directors and the bank’s ethics officer a week ago accused Claver-Carone of carrying out a relationship with a senior strategist who reported to him, according to the bank source with direct knowledge of the meeting. Reuters has not seen the email. The email also accused Claver-Carone and the staffer of misusing IDB funds, one source said, without giving more detail.The IDB’s ethics code on its website states: “You cannot participate in any employment-related decisions about someone with whom you have an intimate relationship.” The allegations surfaced just weeks after the bank’s annual meeting and just as Claver-Carone is seeking to push through a capital increase for IDB Invest, the bank’s private-sector arm.Raising capital would require backing from the United States, the bank’s biggest shareholder, and its other members at a time when resources are tight due to the COVID-19 pandemic, the war in Ukraine and rising climate shocks. Leading Democrats opposed Claver-Carone’s nomination for the IDB role by Trump, a Republican.The U.S. Treasury Department declined to comment when asked about the IDB meeting.The resolution must be sent to the IDB’s board of governors, most of whom are finance ministers of member countries, to allow the directors to launch an investigation, according to the bank source with knowledge of the meeting.The results would be shared with the governors when it is completed, the bank source said.Claver-Carone, a hard-line Cuba hawk, faced a strong backlash ahead of his election to the IDB presidency in 2020 by some member states, including Argentina and Mexico, that bristled at breaking the bank’s tradition since 1959 of having a president from a Latin American country. Claver-Carone dismissed the push-back https://www.reuters.com/article/us-latam-usa-bank-idUSKBN24Z1DH at the time, saying he had “overwhelming” support, citing public backing from 15 countries and six more privately. More

The Andean country’s interest rate has climbed steadily since the middle of last year when it was at a floor of 0.25% as the world’s no. 2 copper producer has rebounded from the impact of the coronavirus pandemic and inflation has started to bite.Peru’s 12-month inflation rate stood at 6.82% in March, the highest in a quarter of a century, pushed up by higher food and fuel prices as well as a weakening sol currency versus the U.S. dollar. The central bank’s inflation target is from 1% to 3%.The government earlier on Thursday ordered its armed forces to supervise the country’s highways for the next month, amid crippling protests nationwide over rising food and fuel prices.The South American country has been beset by road blockades for over a week as anger has flared over rising costs, which have spiked since the Russian invasion of Ukraine. (Graphic: Peru interest rate – https://graphics.reuters.com/PERU-ECONOMY/klvykjoabvg/chart.png) More

TOKYO (Reuters) – Japan’s current account balance swung back into the black in February from its second-biggest deficit on record in the previous month, providing some respite for policymakers amid a deterioration in economic fundamentals.Soaring fuel costs and a weak yen have expanded Japan’s trade deficit in recent months, more than offsetting heavy returns on investment and pushing the country’s current account balance into the red.The world’s third-largest economy ran a current account surplus of 1.6483 trillion yen ($13.28 billion) in February, finance ministry data showed on Friday, against a median market forecast for a 1.4368 trillion yen surplus.That followed a 1.1887 trillion yen deficit in January, the second biggest shortfall under comparable data dating back to 1985.The trade deficit narrowed to 176.8 billion yen in February from 1.6043 trillion yen in January.The primary income surplus, meanwhile, widened to 2.2745 trillion yen from 1.2813 trillion yen, although that was smaller than in the same month last year due to shrinking foreign investment returns, the data showed.The smaller trade gap and larger primary income surplus helped push the current account back into positive territory.Japan is particularly vulnerable to soaring fuel and raw material costs, as it relies almost entirely on imports for energy, adding to uncertainties about its already fragile recovery from the pandemic.Some analysts have warned that Japan’s worsening terms of trade and current account balance, if they persist, could erode market trust in the country’s ability to pay back debt and work to weaken the yen further. More

JOHANNESBURG/BENGALURU (Reuters) – Most emerging market currencies will continue to struggle against the mighty dollar over the coming year as the U.S. Federal Reserve finally delivers expected aggressive policy tightening, according to a Reuters poll of FX strategists.Central banks in emerging market economies have been bracing for this for months by hiking their benchmark interest rates. But the actual moment when the Fed delivers half-point rate increases and rapid balance sheet reduction still matters.Minutes from the Fed’s March meeting showed officials had generally agreed to trim the central bank’s balance sheet by $95 billion a month, providing a major boost to the greenback which was already riding high.The latest Reuters poll of over 50 currency strategists showed nearly all developing market currencies would weaken over the coming 12 months. Even currencies which have been dragged higher by the ongoing commodity cycle and their respective central banks’ policy tightening, like the Brazilian real and the South African rand, were forecast to give up about half of those gains in a year.These currencies have gained about 18% and 9% respectively so far in 2022.The Mexican peso – a classic emerging market foreign exchange hedge — is expected to lose more than three times its gains for this year in 12 months.”In the face of imminent sharp Fed hikes and with U.S. yields moving rapidly higher, the resilience of EMFX remains somewhat surprising,” noted Paul Meggyesi, head of FX strategy at JPMorgan (NYSE:JPM).”A particular risk to EMFX is that as the Fed starts to deliver rate hikes, further upside in U.S. yields could be primarily driven more by real yields than breakeven inflation”Meggyesi added this has historically been negative for emerging market currencies.While most emerging market currencies have managed to escape the onslaught of the Fed’s policy tightening relatively unscathed, the Russian rouble and the Turkish lira were notable exceptions.The rouble, which fell by half in the past month and hit an all-time low of 150 per dollar after Russia’s invasion of Ukraine, was expected to weaken over 15% to 94.2 per dollar in a year from 78.5 presently.The Russian currency is driven by export-focused companies selling foreign currency and low activity of importers. But analysts warned the recent rouble rally won’t last.”(The recent gain) is not the true reflection of the fundamental situation in Russia. The economy is expected to contract very sharply and inflation is going to become more elevated, which over the longer term should be more consistent with a weaker rouble,” said Lee Hardman, currency analyst at MUFG.Hardman said the situation for the Turkish lira wasn’t very different.”They (the government) are intervening to support the lira but they’re not going down the kind of draconian measures like capital controls we see in Russia.”The lira, which weakened 44% last year, was forecast to plunge another 15% to 17.27 per dollar in a year as it grapples with rampant inflation that hit a 20-year high of 61.14% in March.China’s tightly controlled yuan was predicted to depreciate 1.4% to 6.45 per dollar in a year as analysts warned that a shrinking yield gap between Chinese and U.S. 10-year government bonds could trigger capital outflows.Elsewhere in Asia, the Philippine peso and the Indian rupee were set to weaken between 1%-3%. More

SAN LUIS POTOSI, Mexico (Reuters) -A top U.S. labor official commended Mexico for progress in implementing a labor reform that is key to a new trade deal, but flagged a “tremendous” amount of work ahead and the need for financing and staffing to implement the law. The reform underpins the United States-Mexico-Canada Agreement (USMCA) that took effect two years ago. The law is meant to resolve labor disputes more swiftly and to help Mexican workers achieve better pay after years of stagnant salaries.”The amount of work that needs to be done is tremendous,” U.S. Deputy Secretary of Labor Julie Su told Reuters in an interview on Wednesday in the central city of San Luis Potosi, one of Mexico’s top automaking hubs.On her first international trip in her role, Su met with workers, business leaders and local government officials.”There’s a broad recognition that this is going to require resources to do right,” she said.The labor reform was signed into law in 2019. All of Mexico’s 31 states as well as the federal capital Mexico City were scheduled to implement changes to their labor justice systems by May 2022.However, Mexico’s Labor Ministry requested a five-month extension for the last dozen states due to budget and scheduling limitations.Still, Su said Mexican officials had made “good progress,” citing the creation of a federal agency meant to process worker disputes quickly and to oversee votes to ratify union contracts.She also noted that officials at both the local and federal levels had ramped up hiring and training, and planned to do more. “We are … watching to see that the rest of the commitments also come through,” she said.Su also called on U.S. companies to model good behavior in Mexico. General Motors (NYSE:GM) faced scrutiny under USMCA mechanisms last year for worker rights violations, as did U.S. company Cardone over allegations of abuses at its auto parts plant Tridonex.Both companies said they were committed to respecting worker rights.”We hope there will be leadership also from American companies to support the USMCA commitments and to help create a culture in which there is broader recognition that what’s good for workers is good for business,” Su said. Several workers from the San Luis Potosi plant of industrial giant 3M Co, in a meeting with Su, asked her team to keep monitoring U.S. companies in Mexico, especially as a group of 3M workers begin the task of forming an independent union.”We recognize the importance of keeping an eye on making sure the promises in the laws, the promises in the USMCA … are actually realized,” Su replied. 3M said it is committed to providing a safe work environment with competitive salaries and respects the right of workers to organize. More