Economy

ISTANBUL (Reuters) – Since Russia’s invasion of Ukraine sparked a flurry of Western sanctions on Moscow, at least one oligarch and thousands of other Russians have arrived in Turkey, seen as a safe place to stay, invest and hold assets despite its NATO membership. Acting as a safe haven raises risks for Turkey’s government, banks and businesses that could face tough decisions and penalties if the United States and others ramp up pressure on Moscow with broader “secondary” sanctions. Here is what is at stake: WHY IS TURKEY ATTRACTIVE TO RUSSIANS?Turkey has said Russian President Vladimir Putin’s decision to invade Ukraine is unacceptable but opposes the sanctions on principle and is not enforcing them. Turkey’s economy, already battered by a currency crisis and soaring inflation, relies heavily on Russian oil, gas, trade and tourism. Some 14,000 Russians have reportedly arrived in Turkey since the war began on Feb. 24, many carrying wads of cash due to blocks on their U.S. credit cards and challenges in doing basic banking. Realtors say many are using cash and converted crypto currencies to buy property as a safe investment. Roman Abramovich, one of several Russian oligarchs blacklisted by the West, has also visited Turkey and two of his superyachts worth a combined $1.2 billion docked at Turkish resorts last week. Oligarchs could invest more, sources familiar with private talks have told Reuters. Turkish Foreign Minister Mevlut Cavusoglu said on Saturday Russian oligarchs and citizens were “of course” welcome and could do business in Turkey according to international law. CAN THE SAFE HAVEN LAST?Western governments have already seized some oligarchs’ assets, have frozen Russia’s reserves and ousted it from the SWIFT banking system, and they could press Ankara to tighten loop holes. Analysts say they could impose secondary sanctions on those doing business with the main target, Russia.”If the humanitarian tragedy persists and Putin has no intention of backing down, I think secondary sanctions are inevitable,” said Hakan Akbas, founding partner of Istanbul-based Strategic Advisory Services, which deals with sanctions.”The West will pay more attention to any potential loop-hole countries so they don’t become safe havens,” he said. “Ankara’s hands would be tied… and it would inevitably have to take a tougher stance against Russia.” This could send a chill through Turkish banks and companies dealing with Russian clients or doing business abroad. In 2020, the U.S. Treasury applied secondary sanctions on Turkey’s Defence Industry Directorate, its chief and others over Ankara’s purchase of Russian S-400 missiles.Yet given Turkey’s efforts to mediate between Moscow and Kyiv, it could avoid the sanctions crossfire. Another round of peace talks is due to take place in Istanbul this week.Dutch Prime Minister Mark Rutte has welcomed Ankara’s diplomatic role, while adding “we would very much like Turkey to implement all the sanctions”.HOW ARE BANKS AND COMPANIES PREPARING?Faced with a flood of new Russian customers, Turkish banks have resisted some deposit and transfer requests and ramped up compliance checks for fear of contravening sanctions. This has frustrated some Russians. But it reflects caution across the sector that seeks to avoid a repetition of the years-long U.S. prosecution of Turkish state lender Halkbank, which is accused of having helped Iran evade U.S. sanctions.The BDDK bank regulator said it has given no instruction to limit citizens of any country. But a senior banking source said the sanctions were nonetheless “perceived as a new risk” and firms had met several times to discuss it since the war began. Akbas said big Turkish companies and conglomerates have more than $10 billion in assets in Russia, and Moscow is now pressing them to continue operations and pay workers or risk bankruptcy. Many of them do far more business in the West and may have to make a “binary decision” whether to leave Russia as several big U.S. and European brands have done, he said.Any sanctions fallout could further bruise Turkey’s reputation among foreign investors after years of unorthodox monetary policy and outflows. That reputation took another hit last year when an international watchdog, the Financial Action Task Force, downgraded Turkey to a so-called grey list for failing to head off money laundering and terrorist financing. More

NEW YORK (Reuters) -Two measures of the U.S. Treasury yield curve that are widely watched for recession warnings have veered in opposite directions, raising questions as to what degree central bank bond buying and other technical factors may be distorting the signals on the economy’s path.The spread between the yield on 3-month Treasury bills and 10-year notes this month has been widening, which can be an indicator of an economic expansion. On Friday, that curve reached its steepest in more than five years at 196 basis points.The U.S. 2-year to 10-year curve, on the other hand, has flattened dramatically this year and is close to inverting, where the longer maturity would yield less than the shorter.Typically, yield curves slope upward as investors demand a higher return on longer-term debt as it carries greater risk because of the higher probability of inflation or default.A steepening curve typically signals expectations of stronger economic activity, higher inflation, and higher interest rates. A flattening curve suggests investors have lost confidence in the economy’s growth outlook.Inversions are considered a harbinger of eventual recession. But the signal right now is not clear.”There is a technical issue here,” said Ben Emons, managing director of global macro strategy at Medley Global Advisors. “The 3-month T-bill yield is still lower…because it doesn’t reflect rate hikes in the future. But it will rise, as the Fed hikes rates.” U.S. two-year yields, on the other hand, are a really good indicator of where Federal Reserve policy is headed over the next two years, Emons added, and it’s showing a much steeper path of rate hikes.The 2s/10s spread was last at 20.10 basis points, having on Monday compressed to 11.4 basis points, its tightest since March 9, 2020, before the onset of the coronavirus pandemic.The Fed raised short-term interest rates by 0.25 percentage point last week, the first hike since late 2018. U.S. rate futures on Friday priced in a roughly 75% chance of a half-percentage point tightening at its monetary policy meeting in May. For 2022, the futures market expects about 200 basis points of cumulative hikes by the Fed.”If policy unfolds as the market expects, the 3-month/10-year curve will begin to flatten as more rate hikes become priced into the 3-month tenor,” said Dan Belton, fixed income strategist, at BMO Capital.”The divergence in 3-month and 2-yr Treasury rates suggests that the market is pricing in an increasingly hawkish Fed over the next two years.”The last time the 3-month/10-year curve inverted was in February 2020. A month later, the Fed cut the benchmark overnight lending rate to near zero as the coronavirus pandemic wrought economic havoc around the world.The 2s-10s inversions, on the other hand, preceded the last eight recessions, including 10 of the last 13, according to BoFA Securities in a research note. The last time this curve inverted was in 2019. The following year, the United States entered a recession, though one caused by the global pandemic. U.S. 2s/10s CURVE HAS QUESTIONS TOOBut the 2-year/10-year yield curve also has its technical issues, and not everyone is convinced it’s telling the true story.”Something like 2s/10s, or 5s/30s, will definitely tell you that we’re a lot flatter than we’ve ever been at the start of a hiking cycle,” said Gennadiy Goldberg, senior rates strategist at TD Securities.”Part of that is just the sheer amount of Treasuries that the Fed bought during their COVID QE (quantitative easing) program.” Analysts said the Fed’s QE the last two years has resulted in an undervalued U.S. 10-year yield and could explain away the disparity in the two yield curves.Stan Shipley, fixed income strategist, at Evercore ISI in New York cited research which suggests the 10-year yield would be around 3.60% without that stimulus. When the Fed starts shrinking its balance sheet via quantitative tightening, Shipley said the 10-year yield will rise to fair value.The U.S. 10-year yield was last at 2.475% after hitting a peak of 2.5% on Friday, the highest since May 2019.”Without QE/balance sheet expansion, the 10-year and 2-year spread would be around 140 basis points, which is hardly threatening and consistent with the 10-year and 3-month spread,” Shipley said.The Evercore analyst thinks the 10-year yield should approach fair value in the first half of 2024, or about 120 basis points higher than the current level.The U.S. 2-year yield, on the other hand, is fairly priced and Shipley expects the 2s-10s curve to widen.What does it mean for the U.S. economy?”Some of the 2-10 shape is down to the fact this is a far more aggressively priced Fed cycle than usual, the notion of how quickly the Fed will move is very front-loaded,” said Timothy Graf, head of EMEA macro strategy, at State Street (NYSE:STT).”I suspect we will get a growth slowdown but will it lead to recession? It may be next year’s story. Households will want to see the fuel prices coming down but generally household balance sheets are in pretty good shape.” More

Picking up on the point that I ended on in our last Swamp Notes, I want to return to BlackRock chief executive Larry Fink’s proclamation last week that “the Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades”. As he put it, the war marks “a turning point in the world order of geopolitics, macroeconomic trends, and capital markets”.As Swamp readers will know, I have been arguing this for about four years now. But while I certainly agree with Fink that this round of globalisation (one of many that have been coming and going for centuries, if not longer, depending on how you define the term) is indeed over, I wouldn’t say that Ukraine was the turning point.I’d put the true pivot point as the day after Lehman Brothers fell way back in 2008. That’s when the Chinese began rolling out their fiscal stimulus programme in response to the great financial crisis (this according to a very high-level financial source who would know). And that’s when the calculus for Beijing about how fast and how far to go in terms of embracing Anglo-American style free-market capitalism really changed. The subprime crisis and the global recession that followed really underscored the limitations of hyper-financialised free markets, when left for too long to their own devices.Of course, at the time, the conventional wisdom was that globalisation had actually triumphed, because the world avoided the Great Depression-style protectionism and trade wars that many people thought would follow such a crisis. But it was only a matter of time before the disconnection between the global economy and national politics became manifest with the rise of populism on both sides of the Atlantic, as well as resurgent nationalism in many emerging markets.What happens now? I’d argue that we won’t see a 1930s-style meltdown but rather a new kind of regionalisation that will replace what came before. I’ve been arguing for some time that regional trading blocs are the only way forward given the mercantilist reality of China’s current system, which is simply incompatible with the rules of the World Trade Organization. I think the big question is whether we move towards a bipolar system, with the US and Europe (and whichever OECD nations decide to come along with them) creating some new structures, particularly for digital trade and platform regulation — or whether we will be in a tripolar world of US, European and Asian blocs.The past several weeks have made me think that the former is much more likely. The US has cut a deal to supply more liquefied natural gas to Europe in order to speed up the decoupling from Russian energy. America and Europe have reached a deal on transatlantic privacy standards, which doesn’t bring the new regions completely in alignment over how to deal with Big Tech, but is an important step. The idea of values, rather than simply market access, being at the centre of foreign policy seems relevant again. Certainly, the US, Europe and Asia will be producing more at home, or “local for local” as the business community puts it. But that’s different than a 1930s-style trade war.I don’t want to be at all sanguine about what’s happening. Supply chain shifts won’t be easy (though as I wrote in my column last week, I’m amazed at how quickly companies are adapting. The war in Ukraine may yet go in some even more horrible direction and cause further chaos. But, assuming that doesn’t happen, perhaps this crisis of the old order will actually help us redefine liberal values and reconnect markets and nation states in ways that make more sense — for labour, politics, and the planet.Ed, I suspect you’ll tell me I’m being way too optimistic? Either way, I’m curious where you’d put the marker for the end of this round of globalisation, and how you think this period of adaptation to whatever comes next will play out.Recommended readingI was interested to read in The New York Times about the launch of a “radical American journal” called Compact, dedicated to breaking out of political silos, and edited by a Marxist and two religious conservatives. This has gotta be worth a read . . . In the middle of so much hard and bad news, I find myself drawn to totally unexpected magazine features like this Rebecca Mead tale about who owns the property rights for leopard spots.On the same note — I grew up on Middle Eastern cuisine and loved the evocative photos and escapism of this lovely FT Weekend piece on the hunt for the world’s greatest saffron.Edward Luce respondsRana, as you say, globalisation has been in train for centuries (millennia, in fact) with sharp ebbs and flows. But I agree that the recent era of hyperglobalisation that began in the 1970s and reached its apogee in the early 2000s is now being replaced by a more fragmented world.We could debate about the degree to which the 2008 financial crisis and the populist backlash to modern capitalism has been driving this. I would suggest that it has principally been a western — and particularly American — reaction to the so-called great convergence. This is the process by which what we used to call the Third World is catching up with western incomes, which has been going on for half a century and has at least another half a century to run.In my view, the great convergence is a very positive thing for humanity. Moreover, there are far better ways of addressing the economic piece of the west’s populist backlash by shifting to more redistributive fiscal policy and effective public investments. But trade has been made the scapegoat and now the US is pulling up the drawbridge. As you know, I think this is a huge error — and the classic move of an ageing hegemon — for which all of us will pay a price.The question that most interests me is what impact Ukraine will have on this. My hunch is that it could be dramatic. The speed and ruthlessness with which the west has decoupled from Russia has been matched by the half-heartedness of most of the rest of the world. As the Peterson Institute’s excellent Chad Bown points out, very few others are following the west’s lead. Opters-out include most of the Middle East, Africa and Latin America, in addition to China and India. Even if the war came to a miraculous close in the next few weeks, the Ukraine demonstration effect will change all kinds of financial and economic behaviours around the world. Nobody wants to be that exposed to the US sanctions regime.Are you being too optimistic? The answer to that depends on whether you think more closed economies are a good thing or not. If so, then there are grounds for optimism. Alas, I don’t think they’re a good thing. The last two great periods of western disengagement from the world economy were 1914 to 1939, and before that, the long Christian Medieval night . ..Your feedbackAnd now a word from our Swampians . ..In response to ‘It may be impossible to settle with Putin’:“The difficulty is to identify anything that looks like ‘victory’ to Putin, and is actually sustainable. One could say, for instance, that bringing back pro-Russian regimes in Ukraine, the Baltics, maybe even central Europe, would look like victory, but these, even if the rest if the west ever agreed to it (a non-starter, to be clear), would not likely be stable as local populations would not accept it. Ukraine’s example has shown that it is possible to resist Russia’s army.So Putin has proven to the world (and most importantly, to the countries in question) that he cannot obtain what he craves (submission of Ukraine and other neighbours to Russia), and that’s kind of an irreversible fact on the ground. The worry then is that he will decide that everybody must lose if he loses himself.Which is why, personally, I don’t see how this will end without direct confrontation between Russia and the west, and I believe we should unfortunately get ready for it — starting by interrupting all imports from Russia, including oil, gas and other metals.” — FT commenter Jerome a Paris More

Investing.com — The Kremlin digs in after President Joe Biden’s gaffe calling for Vladimir Putin’s removal from power. Bonds continue to sell off as the yield curve points to a growth slowdown. Tesla (NASDAQ:TSLA) is looking at a stock split while Apple (NASDAQ:AAPL) is reportedly looking at cutting production of some products due to weakening demand. Bitcoin closes in on a new high for the year and oil falls as Shanghai locks down (in stages) for a week. Here’s what you need to know in financial markets on Monday, 28th March. 1. Kremlin digs in after Biden comments; Zelensky talks peace conditionsHopes for a quick peace in Ukraine took a blow at the weekend after U.S. President Joe Biden called for the removal of Russia’s Vladimir Putin from power. While his comments at the end of a speech in Poland pledging support for Ukraine’s independence were unscripted, they were clearly intentional.The comments are likely to strengthen suspicions, both in Russia and elsewhere, of a secret U.S. agenda to pursue regime change, although the State Department and the White House both stated later that this is not the case. Separately, Ukrainian President Volodymyr Zelensky told independent Russian reporters that he would be willing to accept permanent neutrality as a basis for peace, as long as it was guaranteed by third parties. He also said he would be willing to have separate negotiations about the status of eastern Ukraine and Crimea, removing a further obstacle to peace talks. The Kremlin poured cold water on such suggestions, a spokesman saying that a meeting between the two presidents would be “counter-productive” although it noted that diplomats will resume their meetings in Istanbul on Tuesday.2. Bond selloff continues, flattening curve furtherTwo-year U.S. bond yields hit their highest level in nearly three years overnight, as the repricing of Federal Reserve policy moves in response to rampant inflation continued.The United States 2-Year Treasury yield touched 2.41% before easing to 2.37% by 6 AM ET (10:00 GMT), still up 7 basis points on the day. Ten-year yields however, were largely stable, rising only 1 basis point to 2.50%. As such, the spread between 2- and 10-year yields has narrowed to only 13 basis points, the least since the start of the pandemic. Flatter and/or inverted yield curves typically tend to indicate a growth slowdown in the future. However, their usefulness as a predictor of recessions is often disputed.Analysts have been falling over themselves to revise their expectations for Fed rate hikes higher after a string of comments last week from Chair Jerome Powell and others warning of the possible need for half-point rises rather than the quarter-point ones previously suggested.3. Stocks set to open mixed; Apple, Tesla news in focusU.S. stock markets are poised to open mixed later, with concerns about the rapid selloff in bonds – which will raise capital costs for the economy at large – finally starting to weigh on equity markets that had defied gravity during the rout last week.By 6:20 AM ET, Dow Jones futures, S&P 500 futures and Nasdaq 100 futures were all effectively flat, after two straight weeks of solid gains. Heavyweights look likely to dominate proceedings later, with Apple stock down 1.8% on a report that it will cut production of Air Pods in response to weakening consumer demand, while Tesla stock was up 5% after the electric vehicle maker said it wants to carry out a stock split, which could make the stock more attractive to small investors.Elsewhere, wholesale inventories data for February are due at 8:30 AM ET.4. Bitcoin close to 2022 high as BoJ allows yen to weakenBitcoin closed in on a new high for 2022, as action from the Bank of Japan revived one of the classic arguments for holding crypto rather than fiat currencies. By 6:20 it was at $47,204, up 6% on the day.The BoJ intervened heavily in Japanese bond markets overnight, saying it would buy unlimited amounts of bonds over the next four days to keep long-term yields at its policy target rate. As such, the BoJ strengthened suspicions that it prefers to devalue the yen rather than contain inflation. The yen hit a six-year low of 125.08 against the dollar as a result of the intervention. The BoJ’s action backs up a string of comments in the last week by BoJ officials that was conspicuously relaxed about the yen’s decline on the FX markets.  5. Oil falls on Shanghai lockdownCrude oil prices fell sharply on fears for the trajectory of Chinese demand, as the city of Shanghai announced rolling lockdowns for mass Covid-19 testing over the next week that will affect 25 million people.By 6:30 AM ET, U.S. crude futures were down 4.2% at $109.11 a barrel, while Brent Futures, the global benchmark, were around $113.03 a barrel, down 3.7%.The measures will not close the city’s port, or indeed many of its factories (although Tesla’s factory in Shanghai is among those that will stay closed for now). However, the measures, which will be staggered across the city, will ban private car traffic where they are in place. More

Shorter-dated US government bonds dropped in price on Monday in the latest sign of how investors are expecting the Federal Reserve to aggressively tighten monetary policy in an attempt to rein in inflation.The yield on the two-year Treasury note, which moves inversely to its price, rose 0.09 percentage points in European morning trading to 2.39 per cent, leaving it up more than 1.6 percentage points since the end of last year.Short-term bonds have sold off more vigorously this year than ones at the longer end of the spectrum as expectations for a series of Fed rate rises in the coming months weigh on the longer-term economic growth forecast.“The market is pricing a significant overshoot in inflation and central banks being forced to react strongly, triggering an economic slowdown,” said Luca Paolini, chief strategist at Pictet Asset Management. In a sign of those concerns, the five-year Treasury yield on Monday rose above the 30-year yield for the first time since 2006. A so-called yield-curve inversion of this nature reflects concerns that the Fed’s attempt to battle inflation could over time depress growth or even cause a recession.Consumer price inflation in the US hit a 40-year high of 7.9 per cent in February, with analysts expecting the surge to continue as price disruptions caused by industries reopening from coronavirus lockdowns are exacerbated by the Ukraine war causing soaring commodity costs.“Geopolitical uncertainty has caused energy prices to surge, has put pressure on other raw materials and has caused further disruptions to supply chains,” said Sonal Desai, fixed income chief investment officer at Franklin Templeton. “To bring inflation under control, in my view, the Fed will need to implement a much more aggressive policy tightening than it currently envisions.”

Citigroup analysts said last week the US central bank was likely to raise borrowing costs by half a percentage point at every one of its monetary policy meetings from May to September. Goldman Sachs analysts said on Friday that they now expected the 10-year Treasury yield, which stood at just over 2.5 per cent on Monday, to hit 2.7 per cent by the end of 2022.Ructions in the US Treasury market also spread to eurozone bonds. Germany’s five-year bond yield rose as much as 0.1 percentage points to 0.429 per cent, the highest level since 2014. Europe’s Stoxx 600 share index rose 0.7 per cent as investors cautiously welcomed a declaration by Ukrainian president Volodymyr Zelensky that the nation would declare neutrality and abandon its plan to join Nato if Russia withdrew its troops. An index of European bank stocks rose 2.4 per cent. The price of Brent crude oil fell 3.3 per cent to $116.92 a barrel, still about a fifth above its closing level of February 23, on the eve of Russia’s invasion. Futures markets implied Wall Street’s S&P 500 share index would slip 0.3 per cent in early New York dealings. Asian stock markets were mixed, with Japan’s Nikkei 225 closing 0.7 per cent lower and Hong Kong’s Hang Seng adding 1.3 per cent.The dollar rose 1.5 per cent against the Japanese yen, with one unit of the US currency now buying ¥123.4, its highest level since 2015 as traders bet on the Bank of Japan maintaining loose monetary policy while the Fed raises interest rates. More

WASHINGTON (Reuters) -U.S. President Joe Biden is expected on Monday to ask Congress for record peacetime military spending while raising taxes for billionaires and projecting lower government deficits.Biden’s budget proposal for the fiscal year starting Oct. 1 lays out his administration’s priorities but it is merely a wish list as lawmakers on Capitol Hill make the final decisions on budget matters.The document offers fresh insight into Biden’s thinking as he attempts to halt Russia’s invasion of Ukraine and prepares for a Nov. 8 midterm election that could see his Democratic Party lose its control of Congress.”The president’s budget will reflect three important values: fiscal responsibility, safety and security at home and abroad, and a commitment to building a better America,” a White House official said.”The budget will help keep our communities safe by putting more cops on the beat for community policing, fighting gun crime, and investing in crime prevention and community violence interventions,” the official said.Forced by disagreements within his own party to pump the brakes and instead continue negotiating on vast swathes of his domestic “Build Back Better” agenda, Biden is unlikely to include line items for all of his ideas on how to improve the country’s environment, healthcare, education, housing infrastructure and manufacturing competitiveness.But he will use the opportunity to throw his explicit public support for the first time behind a new tax requiring billionaires to pay at least 20% of their income in taxes, including on the gains on investments that have not been sold.The White House says the tax would apply to 0.01% of American households, those worth over $100 million, and that more than half of the new revenue would come from households worth more than $1 billion.The measure would reduce the government deficit by $360 billion over the next decade, they said. Biden has long pushed the message that the U.S. tax system rewards the wealthy too much and that the rich should pony up for more social services.Two sources told Reuters in February that about $773 billion would be made available for the Department of Defense, which in combination with other spending would lead to a total national security budget above $800 billion.Russia’s Feb. 24 invasion of Ukraine has intensified concerns about European security, while the Biden administration continues to invest in research and development on hypersonic missiles and other modern capabilities. The United States is not directly engaged against Russia in the Ukraine war but is giving Kyiv weapons and extensive assistance. Working with European allies, it has also imposed heavy economic sanctions against Russia.Axios news outlet on Monday reported that the plan includes more than $32 billion to tackle crime.Biden also plans to propose new restrictions on stock buybacks, The New York Times reported separately.The budget will also project a 2022 deficit of more than $1.3 trillion lower than last year, as the U.S. economy rebounds from the COVID-19 recession and Biden’s administration puts more focus on fiscal sustainability.The U.S. federal government, on the hook for rising healthcare and social spending, especially for the elderly, has spent more money than it has taken for each of the last 20 years. More

TOKYO (Reuters) -Struggling to swim against the tide taking interest rates higher globally, the Bank of Japan staunchly defended its 0.25% yield cap on Monday by offering to buy an unlimited amount of government bonds for the first four days of this week.The BOJ’s defence of its ultra-loose policy pushed the yen to a six-year low of 124 to the dollar on Monday, adding to the problems Japan’s economy is facing from already surging costs for fuel and raw material imports.Under pressure from a steady rise in yields, the BOJ launched its defence by making two offers in a single day to purchase 10-year Japanese government bond (JGB) in unlimited amounts at 0.25%.The central bank then said it would make the same unlimited offer for the next three days, to make sure investors received the message loud and clear, but some economists believed the central bank’s grip on yield curve control was at risk of slipping.”The power of the BOJ’s unlimited bond-buy offer is clearly waning,” said Takahide Kiuchi, a former central bank board member who is now an economist at Nomura Research Institute.”Markets may more forcefully test the BOJ’s resolve to defend the 0.25% ceiling, which may prompt the bank to modify its approach and allow the 10-year yield to rise more.”The BOJ’s first offer for unlimited bond buying in the morning failed to prevent the 10-year JGB yield from hitting a six-year high of 0.250% on Monday – the level the bank has set as an implicit cap around its yield target.The central bank made a second offer in the afternoon to buy unlimited amounts of JGBs with maturities of more than five years and up to 10 years.While the first offer drew no bids, the BOJ accepted bids to buy 64.5 billion yen ($524 million) in JGBs in the second offer.The two offers, which were the first since Feb. 10, underscored the BOJ’s resolve to keep rates ultra-low in contrast to the Federal Reserve’s aggressive rate hike plans.The BOJ then announced a plan to buy unlimited amounts of 10-year JGBs at 0.25% for three consecutive days from Tuesday, deploying the most powerful weapon in its armory to defend its yield target.”Markets are putting the BOJ to test, so the central bank has no choice but to keep offering unlimited bond buying,” said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan (NYSE:JPM) Securities.”If yields are allowed to move above 0.25%, investors will think the BOJ has tolerated a rise above that level. That makes it harder for the BOJ to carry on with yield curve control.”Under yield curve control (YCC), the BOJ pledges to guide the 10-year JGB yield around 0% as part of efforts to stimulate the economy by keeping borrowing costs low.The BOJ’s current guidance is that it will allow the 10-year yield to move flexibly around its 0% target as long as it stays below the 0.25% upper limit, though it will take into account not just the level but the speed of any rise in yields.BOJ Governor Haruhiko Kuroda has repeatedly said the central bank would maintain interest rates at the current ultra-low levels, given the fragile economic recovery and as inflation remains well below its 2% target.Growing complaints from politicians over the weak yen, which is inflating Japan’s already rising import costs, may complicate the BOJ’s efforts to keep yields ultra-low, analysts say.The dollar has rallied over 7% against the yen so far in March, its biggest monthly gain in over five years.The BOJ is caught in a dilemma. By capping rates at zero, it is fueling yen declines that may hurt the economy by pushing up the costs for households and companies.”Making offers for unlimited bond buying too frequently may cast doubt over the feasibility of yield curve control,” said Shotaro Kugo, an economist at Daiwa Institute of Research.”It may also draw unwanted public attention over the weak yen, so the BOJ probably wants to avoid stepping in too often.”($1 = 123.1200 yen) More

“Thanks to a strong recovery momentum and sufficient cash buffers, we don’t expect a full-year recession but rather a drop in GDP growth to 3.3% this year versus 4.4% previously,” S&P said in a report. It added that as close neighbours to Russia and Ukraine, European countries were among the most exposed to the crisis.”Uncertainty surrounding our forecasts is higher than usual, with downside risks to growth for 2022 and upside risks for inflation this year and next.” More