Economy

Minutes of its Aug 5-6 board meeting out on Tuesday showed the Reserve Bank of Australia (RBA) considered raising its 4.35% cash rate as underlying inflation remained too high at 3.9% and financial conditions appeared to have eased, with a pickup in credit growth and house prices.However, it decided the case to hold steady was the stronger one as it would best balance the risks to both inflation and the labour market, given prevailing uncertainty about staff forecasts, market volatility and expectations for rate cuts. In particular, the board judged market pricing for rate cuts in the coming year, including a first easing by December, was incompatible with a return of inflation to the mid-point of the target band of 2-3% in 2026. As a result, the RBA felt the need to push back against talk of a near-term reduction in rates and might possibly keep rates steady for “an extended period”. “Members also observed that holding the cash rate target steady at its current level for a longer period than currently implied by market pricing may be sufficient to return inflation to target in a reasonable timeframe, but that the board will need to reassess this probability at future meetings,” the minutes showed. The board also stressed that it was appropriate to continue placing somewhat greater-than-usual weight on the flow of data given the degree of uncertainty about the staff’s forecasts for spare capacity, unemployment and consumer demand. The RBA has held interest rates steady for six straight meetings now, having raised them by 425 basis points to a 12-year high since May 2022.Markets are wagering there is an 84% probability that the RBA could cut by the year-end, and a cut in February is more than fully priced in.(This story has been refiled to fix a typo in paragraph 7) More

TOKYO (Reuters) – Japan’s dwindling working-age population is leading to structural changes in the labour market that are heightening pressure on firms to hike wages and services prices, the Bank of Japan said in two research papers released on Tuesday.The findings back up the central bank’s argument that broadening inflationary pressures warrant raising interest rates steadily from current near-zero levels.Permanent workers’ pay remained stagnant even as labour shortages intensified since the mid-2010s, as female and elderly workers filled the gap by taking on low-paid, part-time jobs.The trend is changing as a dwindling pool of female and elderly workers, rising job hoppers and an increase in pay for part-time jobs prod firms to hike permanent workers’ pay, the BOJ said in a research paper on Japan’s labour market.”Labour shortages are triggering changes in companies’ wage-setting behaviour,” the paper said. “Scope for additional labour supply is likely to gradually shrink, which is seen keeping upward pressure on wages.”Such wage pressure is beginning to replace raw material costs as the main driver of inflation, the BOJ said in another research paper on Japan’s service-sector prices.Services ranging from English lessons to tuition to massage have seen prices rise as labour costs continue to increase, the paper said.”With wage pressure heightening, companies’ price-setting behaviour is changing” and propping up service-sector prices, which had hovered around zero since the late 1990s, it said.The BOJ ended negative interest rates in March and hiked short-term borrowing costs to 0.25% in July on the view a solid economic recovery will keep inflation durably at its 2% target.BOJ Governor Kazuo Ueda has said the central bank will keep raising interest rates if economic growth and inflation move in line with its projections. More

TOKYO (Reuters) – Japan is ramping up promotional efforts to boost seafood exports to more destinations in Asia, the U.S., and Europe as it seeks to fill a sales gap left by a year-long Chinese import ban, the head of the Japan External Trade Organization said.China, previously the biggest market for Japanese seafood exports, banned purchases of Japanese-origin seafood citing risk of radioactive contamination after Tokyo Electric Power started releasing treated water from the wrecked Fukushima nuclear power plant into the Pacific Ocean last August. Japan’s exports of agricultural, forestry and fishery products in the first half of 2024 fell for the first time since 2020 as exports to China plunged 43.8%. Scallops were the hardest-hit, dropping 37% year-on-year.”We haven’t yet fully compensated for the loss from China in volume, but exports to the U.S., Canada, Thailand and Vietnam are increasing, significantly boosting momentum in alternative markets,” said Norihiko Ishiguro, the chairman of the Japan External Trade Organization, or JETRO.The government-backed trade body is promoting the diversification of export destinations for scallops and other products impacted by China’s curb by establishing new commercial channels in Asia, the U.S., and Europe, he added.”Our intensive promotional efforts have enabled us to redirect 20-30% of the scallop exports lost due to China’s import ban,” Ishiguro said on Friday, ahead of the first anniversary of the Fukushima water release on Aug. 24.”There is significant growth potential for Japanese seafood exports … it won’t take long to make up for the gap caused by China’s ban,” he added.Japan exported 87.1 billion yen ($592 million) worth of aquatic products to China in 2022, making it the biggest market for Japanese exports, according to government data. The figure, which includes pearl and coral, plunged to 61 billion yen in 2023 and 3.5 billion yen in the first half of 2024.PROMOTION EFFORTSWith an additional 5 billion yen budget from the government, the JETRO has supported 170 events in the past year to promote scallops, yellowtail and other fishes in more than 70 cities in Japan and abroad, including Davos, Switzerland and San Francisco, according to Ishiguro and another JETRO official.It has also invited renowned chefs, influencers and buyers from abroad to tour fish markets and fisheries in Japan, while campaigns in Thailand promoted Japanese seafood in non-Japanese restaurants like Thai, Italian, Chinese.Mission have also been sent to Vietnam and Mexico to explore alternative processing sites for scallops, aiming to replace China’s supply chain, Ishiguro added.Growth can be expected in emerging markets like Eastern Europe and the Middle East, he noted, pointing out that there are 2,000 Japanese restaurants in Poland alone.The weak yen and the boom in Japan tourism are also contributing factors, he said, adding there is no longer any reputational risk linked with Japanese seafood outside of China.($1 = 147.1500 yen) More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist at German bank LBBW and former chief ratings officer at S&PGermany has not yet been relegated by capital markets in sovereign rankings. Despite the country’s economic weakness the Bund is still the undisputed euro debt benchmark. Its AAA-rating has a stable outlook with all major rating agencies. But this will not last for ever. The simplistic view still shared by many German politicians is that high creditworthiness is a direct function of low debt. It is not. In fact, the public debt burden of highly rated advanced economies is substantially higher than that of lower-rated emerging markets. Other factors such as growth, productivity and innovative capacity play a critical role, too. And this is where Germany increasingly falls short.There has been a drumbeat of disappointments in economic data from the country. All high-frequency indicators are pointing down again, from order books and industrial production to retail sales and confidence indicators. For two years now, the economy has been dipping in and out of contraction. Even so, the economy is not going anywhere.Germany’s weakness has led to solidifying expectations of more rate cuts from the European Central Bank. The 10-year Bund yield, which briefly touched 2.6 per cent in early July has come down rapidly to about 2.25 per cent. This is testament to congealing economic pessimism that is forcing the hand of the ECB. The fact that other Eurozone-countries, such as France or Italy, have their own deepening challenges flatters Germany in relative terms and renders its benchmark status unassailable.The main reasons for Germany’s structural stagnation partly reflect adverse megatrends beyond direct governmental control. The first factor is the end of globalisation and the second is a daunting demographic profile. Added to that is the self-inflicted wound of continuous under-investment.Germany benefited like few other countries from China bursting into the world economy. When China joined the World Trade Organization in 2001 the country needed just the stuff in which German companies excel: investment goods, machinery, vehicles. Exports went through the roof. In 1999, a little more of a quarter of all things produced in Germany were sent abroad. By 2008, that share had reached 46 per cent of GDP. But since the financial crisis, world trade and German exports went mostly sideways. China has gradually become a competitor rather than a client. Protectionist tendencies have been creeping into the world trading system. As external demand flattened, Germany’s economy came to a screeching halt.German consumers have not taken up the slack. They have good reason to be thrifty: a rapidly ageing society with an unfunded public pension system. The large cohorts born in the 1960s are starting to drop off into retirement. During the next half-decade Germany will lose year after year a net 1 per cent of its workforce. This trend is exacerbated through ever fewer hours worked. In no other OECD country do workers spend less time on the job. With labour input shrinking by some 1 per cent a year, labour productivity would need to rise by an equal amount for the economy to stand still. Unfortunately, productivity increases per hour worked have stood well below 1 per cent in recent years. The country’s fundamental speed limit for growth may lie below zero.Sluggish productivity growth can also be attributed to decades of under-investment in education and infrastructure. When European football fans descended on Germany this summer, quite a number of positive prejudices about the country’s transport system were shattered. That should not come as a surprise. Since the turn of the millennium the public sector in Germany has spent on average only 2.3 per cent of GDP on investments. In the Euro area as a whole, it was almost 1 percentage point more, in France even 2 percentage points. The gap relative to peers has recently become smaller. But that merely means that Germany continues to fall behind, just at a slower pace. If the AAA-crown were to be taken away from Germany it would not be because of too much debt. It would be because of a prolonged economic paralysis and a lack of appropriate action to address it. As policymakers increasingly recognise the fundamental roadblocks to growth, we can be confident that the fixation with balanced budgets trumping everything else will be overcome. Do not count Germany out just yet! More

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The PBOC kept its one-year loan prime rate at 3.35%, as expected, while the five-year LPR, which is used to determine mortgage prices, was maintained at 3.85%. The central bank had unexpectedly trimmed both rates by about 10 basis points in July, with the move coming amid a slew of measures to help shore up local economic growth.The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country. The five-year rate is closely tied to China’s property market, which has been struggling with nearly four years of slowing sales and an extended cash crunch. While Chinese consumer inflation picked up slightly in July, other metrics- specifically lending activity and industrial production- pointed to sustained economic weakness in the country.July’s rate cut was the PBOC’s first such move in nearly a year. But the central bank has consistently kept policy loose to help foster an economic recovery in China, to limited effect. Weakness in the economy is expected to give the PBOC more impetus to cut rates further in the coming months.  More