Category: Finance & Economics

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Bank of Japan ends the world’s only negative rates regime in a historic move, abandons yield curve control

By Clement Tan | March 19, 2024 | CNBC.com

Japan’s central bank raised interest rates on Tuesday for the first time since 2007, ending the world’s only negative rates regime and other unconventional policy easing measures enacted over the course of the last few decades to combat deflation.

These changes mark a historic shift and represent the sharpest pull back in one of the most aggressive monetary easing exercises in the world. The BOJ’s actions also precede the U.S. Federal Reserve’s interest rate decision later this week.

“The likelihood of inflation stably achieving our target has been heightening … the likelihood reached a certain threshold that resulted in today’s decision,” BOJ Governor Kazuo Ueda said at a press conference after the central bank’s decision, according to a translation provided by Reuters.

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Japan wants higher returns for investors — here’s what it’s doing

By Clement Tan | January 12, 2024 | CNBC.com

Japan is stepping up efforts to ensure its listed companies become more efficient with capital allocation and increase shareholder returns this year.

The operator of Tokyo’s stock exchange will release Monday, its first monthly list of public companies that have shared their plans for optimizing capital management to enhance returns for their investors.

The Japanese government and the TSE also have plans in the works for increasing corporate board independence and female representation.

“It’s not just the Tokyo stock exchange, but the entire Japan government is pushing for better corporate governance right now,” said Toru Yoshikawa, a business professor at Waseda University in Tokyo.

The Tokyo Stock Exchange is entering into its second year of corporate governance reforms, kickstarted in March last year, by directing listed companies whose shares are trading below a price-to-book ratio of one — an indication it may not be using its capital efficiently — to “comply or explain.”

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‘A real big deal’: Biden backs economic corridor as shifting geopolitical alliances fragment the global economy

By Clement Tan | September 18, 2023 | CNBC.com

NEW DELHI — Even for those accustomed to the ebbs and flows of the U.S.-Saudi Arabia relationship, the sight of President Joe Biden extending a handshake to Saudi Crown Prince Mohammad bin Salman at the recent G20 leaders’ summit in New Delhi was quite the turnaround.

After all, Biden had warned last October of “consequences” after the Saudi-led oil cartel OPEC decided to cut crude production and boost prices amid Russia’s war in Ukraine.

Roughly a year on, Saudi Arabia is not only one of six new invitees to the China-dominated BRICS coalition, but also a signatory to the Biden-led pact for a ship-to-rail economic corridor linking India with Middle Eastern and European Union countries unveiled on the sidelines of the G20 summit — framed as a counter to China’s decade-old Belt and Road Initiative.

Saudi Arabia’s double dipping underscores the range of economic and strategic opportunities that abound for the various economies caught between the dueling U.S. and China as they build their own alliances and spheres of influence. U.S. and other major Western nations have been keen to “de-risk” their economic — and not decouple — from China on grounds of national security.

This is also consequently leading to a fragmentation of the world’s economy as protectionism and nationalism impede global trade, while giving rise to a complex matrix of relationships in a multipolar world that are not always straightforward as nations pursue their self interests.

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G20 nations soften Russia condemnation to reach Delhi summit compromise, draw Ukraine’s ire

By Clement Tan | September 9, 2023 | CNBC.com

NEW DELHI — The Group of 20 nations on Saturday overcame differences in references to the war in Ukraine, reaching a consensus on a joint declaration that paves the way for frameworks on debt resolution, and country-specific climate financing solutions among other pledges aimed at enhancing development in the Global South.

In an 83-paragraph joint communique aimed at deepening the integration of the needs of developing economies into the multilateral forum’s agenda, the Delhi declaration omitted words from the last year’s statement that overtly condemned Russian aggression against Ukraine — instead highlighting the human suffering and other negative impacts of the war in Ukraine that have complicated recovery efforts in the aftermath of the Covid-19 pandemic.

The wording of “most members strongly condemned the war” was among the changes. Instead, G20 member states agreed to lean on the tenets of the United Nations charter on territorial integrity and against the use of force.

“Considerable time was spent — especially in the last few days — in regard to geopolitical issues, which really centered around the war in Ukraine,” Indian Foreign Minister Subrahmanyam Jaishankar said Saturday at a press conference following Prime Minister Narendra Modi’s initial announcement of the consensus on a joint declaration.

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Bank of Japan loosens yield curve control, pledging ‘greater flexibility’

By Clement Tan | July 28, 2023 | CNBC.com

Japan’s central bank on Friday loosened its yield curve control, underscoring concerns about its protracted monetary easing on financial markets and the real economy.

In a policy statement, the Bank of Japan said it will continue to allow 10-year Japanese government bond yields to fluctuate in the range of around plus and minus 0.5 percentage points from its 0% target level — though it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This move effectively expands its tolerance by a further 50 basis points.

The BOJ pledged to “conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations,” citing the need to remain nimble given “extremely high uncertainties for Japan’s economic activity and prices.”

In what was BOJ Governor Kazuo Ueda’s first major policy change since he took the helm in April, the central bank also kept its ultra-loose interest rate intact, electing to hold its short-term interest rate target at -0.1% after its July policy meeting. It also raised its median forecast for inflation to 2.5% for fiscal 2023, up from its 1.8% prediction in April.

“This is not intended as a step toward policy normalization. Rather, it’s a step aimed at enhancing the sustainability of YCC,” Ueda said at a press conference in Tokyo on Friday afternoon explaining the central bank’s decision, according to a translation provided by Reuters.

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China vows to ‘adjust and optimize’ property policy in ‘tortuous’ economic recovery

By Clement Tan | July 24, 2023 | CNBC.com

China’s top leaders pledged to “adjust and optimize policies in a timely manner” for its beleaguered property sector, while elevating stable employment to a strategic goal, along with other pledges to boost domestic consumption demand and resolve local debt risks.

Chaired by President Xi Jinping, the Communist Party’s top decision-making body said it would implement a “counter cyclical” policy and stick largely to a prudent monetary policy and pro-active fiscal policy, according to a readout published late Monday of a quarterly meeting of the Politburo.

The July Politburo meeting typically sets the tone for China’s economic policies for the second half of the year, with market watchers eagerly awaiting firmer guidance on policy support for faltering growth in the world’s second-largest economy.

“Currently, the economy is facing new difficulties and challenges, mainly due to insufficient domestic demand, difficulties in the operation of some enterprises, many risks and hidden dangers in key areas, and a grim and complex external environment,” Xinhua quoted the Politburo as saying.

The post-pandemic economic recovery will proceed in a “wave-like” fashion in a “tortuous” process, it added. The Chinese phrase for risk appeared at least seven times in the readout, underscoring the government’s focus on its containment.

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Is Japan Inc finally serious about corporate governance reform?

By Clement Tan | June 13, 2023 | CNBC.com

For the first time in decades, Japan stocks are back in vogue.

In the last few weeks, the benchmark Nikkei 225 and Topix indexes touched their highest levels in more than 30 years as foreign investors pour into Japanese equities with a consistency rarely seen in at least a decade.

After what turned out to be a false dawn a decade ago, when “Abenomics” first raised hopes of corporate governance reform in Japan, many seem to think better of the latest measures by the Tokyo exchange.

“The recent Tokyo Stock Exchange initiative is a game-changing moment, because it’s going to challenge a lot of companies that are trading on less than one-time price-to-book to improve profitability and support their share price,” said Oliver Lee, a Singapore-based client portfolio manager, at Eastspring Investments.

The Tokyo Exchange Group recently finalized its market restructuring rules. Among the latest measures was one that directed listed companies to “comply or explain” if they are trading below a price-to-book ratio of one — an indication a company may not be using its capital efficiently.

The exchange warned such companies could face the prospect of delisting as soon as 2026.

Part of the optimism in Japanese stocks stems from how specific and tangible the Tokyo exchange’s requirements are this time round. Warren Buffett’s bullish calls on Japanese equities has also helped boost confidence among foreign investors.

There is hope this would press Japanese companies’ notoriously resistant management — which typically view shareholders as enemies — for greater capital efficiency and profitability. It could in turn lead to a domino effect among other Japanese companies once the big players start to make changes.

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China’s record high youth unemployment is deepening economic scars

By Clement Tan | May 30, 2023 | CNBC.com

As youth unemployment in China rises to a record high, college graduates are caught in a perfect storm — with some forced to take on low-paying jobs or settle for jobs below their skill levels.

Official data shows urban unemployment among the 16- to 24-year-olds in China hit a record 20.4% in April – about four times the broader unemployment rate even as millions more college students are expected to graduate this year.

“This college bubble is finally bursting,” said Yao Lu, a professor of sociology at Columbia University in New York. “The expansion of college education in the late 1990s created this huge influx of college graduates, but there is a misalignment between demand and supply of high skilled workers. The economy hasn’t caught up.”

The scourge of underemployment is another issue that Chinese youths and policymakers have to grapple with.

In a paper Lu co-authored with Xiaogang Li, a professor at Xi’an Jiaotong University, the professors estimated at least another quarter of college graduates in China are underemployed, on top of the rising youth unemployment rate.

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Australia’s Tantalizing Lessons on Privatizing Infrastructure

The White House is interested in modeling Australia’s approach to national infrastructure. Here’s how they do it Down Under.

Clement Tan | June 9, 2017 | CityLab

The White House’s “Infrastructure Week” didn’t offer many clues about how the Trump administration might approach its promise to “spend big” on ailing infrastructure in the United States. But when it comes to financing roads, bridges, and other projects through public-private partnerships, we know Trump advisers have one model in mind that Australia figured out nearly 10 years ago.

In July 2008, facing the fact that inadequate infrastructure could limit economic growth, the Australian government decided to do what it had never done before: infrastructure planning on a national level.

That month, the federal government created a statutory body—Infrastructure Australia—that brought together the public and private sectors to devise a long-term strategy and prioritize key projects for funding.

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Without Baggage of Legacy, China Budget Airlines Gain on “Big Three”

By Clement Tan

March 31 (Bloomberg) — Cheap fares and no legacy are helping China’s budget airlines beat state-owned carriers in the stock market.

With combined fleets exceeding 1,000 planes, $31 billion in market values, and up to 20 times more workers, state-controlled China Southern Airlines Co., China Eastern Airlines Corp. and Air China Ltd. on average provide just one-third the returns of Spring Airlines Co. and Juneyao Airlines Co., according to data compiled by Bloomberg. Even the Chinese regulator has lauded Spring as a model of efficiency.

Investors have driven up shares of Juneyao fourfold since the stocks listed last year, while Air China, the leader by market value, has fallen 46 percent in the same period. The data also suggest the three carriers need to step up the pace of reforms to better exploit growth in the Chinese air-travel market, poised to become the world’s largest within two decades.

“Spring and Juneyao don’t have the baggage of legacy like the state-owned airlines,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “They were started as profit-driven businesses and cost-efficiency for them extends to all aspects of their operations, not just their smaller work forces and cheaper tickets.”

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