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BoJ Keeps Rates Ultra Low, Holds Fire Until Global Outlook Clears By Reuters




© Reuters. FILE PHOTO: A view of signs outside the Bank of Japan headquarters in Tokyo, Japan, May 22, 2020. (Reuters)/Kim Kyung-hoon

by Leika Kihara

TOKYO (Reuters) – The Bank of Japan is set to maintain ultra-low interest rates and dovish guidance next week, signaling its intention to delay withdrawing stimulus until it clearly sees the economy can take a hit from slowing global growth.

The decision will follow the US Federal Reserve’s latest rate hike on Wednesday and cement the Bank of Japan’s status as a pessimist as a wave of peers continues to tighten monetary policy to combat soaring inflation.

As the Japanese economy continues to recover from the pain of the coronavirus pandemic, Bank of Japan Governor Haruhiko Kuroda has stressed the need to keep policy very loose.

At a two-day meeting ending on Tuesday, December 20, the Bank of Japan is widely expected to maintain a target of 0.1% for short-term rates and a maximum of 0% for 10-year bond yields, both of which are set by the yield curve. Control Policy (YCC).

Investors are focusing on Kuroda’s briefing after the meeting to get clues about the policy outlook. Markets are awash with speculation that the Bank of Japan will adjust its policy when Kuroda’s second, five-year term ends in April.

“While the Bank of Japan will likely not change policy next week, markets will look for any change in how the bank describes its price outlook, as inflation may remain near its 2% target next year,” said Izuru Kato, chief economist. At Totan Research.

“If the US economy manages to avoid a deep recession and the Japanese economy is in fairly good shape, the Bank of Japan may remove its yield ceiling in June or July next year,” he said.

With inflation above target and there is some prospect of wage increases, BoJ officials have already begun dropping signs of a possible change to the YCC next year.

Board member Naoki Tamura told the Asahi daily that the Bank of Japan should review its monetary policy framework and adjust its massive stimulus program after looking at the outcome of next year’s round of wage talks, pointing to an increased focus on the shortcomings of a prolonged easy policy.

Some in the central bank have embraced the idea, say three sources familiar with the central bank’s thinking.

While BoJ officials are not ruling out the chance of a policy adjustment next year, they are in no rush, as the expected slump in global growth is seen weighing on exports, the sources say.

Many at the Bank of Japan also like to look at the outcome of wage talks, called “shunto,” to determine how quickly the central bank can wean itself off stimulus, they say. Transfer talks between major companies and unions will take place in March.

“If wage growth turns out to be strong, the Bank of Japan will then assess whether that strength can be sustained,” said one of the sources, expressing a view echoed by two others.

Content with the status quo

Amid uncertainty about the global outlook and the pace of Japanese wages rising, the sources said, the Bank of Japan is content to maintain the status quo for the time being.

Japan’s core consumer prices in October were 3.6% higher than a year earlier, beating the Bank of Japan’s inflation target for the seventh consecutive month, driven by higher fuel and raw material costs.

The Bank of Japan expects inflation to slow below its target next year because the cost pressure will dissipate.

But some analysts expect core consumer inflation to top 4% in the coming months and stay around 2% for most of next year, as businesses continue to pass on higher costs to households.

A November survey by Teikoku databank showed that major food and beverage manufacturers plan to raise prices for more than 4,000 items next year, with the increases concentrated in February.

The hope among policymakers is for enough wages to increase next year to compensate households for the higher cost of living, helping turn cost-pushing inflation into demand-driven inflation.

Analysts say any chance of a BoJ policy adjustment will vanish if the Fed fails to tame inflation without tipping the US economy into a deep recession.

“There is a possibility that inflation in Japan will continue to accelerate for longer than expected next year,” said Yoshiki Shinki, chief economist at Dai-ichi Life Research Institute in Tokyo.

“But the Bank of Japan will probably find it difficult to phase out stimulus if the global economy is in bad shape,” he said.

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We need to pay more attention to skewed economic signals





The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters





© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems





Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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