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☆ Asia's factory activity stalls, but China a bright spot
▼ + stars: | 2023-03-01 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

China's manufacturing activity expanded at the fastest pace in more than a decade in February, according to an official index, while a private sector survey also showed activity rising for the first time in seven months. India and Australia saw economic growth slow in the quarter to December, and South Korea's exports fell in February for a fifth straight month, highlighting the pain slowing global demand was inflicting on the region's manufacturers. The region's weaker data underscores the challenge Asian policymakers face in reining in inflation with higher interest rates, without choking off their economic recoveries already facing pressure from the global economic slowdown, analysts say. Factory activity continued to shrink in Taiwan and Malaysia in February, and expanded at a slower pace than in January in the Philippines, surveys showed. Policymakers hope China's re-opening from COVID-19 curbs, and resilience seen so far in U.S. and European economies, will underpin global growth this year.

The dollar index , which measures the currency against a basket of peers, was flat at 104.64, but was still set for a February gain of 2.6%, its first monthly increase since September. The next move in the dollar is really a function of how the February data starts to play out in March," Atrill said. U.S. Treasury yields have also moved higher with the inflation sensitive two-year yield back at three-and- a-half-month highs. [US/}The dollar on Tuesday gained particularly against the Japanese yen , climbing 0.44% to 136.84, its highest in over two months. ,Elsewhere, sterling built on its gains from the previous session against the dollar, rising 0.2% to $1.2082.

☆ Japan's lower house of parliament passes record budget
▼ + stars: | 2023-02-28 | by ( ) www.reuters.com time to read: +1 min

TOKYO, Feb 28 (Reuters) - The lower house of Japan's parliament passed on Tuesday a record 114.4 trillion yen ($839.3 billion) budget for the next fiscal year that begins in April, a ruling party lawmaker said, a move that would further strain the industrial world's heaviest debt burden. The fiscal 2023 budget featured record military and welfare spending to cope with threats from mighty China and North Korea, and welfare spending for catering to a fast-ageing population. The budget passage in the powerful lower chamber makes it almost certain of its approval by the upper house by the current fiscal year end in March. Kishida's controversial plan to double Japan's defence spending to 2% of gross domestic product by 2027 contributed to a record 6.8 trillion yen increase in spending. ($1 = 136.3000 yen)Reporting by Tetsushi Kajimoto; Editing by Tom Hogue & Shri NavaratnamOur Standards: The Thomson Reuters Trust Principles.

Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing. The remarks follow those of incoming BOJ Governor Kazuo Ueda on Monday suggesting his preference to spend "plenty of time" if the central bank were to conduct a review of its policy framework. While stressing that it was premature to discuss an exit strategy from ultra-loose monetary policy, Uchida said any exit would involve adjustments in the BOJ's interest rate targets and the level of its balance sheet. "In what order and at what timing the BOJ will make these adjustments will depend on economic and financial developments at the time," Uchida said. The BOJ can tap its experience conducting ultra-loose policy and dealing with market forces, to ensure it can steer a smooth exit regardless of economic conditions at the time, he said.

☆ Sterling holds gains after rising on UK trade deal with EU
▼ + stars: | 2023-02-28 | by ( Rae Wee | ) www.reuters.com time to read: +3 min

SINGAPORE, Feb 28 (Reuters) - The pound held steady on Tuesday, retaining gains overnight after Britain struck a new trade deal with the European Union, which brightened the outlook for the post-Brexit UK economy and signalled improved relations between London and the bloc. The dollar was mostly flat in early trade but was on track to end higher for the month, ending a four-month losing streak. The euro similarly got a lift and was last 0.05% higher at $1.0614, after rising 0.6% on Monday. The British parliament will now vote on the deal, with the opposition Labour Party saying it will vote in favour. "The real thing is, is this a springboard for a stronger, much improved removal of trade frictions more generally, between the UK and the EU?"

TOKYO, Feb 28 (Reuters) - Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said on Tuesday the central bank shouldn't modify its ultra-easy monetary policy just to address the side-effects of prolonged stimulus. It shouldn't modify easy policy just because there are side-effects. Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing. The remark follows that of incoming BOJ Governor Kazuo Ueda on Monday suggesting his preference to spend "plenty of time" if the central bank were to conduct a review of its policy framework. Markets are rife with speculation the BOJ will overhaul its bond yield control policy once Ueda succeeds incumbent Governor Haruhiko Kuroda, whose term ends in April.

☆ Dollar edges higher, headed for 1st monthly gain since September
▼ + stars: | 2023-02-28 | by ( ) www.cnbc.com time to read: +4 min

"The market has repriced the Fed and it now sees a higher terminal rate and low scope for cuts for the rest of the year. And that's what the dollar strength reflects," said Vassili Serebriakov, FX strategist, at UBS. The dollar index, which measures the currency against a basket of peers, was 0.29% higher at 104.98, and is set for a February gain of 2.4%, its first monthly increase since September. We think some of the dollar strength is exaggerated. So we are cautiously fading dollar strength," UBS' Serebriakov said.

☆ Incoming BOJ deputy head brushes aside near-term tweak to easy policy
▼ + stars: | 2023-02-28 | by ( ) www.cnbc.com time to read: +1 min

Bank of Japan deputy governor nominee Shinichi Uchida speaks during a hearing at the lower house of parliament on Feb. 24, 2023 in Tokyo. Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida on Tuesday brushed aside the chance of an immediate overhaul of ultra-loose monetary policy, suggesting that any review of its policy framework could take about a year. It shouldn't modify easy policy just because there are side-effects. Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing. "Any such special type of examination is better done by taking a wide perspective looking at various factors," he added.

☆ BOJ's Wakatabe warns secular stagnation risk has yet to pass
▼ + stars: | 2023-02-27 | by ( ) www.reuters.com time to read: +2 min

Feb 28 (Reuters) - Central banks must remain on guard against the potential dangers of secular stagnation and low inflation as price rises driven by cost-push factors do not last long, Bank of Japan (BOJ) Deputy Governor Masazumi Wakatabe said on Monday. Japan's economy was in deflation for a prolonged period, but sustainable monetary easing has "certainly had a positive effect" on the real economy, Wakatabe said, defending the BOJ's prolonged, ultra-loose monetary policy. "The mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed," he said in a speech delivered at Columbia University in New York. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate," he said. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain," Wakatabe said, adding that it was "well known that cost-push inflation does not last long."

The recent rise in Japan's consumer inflation is driven by cost-push factors rather than strong demand, warranting the BOJ to maintain ultra-loose policy, Ueda said. "There's still some distance for Japan to see inflation sustainably and stably meet the BOJ's 2% target," he told an upper house confirmation hearing. "Big improvements must be made in Japan's trend inflation for the BOJ to shift towards monetary tightening," Ueda said. "In guiding monetary policy, central banks must weigh the benefits and costs of each step," Ueda said. "There are various side-effects emerging, but the BOJ's current policy is necessary and appropriate" to achieve its 2% inflation target, he said.

☆ Dollar advances as traders consider higher-for-longer rates view
▼ + stars: | 2023-02-27 | by ( Ankur Banerjee | ) www.reuters.com time to read: +3 min

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1.8% last month, according to the Commerce Department. The market is now pricing U.S. interest rates to peak at 5.4% in July and remain above 5% through the end of the year. The Fed is expected to raise rates by 25 basis points at its March 21-22 meeting, though some analysts see the possibility of a 50 basis points hike if inflation stays high and growth remains strong. "We now believe it is a much closer call that officials hike by 50 basis points in March than our earlier 25 basis points assumption," said Kevin Cummins, chief economist at NatWest Markets. The Australian dollar rose 0.12% to $0.673, while the kiwi advanced 0.13% versus the greenback to $0.617.

☆ Morning Bid: Long March ahead
▼ + stars: | 2023-02-27 | by ( ) www.reuters.com time to read: +5 min

"If it goes down that road it will come at real costs to China," White House national security adviser Jake Sullivan told CNN. China said on Monday it sought dialogue and peace for Ukraine despite the U.S. warnings. European stocks and U.S. futures recaptured some ground on Monday but the DXY dollar index briefly hit its highest since Jan. 6. The new U.S. interest rate horizon remains jarring, however. Meanwhile, Warren Buffett's Berkshire Hathaway (BRKa.N) on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and rising interest rates contributed to lower earnings in the fourth quarter.

☆ Incoming Bank of Japan head says merits of ultra-low rates exceed costs
▼ + stars: | 2023-02-27 | by ( ) www.cnbc.com time to read: +1 min

A bundle of Japanese 10,000 yen banknotes on a tray arranged at a branch of Resona Bank Ltd. in Tokyo, Japan. Incoming Bank of Japan Governor Kazuo Ueda said on Monday the country's trend inflation must heighten significantly for the central bank to consider tightening monetary policy. The recent rise in Japan's consumer inflation is driven by cost-push factors rather than strong demand, warranting the BOJ to maintain ultra-loose policy, Ueda said. For now, the merits of the BOJ's current monetary policy outweigh the costs, Ueda said, stressing the need to maintain support for the country's economy with ultra-low interest rates. "Big improvements must be made in Japan's trend inflation for the BOJ to shift towards monetary tightening," Ueda said.

☆ BOJ's Kuroda says he is resolved to keep ultra-loose policy
▼ + stars: | 2023-02-25 | by ( ) www.reuters.com time to read: +1 min

Feb 25 (Reuters) - Bank of Japan (BOJ) Governor Haruhiko Kuroda on Saturday stressed anew the central bank's resolve to maintain ultra-loose monetary policy, even as inflation continued to exceed its 2% target. Japan's core consumer inflation hit a fresh 41-year high of 4.2% in January, data showed on Friday, keeping the central bank under pressure to phase out its massive stimulus programme. "The rise in consumer inflation is driven mostly by moves by companies to pass on rising raw material costs to households," Kuroda told a news conference after attending the G20 finance leaders' gathering in Bengaluru, India. The BOJ expects core consumer inflation to slow below 2% in both fiscal 2023 and 2024, as the effect of past rises in raw material costs fades, he said. The BOJ must maintain current ultra-loose policy to sustainably and stably achieve its 2% target," Kuroda said.

☆ Dollar steady on higher-for-longer rates outlook; yen volatile
▼ + stars: | 2023-02-24 | by ( Ankur Banerjee | ) www.reuters.com time to read: +3 min

SINGAPORE, Feb 24 (Reuters) - The dollar held firm on Friday as investors braced for U.S. interest rates to be higher for longer, while the yen was volatile, with incoming Bank of Japan Governor Kazuo Ueda saying it was appropriate to maintain an ultra-loose monetary policy. The yen was volatile on the day and swung between gains and losses against the dollar as investors parsed through the comments from Ueda, who was speaking at the lower house confirmation hearing. The recent spate of strong U.S. economic data and hawkish rhetoric from Fed officials have led the dollar to erase its year to date losses. The dollar index , which measures the U.S. currency against six other rivals, was up 0.019% at 104.580 and was set for a fourth straight week of gains. The euro was up 0.04% at $1.0599, while sterling was last trading at $1.2016, up 0.02% on the day.

☆ Morning Bid: Kuroda 2.0
▼ + stars: | 2023-02-24 | by ( ) www.reuters.com time to read: +2 min

[1/2] The Japanese government's nominee for the Bank of Japan (BOJ) Governor Kazuo Ueda arrives for a hearing session at the lower house of the parliament in Tokyo, Japan, February 24, 2023. Interest rate markets are positioned for an end to yield curve control as a first step away from decades of super-easy policy experiments in Japan. Yet as he fronted his confirmation hearing before parliament on Friday, he sounded very much like incumbent Haruhiko Kuroda. Traders responded with relief and the Nikkei share average (.N225) had its best session in a month. A surprise could shake things up, though with U.S. rate expectations already ratcheting higher through February a degree of stickiness is priced in.

☆ Morning Bid: War and PCE
▼ + stars: | 2023-02-24 | by ( ) www.reuters.com time to read: +4 min

A look at the day ahead in U.S. and global markets from Mike DolanWith world headlines focussed on first anniversary of Russia's invasion of Ukraine, the inflationary consequences that pounded world markets last year still smoulder. Curiously, the initial energy shock from the Ukraine war is already less of a problem than the change in pricing behaviour that it seeded - especially in services still distorted by the pandemic, in corporate margin building and rising wage settlements. But it's the pickup and stickiness in underlying "core" prices, excluding energy and food, that is irking the central banks and the Federal Reserve most of all. Alongside another tight U.S. weekly jobs report, markets got another glimpse of those price pressures on Thursday. And increasingly buoyed by the still intense geopolitical fallout from a year of the war in Ukraine, the dollar pushed higher yet again.

☆ Incoming Bank of Japan chief Ueda says current low rates appropriate
▼ + stars: | 2023-02-24 | by ( ) www.cnbc.com time to read: +1 min

Kazuo Ueda, nominee for governor of the Bank of Japan (BOJ), speaks during a confirmation hearing at the lower house of parliament in Tokyo, Japan, on Friday, Feb. 24, 2023. Incoming Bank of Japan (BOJ) Governor Kazuo Ueda said on Friday it was appropriate to maintain ultra-loose monetary policy as inflation has yet to sustainably and steadily meet the central bank's 2% target. Ueda said the recent rise in consumer inflation was driven mostly by surging import costs of raw material, rather than strong domestic demand. Otherwise, the BOJ will be cooling demand, worsening the economy and pushing down prices by tightening monetary policy," Ueda told the lower house confirmation hearing. But the BOJ's current policy is a necessary, appropriate means to achieve 2% inflation."

☆ Instant view: Incoming BOJ chief Ueda says current low rates appropriate
▼ + stars: | 2023-02-24 | by ( ) www.reuters.com time to read: +6 min

Feb 24 (Reuters) - Incoming Bank of Japan (BOJ) Governor Kazuo Ueda said on Friday it was appropriate to maintain ultra-loose monetary policy as inflation has yet to sustainably and steadily meet the central bank's 2% target. "I think he's intentionally doing that, so that the market will calm down a little bit about policy change expectations." "I don't think Ueda has the same stance as (Haruhiko) Kuroda but it is not clear whether Ueda would tweak the BOJ policy as the market expected." CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE"No surprises there, we expected Ueda to take it slow and he's starting off echoing Kuroda's views. He has been out of touch with the BOJ policy making since 2005 and will take time even if he was to consider policy normalisation at some stage."

☆ Asian markets breathe sigh of relief amid Ueda hearing
▼ + stars: | 2023-02-24 | by ( Stella Qiu | ) www.reuters.com time to read: +4 min

[1/2] The Japanese government's nominee for the Bank of Japan (BOJ) Governor Kazuo Ueda attends a hearing session at the lower house of the parliament in Tokyo, Japan, February 24, 2023. Ueda's confirmation hearing in the lower house comes as markets renew their attack on YCC, taking bets on a near-term interest rate rise. Japan's five-year government bond yield fell a little to 0.235%, from the previous close of 0.240%. The yield on the benchmark 10-year government bonds eased as far as 3.8590%, compared with the previous close of 3.8810%. The two-year bond yield was hovering at 4.6810%, compared with the previous close of 4.6930%.

☆ Dollar retreats as investors come to terms with higher-for-longer U.S. rates
▼ + stars: | 2023-02-23 | by ( Rae Wee | ) www.reuters.com time to read: +2 min

Nearly all Fed policymakers favoured a scale down in the pace of interest rate hikes at the U.S. central bank's last policy meeting, minutes from the Jan. 31-Feb. 1 FOMC meeting showed on Wednesday. However, they also indicated curbing unacceptably high inflation would be the "key factor" in how much further rates need to rise. "Many central banks around the world ... are trying to put an emphasis in their determination to combat inflation expectations," said Christopher Wong, a currency strategist at OCBC. The kiwi continued to draw some support from the Reserve Bank of New Zealand's hawkish rate rise on Wednesday, after the central bank signalled further tightening ahead to tame high inflation. "The easy part of the short USD trade is over," said Galvin Chia, emerging markets strategist at NatWest Markets.

☆ Dollar firms as investors brace for higher-for-longer rates scenario
▼ + stars: | 2023-02-23 | by ( Rae Wee | ) www.reuters.com time to read: +3 min

However, they also indicated curbing unacceptably high inflation would be the "key factor" in how much further rates need to rise. The dollar paused its ascent on Thursday after gaining broadly on the back of the release. "The meeting minutes were pretty much within expectations ... the markets are now pricing for higher-for-longer rates," said Tina Teng, market analyst at CMC Markets. "The resilience (of the U.S. economy) prompts the Fed to keep raising interest rates ... pushing up the U.S. Against a basket of currencies, the U.S. dollar index stood at 104.50, and was attempting to break a more than one-month peak of 104.67 hit last week.

All eyes on Friday - not just in Asia but around the world - will be fixed on Japan, specifically the latest inflation figures and the first of two parliamentary confirmation hearings from incoming Bank of Japan Governor Kazuo Ueda. The importance of Japan on global market flows and pricing cannot be overstated. Japan is the world's largest creditor nation and a chunk of the trillions of dollars Japanese investors have invested overseas could be repatriated if domestic monetary policy is tightened. Not only are the Fed and many other central banks raising interest rates, it finally looks like inflation has come to Japan. It could be a volatile end to the week for markets, with U.S. inflation figures for January also slated for release.

☆ Incoming BOJ chief Ueda to speak in parliament as yield cap comes under attack
▼ + stars: | 2023-02-23 | by ( Leika Kihara | ) www.reuters.com time to read: +3 min

[1/3] A general view shows a parliamentary session at the Lower House of Parliament in Tokyo, Japan November 10, 2021. In a column issued last July, Ueda warned against raising rates prematurely but said the BOJ must eventually consider how to exit its ultra-loose policy. The government's deputy governor nominees - former banking watchdog head Ryozo Himino and BOJ executive Shinichi Uchida - will testify in the afternoon after Ueda. The upper house of parliament will hold the confirmation hearing for Ueda on Monday, and that for the two deputies on Tuesday. Under YCC, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around 0% as part of efforts to sustainably achieve its 2% inflation target.

January's rise was the fastest since September 1981, when fuel costs spiked due to a Middle East oil crisis and hit Japan's import-reliant economy. Core consumer inflation has now exceeded the Bank of Japan's 2% target for nine straight months, mostly reflecting persistent rises in fuel and raw material costs, the data showed. "But there are questions as to whether the rise in inflation will be sustainable, as it is still driven largely by food and fuel costs," he said. At Ueda's debut policy meeting on April 28, the BOJ will release for the first time its inflation forecasts extending to fiscal 2025. Japan's economy averted recession in the fourth quarter of last year but rebounded much less than expected as business investment slumped.

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