Japan could exit negative interest rates this month

The Bank of Japan’s next policy meeting is scheduled for 18-19 March and could see the Bank announce the scrapping of its yield curve control program and instead indicating in advance the amount of government bonds it plans to purchase.

Reports suggest that the BOJ will end its programme to guide benchmark 10-year government bond yields to around 0%, as part of its efforts to normalise monetary policy. A new framework would target the volume of purchases, rather than the yield.

The Bank will decide on that and ending negative interest rates at the upcoming meeting, the reports suggest. A growing number of BOJ policymakers are said to warming to the idea of ending negative interest rates as soon as this month on expectations of hefty pay hikes in this year's annual wage negotiations.

But an imminent shift is a close call as there is no consensus within the nine-member board on whether to make the move at next week’s meeting or hold off at least until the next meeting, to be held on 25-26 April.

Many BOJ policymakers are closely watching tomorrow’s outcome of major firms' annual wage negotiations with unions, and the first survey results to be released by labour umbrella Rengo this Friday, to determine how soon to phase out their massive stimulus.

Significant pay hikes will likely heighten the chance of action in March, as the offers by big firms usually set the tone for those by smaller firms nationwide, according to inside sources. The BOJ hopes that solid wage increases will coax Japan’s consumers to spend more, boosting demand and prices after years of economic stagnation and deflation.

“If the spring wage negotiation outcome is strong, the BOJ may not necessarily need to wait until April,” said one of the sources.

But the BOJ may hold off until April if many board members prefer to wait for next month's “tankan” business sentiment survey and the bank's regional branch managers' report on the nationwide wage outlook, before making a final decision.

The yen has been rising against the US dollar on growing speculation that the BOJ could end negative rates soon, and bets of imminent rate cuts by the Federal Reserve.

The BOJ has long targeted inflation at 2% and has guided short-term rates at -0.1% and the 10-year bond yield around 0% under a policy dubbed yield curve control (YCC).

With inflation exceeding the target for well over a year and prospects for sustained wage gains heightening, many market players expect the central bank to be close to ending its negative interest rate policy.

While preliminary data suggested Japan's economy slipped into recession in the fourth quarter of 2023 due to weak domestic demand, revised gross domestic product (GDP) figures published on Monday showed GDP expanding by 0.4% in Q4 compared with a year earlier. Last month’s provisional data had shown GDP contracting 0.4%.

Quarter-on-quarter, Japan GDP expanded 0.1% in Q4 from the previous three months, compared with the provisional data that showed a 0.1% contraction.

Egypt’s annual urban inflation jumps to 35.7% in February

Egypt's annual urban consumer price inflation jumped to 35.7% in February from 29.8% in January, driven mainly by a rise in food and beverage prices, according to data from statistics agency CAPMAS.

The increase in inflation comes well before a surge expected to result from last week’s devaluation of the currency. The central bank on Wednesday allowed the Egyptian pound (EGP) to fall to about 50 to the dollar from 30.85, where it had been fixed for the past 12 months.

A poll of 14 analysts had expected February inflation to slow to a median 25.1%. Until last month Egypt's inflation rate had been falling from a record high of 38.0% ilast September.

Month-on-month, prices rose by 11.4% in February, up from just 1.6% in January. Food prices jumped by 15.9%, up from 1.4% in January.

"The sharp rise in the annual reading was fuelled by a surge in monthly inflation of both food (F&B) and non-food items and was in spite of the favourable base year contribution of -5.5%," Allen Sandeep of Naeem Brokerage said in a note.

Prior to the disappointing inflation data, Egypt's economic outlook had been looking brighter. The devaluation on 6 Match, aka “Super Wednesday” unlocked a fresh US$8 billion deal with the International Monetary Fund (IMF), building on a US$35 billion investment from Abu Dhabi announced last month.

 

India signs US$100 billion free trade deal with four EFTA nations

India has signed a free-trade agreement (FTA) with a group of four European countries that are not members of the European Union (EU).

The deal with the European Free Trade Association (EFTA) will see investments in India of US$100 billion, the country's trade minister says. The EFTA is made up of Norway, Switzerland, Iceland and Liechtenstein.

“This landmark pact underlines our commitment to boosting economic progress and creating opportunities for our youth,” said India’s Prime Minister, Marendra Modi. “The times ahead will bring more prosperity and mutual growth as we strengthen our bonds with EFTA nations.”

The agreement comes after almost 16 years of negotiations. Under the deal, India will lift most import tariffs on industrial goods from the four countries in return for investments over 15 years., which are expected to be made across a range of industries, including pharmaceuticals, machinery and manufacturing.

“The agreement enhances market access and simplifies customs procedures making it easier for Indian and EFTA businesses to expand their operations in the respective markets,” the EFTA said in a statement.

India and the four EFTA nations now need to ratify the agreement before it can take effect, with Switzerland planning to do so by next year.

India is due to hold general elections over the next two months as Modi seeks a record third term in office. In the last two years, India has signed trade deals with Australia and the United Arab Emirates and has been in negotiations with the United Kingdom.

Last week, the UK's trade minister Kemi Badenoch suggested that it was possible that Britain could sign a free trade deal before India held its elections but said it would be “challenging”.

 

NatWest to exit BNPL market from May

NatWest will end its buy now, pay later product on 7 May due to lower-than-expected use of its BNPL offering.

This move comes two years after the UK ‘Big Four’ bank announced that it was launching the BNPL option from summer 2022.

A NatWest spokesperson said that the bank is withdrawing the BNPL product so it can focus on core lending products like credit cards, overdrafts and loans.

The bank has informed customers who have active BNPL plans that the service will be shutting down and that their accounts will be closed when they have completed their repayment periods, according to a press report.

Customers who have a credit card can use NatWest’s instalment plans, which have proven to be more popular with customers than the bank’s BNPL plan, the report added.

Several BNPL products are available from other providers in the United Kingdom, per the report. American Express launched its Plan It BNPL in the country in February, joining existing offerings from Monzo, Klarna and several dedicated BNPL providers.

The UK’s Financial Conduct Authority (FCA) said in October that there had been a 10% increase in BNPL use in the six months to January 2023 amid the country’s cost-of-living crisis. The regulator added that 27% of British adults used BNPL at least once during that six-month span.

“Our research shows a significant increase in the use of BNPL over the past year,” Sheldon Mills, executive director of consumers and competition at the FCA, said at the time.

 

Argentina launches US$65 billion bond swap

Argentina's government launched a huge voluntary debt swap on Monday of peso and some dollar-linked instruments set to mature in 2024, a bid to push back repayments as the South American economy struggles to emerge from crisis.

The debt, which includes 15 different instruments with a total value pegged at around US$65 billion, may be exchanged for new inflation-linked instruments with maturity dates ranging from 2025 to 2028, according to the government.

“The eligible securities in the hands of the public and private sector for the swap operation amount to some 55 trillion Argentine pesos (US$64.86 billion)” a government source said, adding 70% of the maturities were held by the public sector.

Argentine sovereign bonds, which have been on a rally this year driven by market hopes about new libertarian President Javier Milei's reforms and fiscal tightening, dipped on Monday by an average 0.5%.

The government opened the auction process on Monday morning and will close it later today. Settlement of the offers received and awarded will take place on Friday.

 

Investors want Zara owner Inditex to publish full supply chain

Investors want Spanish multinational clothing company Inditex, owner of the Zara fashion chain, to follow rivals H&M and Primark in making its full list of suppliers public so they can better assess any supply chain risks.

Inditex is an outlier among big clothing retailers in not publishing which factories it sources from. Europe’s regulators and investors want greater transparency and better disclosure from companies.

Clothing retailers, in particular, are under pressure to prove that there is no forced labour in their supply chains, and that garment workers are paid a reasonable wage.

Chinese fashion group Shein has come under scrutiny from US lawmakers over supply chain risks ahead of plans for a listing and reports suggest that it could opt for London rather than New York.

In the European Union (EU), disagreements have stalled proposed rules that would require all big companies to disclose whether supply chains harm the environment or use child labour. Proposed sanctions for not complying could include fines of 5% of revenue.

Fashion brands and retailers, including Adidas, Hennes & Mauritz (H&M), Hugo Boss, Marks & Spencer (M&S), Nike, Primark, and Puma, already publish detailed supplier lists, including factory names and addresses.

Inditex publishes annually the number of suppliers it sources from in 12 core countries, but gives no information on individual factories.

 

India’s UPI links up with Nepal’s Fonepay

India's ambitions to take its Unified Payments Interface (UPI) system global has taken a step forward through a link up with Nepal’s Fonepay.

NPCI International Payments and Fonepay, which is Nepal's largest payment network, have gone live for cross-border transactions between the two countries.

In its first phase, the deal enables Indians to make instant quick response (QR) code-based payments across various Fonepay merchants in Nepal by using UPI-enabled apps.

Ritesh Shukla, CEO, NPCI International Payments, said: “This initiative not only signifies our commitment to innovating the digital payments space but also reflects our dedication to creating new avenues for trade, strengthening the bond between the two nations.

“We envision this partnership as a catalyst for greater financial inclusion and economic prosperity in the region, and we are excited to embark on this journey of transformation together.”

Launched in 2016, the UPI has been central to India’s efforts to use digital payments to boost financial inclusion and has now handled well over 100 billion transactions.

The international subsidiary was set up in 2020 to promote both the UPI and the RuPay card network outside of India. Last month, the unit joined forces with Google Pay to accelerate this global expansion.

 

War impact on Israel’s Q4 GDP deepens to 20.7% contraction

Israel's economy shrank more than previously thought in the fourth quarter of 2023, with consumer spending, exports and investment impacted by the war with Palestinian Islamist group Hamas.

The economy contracted by an annualised 20.7% in Q4 over Q3, the Central Bureau of Statistics reported in its second estimate against a 19.4% decline in its preliminary estimate.

For all of 2023, Israel’s economy grew 2.0%, unrevised and compared with 6.5% in 2022.

The war has raged since Hamas launched a cross-border attack on southern Israel on 7 October.

The revised fourth-quarter figure stems from slightly steeper declines in exports, private spending and investment in fixed assets, while government spending grew slightly less than previously estimated.

 

Vietnam’s biggest bank selects Citi for US$1 billion share sale

JSC Bank for Foreign Trade of Vietnam, aka Vietcombank, has chosen Citigroup to help arrange a share placement that may raise about US$1 billion, according to reports citing insiders.

Vietnam’s biggest lender by market value may reach out to potential investors for the offering in the second half of this year, the sources said. The share sale is part of the bank’s plan to boost its capital.

Discussions are ongoing and details of the fundraising including size and timeline may change, the people said, asking not to be identified as the process is private.

A representative for Vietcombank confirmed that Citi has been selected for the share sale but declined to comment on other details of the fundraising.

Founded in 1963, Vietcombank was the country’s first state-owned lender to be privatised by the government, according to its website. The Hanoi-based bank has more than 600 branches and transaction offices in Vietnam and abroad.

Shares of Vietcombank have risen about 19% this year, giving the lender a market value of around US$21.7 billion.

 

EY and IBM launch sustainability data and reporting solution

Global professional services firm EY and tech giant IBM are launching a new sustainability reporting managed services solution, aimed at enabling companies to address growing and evolving environmental, social and governance (ESG) disclosure requirements, including capturing, analysing and managing sustainability data, and providing assurance-ready reporting.

The partners say that the new solution brings together EY’s assurance expertise and IBM’s Envizi sustainability software solutions, and marks an expansion of the EY-IBM Sustainability Center of Excellence (CoE). EY and IBM announced an expanded collaboration last March aimed at providing ESG solutions to help companies accelerate, manage and report on sustainability-related business transformations and initiatives.

Forming part of EY’s Sustainability Managed Services, the new end-to-end solution aims to help companies address sustainability reporting challenges including the need to continually invest in people, processes and technology to meet evolving requirements, and find talent with the appropriate expertise, while also helping add long-term value, instead of focusing entirely on compliance.

Key features of the new solution include data management, with sustainability data centrally managed and integrated with third-party, internal and external data sources; reporting and analytics, including flexible reporting and visualization tools for ESG reporting and performance insights; compliance and risk management, including automated compliance monitoring and reporting, stakeholder engagement and communication tools targeting better transparency and accountability.