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Economy

BOJ Opts for Limited Stimulus Expansion

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yen

The Bank of Japan kept its key monetary tools unchanged, and will mount a comprehensive review of its policy framework due to “considerable uncertainty” about the outlook for inflation, which has consistently underperformed the central bank’s forecasts. The yen jumped.

Governor Haruhiko Kuroda and his team did enlarge a program of buying exchange traded funds by 2.7 trillion yen ($26 billion) a year, in a move to shore up confidence in light of post-Brexit volatility in financial markets and a slowdown in emerging markets. A dollar-lending facility was also expanded, the BOJ said in a statement in Tokyo Friday. Kuroda reiterated that further easing will be done if needed and said the central bank hasn’t hit a policy limit.

Decisions to keep the policy interest rate unchanged and forgo raising the target for the monetary base followed increasing expressions of concern by banks and bond market participants about the impact of the BOJ’s massive easing. In an unexpected move, the bank said it will conduct a “comprehensive assessment” at the next meeting, on Sept. 20-21, of the effectiveness of the policies taken since Kuroda took charge in 2013. The review won’t affect the inflation target.

“Achieving the 2 percent price stability goal at the earliest possible time is a commitment the central bank has maintained since our joint statement with the government in January 2013, and we have no intention at all of changing this,” he said in a press briefing.

Government Pressure

By taking some action on Friday, Kuroda, 71, offers support for Prime Minister Shinzo Abe, who two days ago unveiled a 28 trillion yen fiscal stimulus package that will now bear the main burden for stoking expectations for growth and inflation. The BOJ had come under increasing pressure from government officials to make a move that dovetailed with its own package.

“Since expectations were so high, they couldn’t do nothing,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “But on the other hand, they don’t want to be in the corner of directly financing government debt. So they focused on private assets not government assets.”

The central bank kept its annual target for expanding the monetary base at 80 trillion yen, done mainly through an equivalent increase in government bond holdings. It also left untouched the minus 0.1 percent rate for a portion of commercial banks’ reserves. The dollar-lending program was expanded to $24 billion to support Japanese companies and financial institutions.

Market Impact

The limited move Friday by the BOJ boosted the yen, which was up 1.3 percent at 103.86 as of 5:13 p.m. in Tokyo. The Topix index of stocks fell, then advanced with a rally in the shares of banks — which had complained about the BOJ’s negative rate policy harming their earnings. The gauge ended up 1.2 percent.

Most economists had predicted more from the BOJ, given diminishing inflation expectations and weak growth. Almost two thirds had predicted a rate cut, more than two thirds had seen an acceleration in ETF buying, and just over half predicted a stepping-up in the increase of the monetary-base.

BOJ board members updated their economic projections at this week’s meeting. The bank said in its statement that there are risks to achieving its 2 percent inflation target within its latest time frame – sometime in the 12 months through March 2018.

Among key forecasts for the central bank’s outlook report:

  • Fiscal 2016: Core CPI cut to 0.1%; GDP cut to 1.0%
  • Fiscal 2017: Core CPI kept at 1.7%; GDP raised to 1.3%
  • Fiscal 2018: Core CPI kept at 1.9%; GDP cut to 0.9%

The limited policy action from the BOJ move underscores a perception that it is running into operational challenges as the Kuroda era of massive stimulus wears on. The former Finance Ministry currency-policy chief fired his first bazooka weeks after taking the BOJ’s helm in March 2013, and surprised investors by expanding the program in October 2014. More recently, the introduction of a negative-rate policy this January came as a shock to observers, just days after he had publicly rejected the idea.

In his press briefing, Kuroda denied that he was running out of policy room, and also rejected suggestions he’d been pressured by the government. The governor said the planned review will look at what, if any, extra steps are needed to get to the inflation target.

Fiscal Focus

The focus now shifts to Abe’s fiscal package, the outlines of which are set to be reviewed by the cabinet on Tuesday, with analysts anticipating passage in parliament in October. The BOJ said its own action today would have “synergy” benefits with government measures.

Much of the 28 trillion yen headline number from Abe’s plan is likely to be loans that can be spread over years. There’s about 7 trillion yen of new spending included, according to a person familiar with the matter, who didn’t specify the time frame for the outlays.

Historically, fiscal stimulus efforts on their own have failed to reverse the deflation that took hold in the 1990s, and many economists have instead advocated that the Abe administration focus on structural reforms. Little new has developed in recent months on the reform front, this so-called third arrow of Abenomics, with the focus dedicated to the fiscal discussions.

The BOJ’s announcement came hours after government reports showed that the economy remained weak in June. Core consumer prices dropped for a fourth consecutive month while household spending slumped. Industrial production was a bright spot, rising more than expectations. The data also showed continuing tightness in a labor market influenced by the country’s shrinking population.

With its easing to date, the BOJ now holds more than one third of Japanese government bonds outstanding, contributing to a collapse in yields — with JGB maturities out to 15 years recently staying below 0 percent. That has flattened the so-called yield curve, eroding the spread for banks between their short-term funding costs and long-term lending rates.

The BOJ’s vacuuming up of government debt also has led to a slump in liquidity, making it more difficult to step up the current pace of JGB buying.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

FG Consider Diversification To Generate Revenue

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As revenue from oil nosedives following incessant global price fluctuations, the Federal Government is now channeling efforts to the development of minerals in the mines and steel industry to shore up foreign exchange earnings.

Officials of the Federal Ministry of Mines and Steel Development said on Wednesday that while there had been concerted efforts to develop various minerals in the sector, much emphasis had been placed recently on the development of bitumen, barite and gold.

They told our correspondent in Abuja that the government through the mines and steel ministry was striving to diversify the Nigerian economy away from oil as the major foreign exchange earner for Nigeria.

They also confirmed that large quantities of gold had been discovered in various locations in Zamfara and Osun states.

Asked if the government had initiated programmes to explore the minerals and boost revenues now that the country’s income had plunged, the Special Assistant on Media to the Minister of Mines and Steel Development, Ayodeji Adeyemi, replied in the affirmative.

He said, “Indeed, the ministry has the mandate to generate revenue and diversify the economy through the mines sector.

“And bitumen is one of the key resources which the nation is abundantly endowed with, that has been identified for strategic development.”

To buttress his position, Adeyemi shared some recent presentations of the Minister of Mines and Steel Development, Olamilekan Adegbite, where the minister said his ministry was gathering data on some bitumen fields across the country to attract investors.

“A lot of people are interested in bitumen, which is coming from both local and foreign investors. However, we are still acquiring data in some of the fields,” the minister stated.

On barite, the minister said the mines and steel ministry was working on raising the quality of barite produced in Nigeria to an internationally acceptable standard, as certified by the American Petroleum Institute.

Adegbite said his ministry had contracted a consultant to help raise the standard in the local production of barite to ensure that oil industry players make use of barite produced in Nigeria as against importing the commodity from other countries.

He said, “Barite is a critical weighting material in drilling fluids used in the oil industry. We have a lot of barites but the issue is that it is not produced to API standards. However, we are putting a system in place which would be ready to launch in about July.

“We have got the millers who can produce barite to API standard. Hence we will be able to compete with foreigners and it would save Nigeria a lot of foreign exchange in import substitution.”

On the development of gold, officials at the ministry further stated that the commodity had been aggregated for the production of bullion bars and that this was the first time that such aggregation was happening in Nigeria.

They stated that the gold was sourced from artisanal miners, while the final refining to bullion was done in Turkey.

The sources stated that the ministry had registered two refineries that would now refine to LBMA standard when they come on stream. LBMA is the de facto standard, trusted around the world.

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Economy

Nigeria Sovereign Investment Authority Generates N160.06 Billion in 2020

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Naira Exchange Rates - Investors King

The Nigeria Sovereign Investment Authority (NSIA) generated revenue of N160.06 billion in 2020, according to the latest audited financial reports announced by the Managing Director of NSIA Mr. Uche Orji.

The NSIA income came from devaluation gain of N51 billion, and core income of N109 billion compared to N33.07 billion in 2019.

But Orji lamented: “Covid-19 adversely affected logistics around infrastructure projects, especially the toll road projects and the presidential fertiliser initiative.

Despite the pandemic, the Authority achieved 33 percent growth in Net Assets to N772.75 billion compared to the previous year’s performance of N579.54 billion.

Orji said the NSIA “received additional contribution of $250 million; and provided first stabilisation support to the Federal Government of $150 million withdrawn from Stabilisation Fund last year.”

The same year, the NSIA received $311 million from funds recovered from the late General Abacha from the United States Department of Justice and Island of Jersey for deployment towards the Presidential Infrastructure Development Fund (PIDF) projects of Abuja-Kaduna-Kano Highway, Lagos Ibadan Expressway and Second Niger Bridge.

In response to COVID-19, Orji said: “NSIA partnered the global Citizen, a not-for profit group, to form the Nigeria Solidarity Support Fund. Separately NSIA acquired and distributed oxygen concentrators to the 21-teaching hospital as part of corporate social responsibility; in addition to staffing support to the Presidential taskforce on COVID-19.”

In 2020, the NSIA “invested additional capital into NG Clearing, the first derivative clearing house in Nigeria to maintain NSIA’s shareholding at 16.5 per cent following the company’s rights issue of 2020″ Orji said.

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Economy

EFCC Recovers $153m, 80 Assets from Diezani, Says Bawa EFCC Chairman

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Diezani Allison-Madueke - Investors King

The Chairman of the Economic and Financial Crimes Commission (EFCC), Abdulrasheed Bawa has said the commission recovered $153 million and 80 properties from the former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke.

Bawa said: “There are several cases surrounding that. As you may have read, I was part of that investigation, and we have done quite a lot. In one of the cases, we recovered $153 million; we have secured the final forfeiture of over 80 properties in Nigeria valued at about $80 million.

“We have done quite a bit on that. The other cases as it relates to the $115 million INEC bribery as the media has sensationalised it, is also ongoing across the federation.”

We are looking forward to the time when we will, maybe, have her in the country, and of course, review things and see what will happen going forward. The case has certainly not been abandoned.

Speaking on the trial of former Abia State Governor Orji Uzor Kalu, he said his trial will start soon in Lagos.

Bawa added: “The position is very clear. The EFCC succeeded in 12 years to get him convicted at the Federal High Court. Of course, he went to the Supreme Court, and because the judge that convicted him has been elevated, the ruling was made and the EFCC as a respecter of the rule of law, we have taken it as it is. The Supreme Court has ordered that we should go back to the Federal High Court in Lagos.

“Now, we are at the Federal High Court in Abuja, and we have applied to the court for the case to be transferred to Lagos as ordered by the Supreme Court to enable us start all over again.

“It, however, draws a precedence, and those are the issues; law as the lawyers will say, is a living thing; we had the ACJA in 2015, we have had this problem of elevation of judges from High Court to Court of Appeal, and we pushed that they should be given the opportunity to finish their cases, because some of these cases have taken a very long time.

“We thought we had succeeded in getting this in ACJA, The law was, however, not seen as such. Now, we may have to solve the problem from the constitution, and then, we will be home and dry.”

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