Speculation of helicopter money refuses to die in Japan, despite repeated denials by Bank of Japan Governor Haruhiko Kuroda.
From Japan-based economists to global investors including Templeton Emerging Markets Group Executive Chairman Mark Mobius, there’s a reluctance to rule out the controversial policy coming as soon as next month amid the monetary authority’s struggles to stoke growth and inflation. Kuroda has said at least four times since April that helicopter money is not under consideration, and is prohibited by current law. He repeated over the weekend that there remains “ample space for additional easing” under the existing policy framework.
“It’s unthinkable that nothing would happen in September,” said Daiju Aoki, an economist at UBS Group AG in Tokyo. “The most likely measure would be pseudo-helicopter money where the BOJ will commit to holding Japanese government bonds for a long time.”
UBS is in good company. Mobius also said last week that direct financing of government spending could be imminent, while Aberdeen Asset Management said Japan is the most likely location for such an initiative. Bank of America Merrill Lynch’s head of global rates and currencies research David Woo said on Bloomberg Television this month that helicopter money is probably the only option left on the table.
The introduction of a negative deposit rate this year sent benchmark government bond yields tumbling to a record low of minus 0.3 percent last month. They have since retraced more than two thirds of that — and the policy failed to weaken the yen for more than a day. The 10-year sovereign yield was at minus 0.075 percent on Wednesday in Tokyo.
Talk of the BOJ needing to change tack has grown since Kuroda announced a comprehensive review of current measures for the Sept. 20-21 policy meeting, with a gauge of inflation expectations less than a sixth of the way to the 2 percent target. While Kuroda’s most recent comments underline his stance that the review won’t mean any reduction in stimulus, doubts have grown about the policy’s sustainability.
Helicopter money, a kind of last resort in unconventional monetary policy, comes in several forms. The most simple is printing money and giving it to the public in the hope they’ll spend it: equivalent to dumping cash from choppers in the air. Others include putting money directly into the hands of companies or financing state spending by having the BOJ buy bonds straight from the government.
Speculation about the policy peaked in July after a visit to Tokyo by former Federal Reserve Chairman Ben S. Bernanke during which he met separately with Kuroda and Prime Minister Shinzo Abe. He floated the idea of selling perpetual bonds directly to the central bank during discussions in Washington with one of Abe’s key advisers in April.
While Kuroda reiterated last month at a Group-of-20 meeting in Chengdu, China that helicopter money is not an option, he has changed course without warning before. He announced a negative interest rate policy in January after ruling it out the previous month.
“Given Abe’s popularity, he’s in a pretty good position to change the law if he wanted to,” Michael Moen, a Sydney-based investment manager at Aberdeen Asset Management, said in a phone interview last week. “If you were going to pick a central bank around the world and a government that was going to use helicopter money, I think Japan is clearly at the top of that list.”
While Moen doesn’t expect to hear the whirl of chopper blades anytime soon, Templeton’s Mobius suggests it could come next month.
“They’re really beginning to think what ammunition they have,” he said during a visit to Tokyo last week. “The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers.”
Quantitative easing is also showing signs of approaching its limit as banks run out of securities to sell.
“It’s an extremely dangerous game the market is playing, but speculation of helicopter money will never go away completely,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “Japan needs to think now about how it would use the policy, before the time comes when it might have to deploy it.”
Naira Gains N1 to N483 Against US Dollar as CBN Warned Speculators of Impending Doom
The Central Bank of Nigeria on Tuesday warned speculators and hoarders of the United States Dollar against creating artificial forex scarcity for personal gain.
Godwin Emefiele, the Governor of the Central Bank of Nigeria, said black market forex rates does not reflect the economic reality of the Nigerian Naira as that section of the forex is tainted with bribes and individuals looking to profit at the expense of the nation.
“We do not agree that the determining factor for our currency should be based on a market that is tainted, where people go to offer bribes,” he stated during a virtual monetary policy committee briefing in Abuja.
The Nigerian Naira gained N1 against the United States dollar to trade at N483 at the parallel market also known as the black market, up from N484 it traded on Monday.
Emefiele said “The black market is illegal where people do not provide documentation to support transactions. It is unfortunate and unfair for analysts to say Nigeria’s exchange rate is at 480 per dollar.”
The Association of Bureau De Change Operators of Nigeria (ABCON) agreed with the central bank, saying speculators and currency hoarders are responsible for the wide forex rates. The association warned that speculators are going to lose money given that the apex bank has foreign reserves of $36 billion to support the local currency and meet forex demands.
The apex bank left the interest rate unchanged at 11.5 percent to further stimulate growth in the real sector and speed up the recovery process with cheaper loans. Other ratios were left unchanged as well.
Speaking on the rising inflation rate, Godwin Emefiele attributed the 14.23 percent increase in consumer prices to the rising pump price, the recent #EndSARS protest and structural policies.
Therefore, it looks like the apex bank will damn rising inflation for the first time to focus on economic productivity, new job creation and general growth.
The Naira CBN official rate remains $379 to a United States Dollar while it exchanged at N385 on the Investors and Exporters Forex Window on Tuesday.
Bureaux De Change Association Warns Against Hoarding of US Dollar, Says Speculators will Lose
The Association of Bureaux De Change Operators of Nigeria (ABCON) on Sunday warned currency speculators and hoarders of impending losses if they do not desist from creating bogus foreign exchange rates for personal gain.
In a statement titled, “ABCON warns speculators will lose money as CBN has enough reserves to fund market, defend naira”, the association said speculators and hoarders are taking a huge risk as the Central Bank of Nigeria has enough liquidity to defend the Naira and maintain stability against global foreign counterparts.
This is coming few days after the local currency plunged to N484 to a United States dollar and N620 against the British Pound at the black market due to the rising demand and persistent scarcity that most hoarders interpreted as lack of financial muscle on the part of the central bank, especially if the nation’s falling foreign reserves is factored in.
However, ABCON said with about $36 billion foreign reserves, the Central Bank of Nigeria has the necessary means to punish speculators and hoarders they described as enemies of the nation.
President of ABCON, Alhaji Aminu Gwadabe, explained that the central bank is working to unify the nation’s foreign exchange rates and eliminate past challenges that have made market determined forex rates almost impossible.
He said “I think that the CBN by pushing the official foreign exchange rate from N306 to N379 to the dollar is in line with market demand.
“It has also helped to narrow the official-parallel market rates gap that formed the basis of ridiculous speculations among unpatriotic forex dealers and spectators.”
Gwadabe, however, advised the Federal Government to improve security surveillance at the nation’s land borders to checkmate illegal foreign currency cash deals.
He also asked the central bank to raise liquidity ratio of bureau de change operators to discourage dollar holdings.
Forex Scarcity Plunges Naira to N620 Against British Pound
Naira Exchanges at N620 to a British Pound at Black Market
Lingering foreign exchange scarcity has plunged the Nigerian Naira to a record-low of N620 against the British Pound at the black market.
The declined by a record N14 from the N607 it exchanged to a single British Pound on Thursday to N620 on Friday, signaling rising demand for forex amid persistent scarcity.
Experts have attributed the surge in demand to the usual push for the end of the year sales by importers and businesses looking to close the sales gap created by the COVID-19 lockdown.
The local currency plunged against global counterparts by the most in recent months on Friday. The Naira declined by N13 against the European common currency to exchange at N570.
Similarly, the Naira lost another N4 against the United States dollar to exchanged at N484, further down from N480 it was sold on Thursday.
Experts are predicting further decline for the Nigerian Naira, largely due to the weak macro fundamentals, overexposure to crude oil uncertainty and US Dollar.
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