- BOJ Keeps Policy Unchanged, Up Economic Outlook
The Bank of Japan (BOJ) on Tuesday upgraded its economic assessment, citing improvement in exports and better business sentiment than previously envisaged. Both the yield-curve and asset-purchase programs were left unchanged.
However, inflation expectations remain weak and risks to the outlook abound, ranging from developments in the Chinese and U.S. economies to Brexit and geopolitical uncertainties.
Most analysts had already adopted the view that the BOJ would stand pat in coming months with its targets for short- and long-term interest rates, even before Trump’s election victory sent the yen tumbling, easing any pressure for additional action to stoke inflation. After the shock of negative rates in January, a comprehensive policy review midyear and new direction since September, a majority of economists surveyed by Bloomberg don’t expect any additional easing before Governor Haruhiko Kuroda steps down in 2018.
“In the spirit of the holiday season Kuroda delivered on cue with no surprises,” said Stephen Innes, a Singapore-based senior trader at foreign exchange firm Oanda Corp. While the upgrade of the economic assessment may further damp domestic easing expectations, “Trumpflation” is likely to see the dollar strengthen further against the yen, said Innes.
The focus for investors now moves to the BOJ’s efforts to contain a surge in yields amid a global bond sell-off. The central bank’s shift in policy framework in September to yield-curve control was meant to make its stimulus program more sustainable as it neared the practical limits of asset purchases.
Speaking in a news conference later Tuesday, Kuroda said it was too soon to discuss raising the long-term yield target or even the specifics of raising rates. He said the BOJ won’t raise the target in response to hikes abroad.
Kuroda said an appropriate yield curve had been achieved and current policy should be continued.
“Differences in monetary policies can have some impact on currencies, but at this moment I don’t see the prospect of the yen becoming a problem by weakening excessively,” Kuroda said. “The currency is at a level similar to around February, so it’s not at a surprising level.”
The yen weakened as Kuroda spoke, trading at an intraday low of 117.96 per dollar around 3:50 p.m. in Tokyo. It hit a 10-month low last week. A weak yen generates inflationary pressures through higher import costs, while boosting corporate profits that could filter through to wage growth.
The yen had gained about 13 percent this year before the U.S. election, and has since tumbled about 10 percent. Credit Suisse Group AG last week revised down its three-month prediction for the dollar-yen rate to 122 from 111.
Separately to the BOJ, which won’t provide numerical forecasts until its next meeting, the Cabinet Office released upgrades for its estimates for the economy, and Finance Minister Taro Aso confirmed fiscal spending plans:
- Real gross domestic product will rise 1.5 percent in the next fiscal year starting April 1, versus a previous estimate of 1.2 percent.
- Nominal growth will increase to 2.5 percent, from previous estimate of 2.2 percent.
- Overall consumer prices will advance 1.1 percent, from previous estimate of 1.4 percent.
- Government’s initial budget for next year will be 97.5 trillion yen ($830 billion), an increase of 0.8 percent on the same figure this year.
- Like in 2016, the government is expected to follow up with supplementary budgets in 2017.
The BOJ kept its rate on some bank reserves at -0.1 percent and reiterated its pledge to keep the yield on the 10-year Japanese government bond at around 0 percent. Both rates are core elements of the new framework it announced in September.
Surging global yields are posing a challenge to the central bank. It conducted its first fixed-rate operation to contain rising yields last month, and it increased purchases during a bond-buying operation last week.
Market participants are speculating that the BOJ will need to do more after the 10-year JGB yield hit 0.1 percent last week, a level seen by some as the upper limit of the central bank’s tolerance.
“No need for more easing doesn’t mean the BOJ is free from problems,” said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. “They said they can control a bond market and the market is already giving them a challenge.”
Increased Demand Paves The Way for Expansion of Africa’s Sugar Industry
Africa, June 2021: A new focus report produced by the Oxford Business Group (OBG), in partnership with the International Sugar Organization (ISO), explores the potential that Africa’s sugar industry holds for growth on the back of an anticipated rise in regional demand. The report was presented to ISO members during the MECAS meeting at the Organization’s 58th Council Session, on June 17th 2021.
Titled “Sugar in Africa”, the report highlights the opportunities for investors to contribute to the industry’s development by helping to bridge infrastructure gaps in segments such as farming and refining and port facilities.
The report considers the benefits that the African Continental Free Trade Area (AfCFTA) could deliver by supporting fair intra-African sugar trade efforts and bringing regulatory frameworks under a common umbrella, which will be key to improving competitiveness.
The increased international focus on ESG standards is another topical issue examined. Here, the report charts the initiatives already under way in Africa supported by green-focused investment with sustainability at their core, which will help to instil confidence in new investors keen to adhere to ESG principles in their decision-making.
In addition, subscribers will find coverage of the impact that Covid-19 had on the industry, with detailed analysis provided of the decrease in both worldwide sugar production and prices, as movement restrictions and social-distancing measures took their toll on operations.
The report shines a spotlight on sugar production in key markets across the continent, noting regional differences in terms of output and assessing individual countries’ roles as net exporters and importers.
It also includes an interview with José Orive, Executive Director, International Sugar Organisation, in which he maps out the particularities of the African sugar industry, while sharing his thoughts on what needs to be done to promote continental trade and sustainable development.
“The region is well advanced in terms of sugar production overall, but several challenges still hinder its full potential,” he said. “It is not enough to just produce sugar; producers must be able to move it to buyers efficiently. When all negotiations related to the AfCFTA have concluded, we expect greater investment across the continent and a clearer regulatory framework.”
Karine Loehman, OBG’s Managing Director for Africa, said that while the challenges faced by Africa’s sugar producers shouldn’t be underestimated, the new report produced with the ISO pointed to an industry primed for growth on the back of anticipated increased consumption across the continent and higher levels of output in sub-Saharan Africa.
“Regional demand for sugar is expected to rise in the coming years, driven up by Africa’s population growth and drawing a line under declines triggered by the Covid-19 pandemic,” she said. “With sub-Saharan Africa’s per capita sugar consumption currently standing at around half of the global average, the opportunities to help meet increasing domestic need by boosting production are considerable.”
The study on Africa’s sugar industry forms part of a series of tailored reports that OBG is currently producing with its partners, alongside other highly relevant, go-to research tools, including a range of country-specific Growth and Recovery Outlook articles and interviews.
Global Demand for Investment Gold Plunged by 70% YoY to 161 Metric Tons in Q1 2021
Last year, investors flocked to gold as stock markets crashed on a gloomy economic outlook due to the spread of the COVID-19 pandemic. In the second quarter of 2020, global demand for investment gold surged to over 591 metric tons, the second-highest level since 2016. However, the investors’ demand for gold has dropped significantly this year.
According to data compiled by AksjeBloggen, global demand for investment gold plunged by 70% year-over-year to 161 metric tons in the first quarter of 2021.
The Lowest Quarterly Figures after Record Gold Investments in 2020
In 2016, the global gold demand amounted to 4,309 metric tons, revealed Statista and the World Gold Council data. By the end of 2019, this figure rose to 4,356 metric tons. Investment gold accounted for 30% of that amount. Worldwide gold jewelry demand volumes reached 2,118 metric tons that year. Central banks and technology followed with 648 and 326 metric tons, respectively.
Statistics show the global demand for investment gold surged amid the COVID-19 outbreak, growing by 35% YoY to almost 1,800 metric tons in 2020. Demands for gold used in technology also rose by 17% to 383.4 metric tons, while central banks and other institutions bought 326.2 metric tons of gold in 2020, a 50% plunge in a year.
However, after record gold investments in 2020, the global demand for gold for investment purposes dropped to the lowest quarterly level in years.
The Price of Gold Dropped by 5% Since January
The average gold value tends to increase during a recession, making it an attractive investment in uncertain times. In February 2019, a troy ounce of gold cost $1,320.07, revealed the Statista and World Gold Council data. By the end of that year, the price of gold rose to $1,479.13.
The gold price continued growing throughout 2020, reaching an all-time high of over $2,000 in August. By the end of the year, the precious metal price slipped to $1,864 and then rose to over $1,950 in January 2021.
However, the first quarter of the year brought a negative trend, with the price of gold falling to $1,684 by the end of March. Statistics indicate the price of gold stood at around $1,860 last week, a 5% drop since the beginning of the year.
Gold, Other Safe Haven Assets Plunge Ahead of Fed Rate Hikes
Gold and other safe-haven assets plunged last week as the Federal Reserve signals the possibility of raising interest rates twice in 2023 given the ongoing economic recovery post-COVID-19.
The price of gold dropped by 6.04 percent last week as investors rushed to move their funds out of safe-haven assets including the new gold, cryptocurrency.
The entire crypto space sheds $898 billion in market value to hover around $1.625 trillion last week, down from $2.523 trillion recorded on Wednesday 12, 2021. Its highest market capitalisation till date.
The Federal Reserve raised inflation expectations to 3.4 percent and shifted the year it is expected to increase interest rates from near-zero to 2023 from the previously projected 2024.
The new hawkish stance of the central bank led to capital outflow from safe havens and subsequently boosted dollar attraction.
The United States Dollar gained across the board with the dollar index that tracks its performance against six major currencies, rising by 0.63 percent to 91.103 last week.
However, on Monday morning the gold showed signs of recovery, gaining 0.5 percent to $1,772.34 per ounce following the retreat in U.S. treasury yield that boosted the attraction of non-yielding metal.
Bitcoin, the most dominant cryptocurrency coin, pared losses to $33,245 per coin, up from the $32,658 decline it posted last week.
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