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Helicopter Money Predictions Are Still Flying High in Japan

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Yen surges to 18 months high against the dollar

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.

BOJ Ammunition

“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.”

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.

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Bureau De Change Operators Begs CBN to Approve Electronic Forex Trading

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BDCs Seek  CBN Approval Electronic Forex Trading

Bureau de change operators (BDCs) on Wednesday begged the Central Bank of Nigeria to approve the usage of electronic foreign exchange trading to ease demand pressure and facilitate comfort.

Alhaji Aminu Gwadabe, the President of Bureaux De Change Operators of Nigeria (ABCON), made the appeal during a webinar organised by its member with the theme ‘The Impact and Roles of BDCs Challenges and Way Forward.’

Gwadabe urged bureau de change operators to adhere to the rules guiding forex transactions by selling at an appropriate rate stipulated by the CBN.

Gwadabe said: “Technology is a threat whether we like it or not and we have been urging the CBN to allow us operate within the payment space. Our request to the CBN and the federal government is to continue to empower us more especially in the payment space.

“The world is now in the fourth generation and it is no more in the traditional method of doing business even agriculture is digital, so we are appealing to the CBN to allow us be on the digital payment space. As this will deepen the economy, further converge the rate, further deepen liquidity and empower the BDC.

Continuing, Gwadabe said: “Some of us want to be ungodly and trading on parallel market rate is highly unacceptable. The CBN has said it is highly unacceptable, ABCON has said it is highly unacceptable and so we are calling on all the directors of BDCs to please ensure that you don’t sell to willing customers. Any willing customer that says he wants to buy at N465 is not your customer and they would land you sanctions and get penalties.

He added that monies found on operators carrying out illegal trades would be seized by the relevant authorities.

He said: “Any dollar you found trading on the street is going to confiscated and would become federal government’s property. Any dollar you try to courier via border movement at the airport is also government property.”

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Naira to Dollar Exchange Rate in 2020

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Naira to dollar exchange rate in 2020 declined by N73 from N306 Central Bank of Nigeria sold it in the beginning of the year to N379 and N386 on the investors and exporters forex window.

The Naira to dollar exchange rate in 2020 has been marred by a series of economic uncertainties and weak macro fundamentals caused by the COVID-19 pandemic.

At the beginning of the year, the official Central Bank of Nigeria’s naira to dollar exchange rate stood at N306 to a US dollar, while on the parallel market popularly known as the black market, the local currency was exchanged between N350 to N360 per US dollar.

On the investors and exporters’ foreign exchange window instituted by the central bank to mirror a free market, the naira was exchanged at N325 to a United State dollar.

However, unclear economic direction amid a 50 percent increase in Value Added Tax from 5 percent to 7.5 percent and border closure hurt the Nigerian economic outlook and plunged investors’ confidence in the economy even before COVID-19 outbreak.

This weak sentiment metamorphosed into broader economic decline when COVID-19 broke out in the country on February 27 2020 as investors that were doubting President Buhari economic path see no reason to wait any longer or believe Nigeria has what it takes, in terms of the health system, to contain an impending health catastrophe.

The surged in demand for US dollar by those looking to move their funds out of the country compelled Governor Godwin Emefiele led central bank to adjust the Nigerian Naira foreign exchange rate from N306 to a US dollar to N360 in order to discourage capital flight while simultaneously sustain dwindling foreign reserves.

But with global oil prices plunging to as low as $15 per barrel, below Nigeria’s $17 per barrel cost of production and demand for the commodity, especially Nigeria’s crude oil at almost zero during the peak of COVID-19, foreign investors were willing to lose N54 per US dollar to exit the Nigerian market.

According to a JPMorgan report, central bank forex backlog was over $5 billion, yet foreign reserves continues to drop. Left with little to no choice, the federal government approached the International Monetary Fund (IMF) for $3.4 billion financial assistance while the apex bank devalued the Naira again to the currency $379 to a US dollar and N386 on the investors and exporters window.

Despite the negative impacts of COVID-19 on the Nigerian people and the broad-based decline in economic activities that saw the nation’s Gross Domestic Product (GDP) contracting by 6.10 percent in the second quarter of the year and the unemployment rising as high as 27.1 percent or 21.8 million people in an import-dependent economy, the apex bank did not just devalue the Naira twice, the Federal Government raised electricity tariffs and remove subsidy in an economy with very weak consumer spending.

With the series of economic uncertainties, investors in forex forward market in London started offering Naira future contracts for N545, saying the apex bank no longer have the resource to support the Naira given the current global situation.

True to their words, Naira to Dollar exchange rate in 2020 plunged to N480 on the black market amid persistent forex scarcity before recently moderating to N467 when the central bank resumed forex sales to the bureau de change operators across the country.

Also, with the economy expected to plunge into an economic recession for the second time in four years in the third quarter of 2020, the Naira to Dollar exchange rate is expected to suffer even further in 2020.

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Naira Drops N2 on Black Market Even With 11.5% Interest Rate

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Naira Declines on Black Market Despite Lower Interest Rate

Nigerian Naira traded at N467 to a US dollar on the back market on Wednesday despite the Central Bank of Nigeria’s led monetary policy committee lowering the interest rate by 100 basis points after months of saying NO.

The local currency declined by N2 from N465 it exchanged on Tuesday to N467 on Wednesday as investors doubt the new interest rate would be effective given the size of the nation’s economic woes.

Also, the central bank rate adjustment was seen by most as recession validation. Experts and even the apex bank had predicted that except the nation recorded strong growth in the third quarter, Nigeria would slide into recession for the second time in four years.

This was after Nigerian currency was devalued twice to accommodate the nation’s weak foreign reserves in the wake of low oil prices and the drop in demand for the commodity.

Since then, the central bank has injected a total sum of N3.5 trillion into the economy to mitigate the negative impact of COVID-19 on the nation and support gradual improvement in productivity.

However, the decision of the Federal Government to raise electricity tariffs and remove petrol subsidy at a time when 27.1 percent of the working population or 21.8 million people are out of jobs with COVID-19 eroding consumer buying power, further weighed on sentiment and send the wrong message to potential investors and businesses.

Against, the British pounds the Nigerian Naira traded at N600 while it was exchanged at N545 to a European Union common currency.

With labour declaring a nationwide industrial action starting from Monday September 28, Nigeria’s detoriating economic outlook may further plunge the Naira value against global counterparts.

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