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Bank of Japan announcement: BoJ maintains negative short-term rates

The Bank of Japan in its two-day meeting on the 16th and 17th of June, elected to keep policy rates unchanged. Short-term interest rates would stay negative…

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The Bank of Japan in its two-day meeting on the 16th and 17th of June, elected to keep policy rates unchanged. Short-term interest rates would stay negative at -0.1%, while long-term rates would be held near 0%.

The BoJ and Governor Kuroda Haruhiko, who is now in the final year of his term, has stressed that easy monetary conditions will continue, in a bid to improve anemic growth.

This policy stance is in direct contrast to the tightening engaged by other global central banks.

Market players had speculated that the BoJ may abandon its ultra-low rate policy as central banks around the world have entered a new hiking cycle, while in a shock move this week, the Swiss National Bank, a safe-haven currency and export-dependent economy like Japan, raised rates for the first time in 15 years.

At the time of writing, the yen is 16.5% lower against the dollar on a year-to-date basis, and 21.6% lower over the last twelve months.

Inflation and the way of the yen

Inflation is expected to see an uptick based on pressures from rising telecom costs, a weakening yen resulting in higher import prices, and other external factors.

Source: US FRED

The monthly inflation rate has surged to 2.4% in April from 1.2% in March, even though it was negative as recently as August.

High commodity prices and supply disruptions due to both the pandemic and the Ukraine-Russia war have raised prices in the traditionally inflation-averse society. Shortages in oil supplies and agricultural production have seen critical costs rise.

However, with the country having been in a deflationary environment for decades, it is still muted compared to other countries.

Source: global-rates.com

In fact, the BoJ wants inflation to rise and for core inflation to reach above 2%, after experiencing a prolonged deflationary period.

However, rising inflation does not imply that the economy is healthy because prices are not led by faster-paced domestic business activity but by higher international costs.

Capital outflows and a weakening yen

The actions of other central banks follow record-high inflation in several advanced countries on the back of labor shortages, elevated commodity prices, and broken supply chains due to the Ukraine-Russia war.

Until recently, the Yen was seen as a safe-haven currency. It was a destination for markets to park funds during high volatility and macro uncertainty.

This has changed drastically in recent times, with other central banks, primarily the Federal Reserve raising interest rates to stem higher prices.

The dollar is still the king of fiat currencies. Its globally respected institutions (in comparison to those of other nations), an unmatched depth of bond markets, and abundant liquidity have led investors to seek refuge in the dollar. The rise in key rates has improved returns, and other currency holdings have gravitated towards the US. These are known as capital outflows (from Japan and other countries).

Amid capital outflows, demand for the yen has reduced, leading to weakness in the yen as compared to the dollar.

As a result, import prices (marked in dollars) have risen in yen terms, accelerating costs and inflation at home.

In all likelihood, the yen will continue to weaken, if the BoJ pursues its ultra-loose policy and the Fed tightens between 50 – 75 bps during the next meeting. In a sense, the authorities are banking on a rise in growth rates before yen depreciation gets out off hand.

Growth challenges

Japanese growth faced a sharp downturn during the pandemic.

Economic activity has stalled during the pandemic, and with a median age of approximately 49 years, overall productivity remains low while the dependency ratio continues to rise.

The inexpensive yen may support exports to power growth, but the upside will likely be limited as global growth slows.

On the flipside, easy money ensures that zombie companies remain operational and other inefficient business practices are not weeded out, ultimately harming growth prospects.

Crucially, monetary policy interventions are supposed to provide a short-term boost to the economy and are not suited to long-term policy.

However, the BoJ feels raising rates would be catastrophic and dampen an already challenging economic picture.

According to Momma Kazuo and Yamamoto Kenzo, both formerly executive directors at the BoJ, the real antidote for Japan’s growth woes may lie in structural reforms. These tend to be long, arduous journeys of decisive and dedicated collective action, compared to the ‘easy’ fix of keeping rates low.

Speculators take on the BoJ

The market is rife with reports that the BoJ purchased bonds worth $5.2 billion on Wednesday alone, to keep the yield on 10-year government securities capped at 0.25%.

Speculators believe that with prolonged ultra-loose monetary policy and rising import costs, inflation must head higher and will take bond yields with it, making government borrowing more challenging.

The BoJ has committed to defending its ceiling, for now, but is likely to see markets attack its positions more aggressively.

The post Bank of Japan announcement: BoJ maintains negative short-term rates appeared first on Invezz.

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International

Stock Market Today: Stocks turn lower as Treasury yield rise mutes earnings gains

A mixed set of big tech earnings, alongside modestly higher Treasury yields, has stocks moving lower into the start of the Wednesday session.

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Updated at 10:07 am EDT U.S. turned lower Wednesday, while Treasury yields crept higher and the dollar building gains against its global peers as investors reacted to the first wave of mega-cap tech earnings while continuing to track movements in the bond market. Microsoft  (MSFT) - Get Free Report and Google parent Alphabet  (GOOGL) - Get Free Report kicked-off this week's run of earnings from the so-called 'magnificent seven' late Tuesday with a mixed set of September quarter results, reflecting both the power for AI technologies to boost near-term profits and the impact of surging interest rates on corporate spending. Microsoft's revenue growth in cloud computing, driven in part by its early investments in AI, lifted shares in the tech giant firmly higher in pre-market trading as it looks to add around 85 points to the Dow Jones Industrial Average at the opening bell. Google, meanwhile, slumped 6.6% following a mixed set of third quarter earnings that showed slowing cloud computing growth overshadowing record ad revenues of $59.65 billion. Facebook and Instagram owner Meta Platforms  (META) - Get Free Report posts its third quarter earnings after the bell later today, with magnificent seven stalwart Amazon  (AMZN) - Get Free Report following on Thursday. In the bond market, a muted auction of $51 billion in 2-year notes yesterday, which drew softer demand from both foreign and domestic investors, drew a line under the recent Treasury market rally, which was also tested by a faster-than-expected reading for business activity by S&P Global over the month of October. Benchmark 10-year notes yields were last marked 5 basis points higher in the early New York trading at 4.901% while 2-year notes were pegged at 5.091%, 3 basis points higher than yesterday's auction levels, ahead of a $52 billion sale of 5-year notes later in the session. The U.S. dollar index, meanwhile, was marked 0.14% higher against a basket of six global currency peers and trading at 106.41 heading into the morning session. In other markets, global oil prices drifted modestly higher in early New York trading ahead of Energy Department data on domestic stockpiles and international exports later this morning. Brent crude contracts for December delivery were marked 23 cents higher at $88.31 per barrel while WTI contracts for the same month edged 13 cents higher to $83.87 per barrel. On Wall Street, the S&P 500 was marked 42 points lower, or 0.99%, in the opening hour of trading while the Dow was down 133 points despite the impact of Microsoft's advance. The tech-focused Nasdaq, meanwhile, was down 186 points, or 1.43%, as the slump in Google shares offset a smaller gain for Microsoft. In overseas markets, Europe's Stoxx 600 was marked 0.28% higher in late-day Frankfurt trading amid another busy earnings session while Britain's FTSE 100 edged 0.02% lower in London. Overnight in Asia, reports of a new trillion-yuan bond sale from the Chinese government, worth around $137 billion in U.S. dollar terms and aimed at adding further stimulus to the moribund economy, boosted sentiment and helped regional stocks eek out a modest 0.09% gain heading into the close of trading.
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People in Europe ate seaweed for thousands of years before it largely disappeared from their diets – we wonder why?

The decline of seaweed as part of the staple diet in Europe remains a mystery.

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Seaweed isn’t something that generally features today in European recipe books, even though it is widely eaten in Asia. But our team has discovered molecular evidence that shows this wasn’t always the case. People in Europe ate seaweed and freshwater aquatic plants from the Stone Age right up until the Middle Ages before it disappeared from our plates. Our evidence came from skeletal remains, namely the calculus (hardened dental plaque) that built up around the teeth of these people when they were alive. Many centuries later, this calculus still contains molecules that record the food that people ingested. We analysed the calculus from 74 skeletal remains from 28 archaeological sites across Europe. The sites span a period of several thousand years starting in the Mesolithic, when people hunted and gathered their food, through to the earliest farming societies (a stage called the Neolithic) all the way up to the Middle Ages. Our results suggest that seaweed was a habitual part of the diet for the time periods we studied, and became a marginal food only relatively recently. Unsurprisingly, most of the sites where we detected the consumption of seaweed are coastal. But we also found evidence from inland sites that people were ingesting freshwater aquatic plants, including lilies and pondweed. We also found an example of people consuming sea kale.

How are we sure people ate seaweed?

We identified several types of molecules in the dental calculus that collectively are characteristic of seaweed. We refer to these as “biomarkers”. They include a set of chemical compounds called alkylpyrroles. When we detect these compounds together in calculus, we can be fairly sure where they came from. The same goes for other compounds characteristic of seaweed and freshwater plants. To have become embedded in dental calculus, the seaweed and freshwater plants had to have been in the mouth and most probably chewed. Biomarkers do not survive in all our samples, but where they do, they’re found consistently across many individuals we analysed from different places. This suggests seaweed was probably a routine part of the diet.

Perceptions of seaweed

Today, seaweed is often seen as the scourge of beaches. It accumulates at the high-water mark where it can create a slippery and sometimes smelly barrier to the sea. But it is a wondrous world of its own. There are over 10,000 species of seaweed worldwide living in the intertidal zone (where the ocean meets the land between high and low tides) and the subtidal zone (a region below the intertidal zone that is continuously covered by water). Around 145 of these species are eaten today and in parts of Asia it is commonplace. Seaweed is edible, nutritious, sometimes medicinal, abundant and local. Although overconsumption can cause iodine toxicity, there are no poisonous intertidal species in Europe. It is also available all year round, which would have been particularly useful in the past, when food supplies were less reliable.

Reconstructing ancient diets

Reconstructing ancient diets is challenging and is generally more difficult as you go back in time. This helps explain why we’ve only just realised how much seaweed was being eaten by ancient Europeans. In archaeology, evidence for ancient diets often comes from physical remains: animal bones, fish bones and the hard parts of shellfish. Evidence for plants as part of the diet before farming, however, is rare. Techniques to study molecules from archaeological remains have been around for some time. A key method is known as carbon/nitrogen (C and N) stable isotope analysis. This is widely used to reconstruct ancient human and animal diets based on the relative proportions of these elements in bone collagen. But the presence of plants has been difficult to identify, due to their low nitrogen content. Their presence is masked by an overwhelming signal for animals and fish.

Hiding in plain sight

The evidence for seaweed had been present all along, but unrecognised. Our discovery provides a perfect example of how perceptions of what we regard as food influence interpretations of ancient practices. Seaweed was detected in chunks that had been chewed (and presumably spat out) at the 12,000-year-old site of Monte Verde, Chile. But when it is found at archaeological sites, it is more commonly interpreted as having been used for things other than food, such as fuel and food wrappings. In European archaeology, there is a longstanding perception that Mesolithic hunter-gatherers ate lots of seafood, but that when people started farming, they focused on food sourced from land, such as their livestock. Our findings hammer another nail into the coffin of this theory. Today, only a few traditional recipes remain, such as laverbread made from the seaweed species Porphyra umbilicalis in Wales. It’s still not clear why seaweed declined as a staple source of food in Europe after the Middle Ages.

What are the implications?

Our unexpected discovery changes the way we understand past people. It also alters our perceptions of how they understood the landscape and how they exploited local resources. It suggests, not for the first time, that we vastly underestimate ancient people. They had a knowledge, particularly about the natural world, that is difficult for us to imagine today. The finding also reminds us that archaeological remains are minute windows into the past, reinforcing the care required when developing theories based on limited evidence. The consumption of plants, upon which our world depends, has been habitually left out of dietary theories from our pre-agrarian past. Rigid theories have sometimes forgotten that humans were behind these archaeological cultures – and that they were probably similar to us in their curiosity and needs. Today seaweed sits, largely unused as food, on our doorstep. Making the edible species a bigger component of our diets could even contribute to making our food supplies more sustainable. The Conversation

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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EUR/AUD bearish breakdown supported by additional China fiscal stimulus and AU inflation

Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent…

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  • Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent bearish sentiment loop in EUR/AUD.
  • Watch the key short-term resistance at 1.6700 for EUR/AUD.
  • A break below 1.6250 key medium-term support on the EUR/AUD may trigger a multi-week bearish impulsive down move.

The Euro (EUR) tumbled overnight throughout the US session as it erased its prior gains against the US dollar recorded on Monday, 23 October; the EUR/USD shed -104 pips from yesterday’s intraday high of 1.0695 to close the US session at 1.0591, its weakest performance in the past seven sessions.

Yesterday’s resurgence of the USD dollar strength has been attributed to a robust set of October flash manufacturing and services PMI data from the US in contrast with weak readings seen in the UK and Eurozone that represented stagflation risks.

Interestingly, the Aussie dollar (AUD) has outperformed the US dollar where the AUD/USD managed to squeeze out a minor daily gain of 21 pips by the close of yesterday’s US session. The resilient movement of the AUD/USD has been impacted by positive news flow out from China, Australia’s key trading partner.

China’s national legislature has just approved a budgetary plan to raise the fiscal deficit ratio for 2023 to around 3.8% of its GDP which was above the initial 3% set in March and set to issue additional sovereign debt worth 1 trillion yuan in Q4. This latest round of additional fiscal stimulus suggests that China’s top policymakers are expanding their initial targeted measures to address the ongoing severe liquidity crunch in the domestic property market as well as to reverse the persistent weak sentiment inherent in the stock market.

In addition, the latest set of Australia’s inflation data surpassed expectations has also reinforced another layer of positive feedback loop in the Aussie dollar which in turn may put Australia’s central bank, RBA on a “hawkish guard” against cutting its policy cash rate too soon.

The less lagging monthly CPI Indicator has risen to an annualized rate of 5.6% in September, above consensus estimates of 5.4%, and surpassed August’s reading of 5.2% which has translated into a second consecutive month of uptick in inflationary growth.

In the lens of technical analysis, a potential bearish configuration setup has emerged in the EUR/AUD cross pair from a short to medium-term perspective.

Major uptrend phase of EUR/AUD is weakening

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Fig 1: EUR/AUD medium-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)

Even though the price actions of the EUR/AUD have been oscillating within a major ascending channel since its 25 August 2023 low of 1.4285 and traded above the key 200-day moving average so far, the momentum of this up movement is showing signs of bullish exhaustion.

Yesterday (24 October) price action ended with a daily bearish reversal “Marubozu” candlestick coupled with the daily RSI momentum indicator that retreated right at a significant parallel resistance in place since March 2023 at the 65 level which suggests a revival of medium-term bearish momentum.

EUR/AUD bears are now attacking the minor ascending support

Fig 2: EUR/AUD minor short-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)

The EUR/AUD has now staged a bearish price action follow-through via the breakdown of its minor ascending support from its 29 September 2023 low after a momentum bearish breakdown that was flashed earlier yesterday (24 October) during the European session as seen from the 4-hour RSI momentum indicator.

Watch the 1.6700 key short-term pivotal resistance (also the 50-day moving average) for a further potential slide toward the intermediate supports of 1.6460 and 1.6320 in the first step.

On the other hand, a clearance above 1.6700 invalidates the bearish tone to see the next intermediate resistance coming in at 1.6890.

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