Bank of Japan Has Tools for Stimulus Exit in Stable Manner, Amamiya Says - Bloomberg

Bank of Japan Has Tools for Stimulus Exit in Stable Manner, Amamiya Says

By and

March 5, 2018, 7:19 PM GMT+11 Updated on March 5, 2018, 8:18 PM GMT+11

Deputy governor nominees offer different views of policy

Wakatabe calls for more stimulus if 2 percent CPI hard to hit

The Bank of Japan has the tools to eventually exit its record monetary easing without disrupting markets, according to Masayoshi Amamiya, a nominee for one of the two deputy governor positions at the central bank.

The BOJ can adjust bond yields in a stable manner when the time comes for it to start normalizing its policy, Amamiya said at a confirmation hearing in parliament on Monday. The comments came after Governor Haruhiko Kuroda said that during the fiscal year starting in April 2019 the BOJ would probably be considering the details of any exit.

Wakatabe, left, and Amamiya attend a confirmation hearing on March 5.Photographer: Kiyoshi Ota/Bloomberg

Amamiya’s position on exit and a comment that monetary policy is not all powerful contrast starkly with the views of Masazumi Wakatabe, the nominee for the other deputy governor post. Wakatabe, also speaking in parliament, said there were theoretically no limits to what the BOJ can do to achieve the 2 percent inflation target, and it should mull boosting stimulus if it became hard for prices to hit that level.

“Amamiya and Wakatabe played it safe at the hearing” said Kyohei Morita, chief Japan economist at Credit Agricole, noting that Kuroda’s comments had stirred up markets last week. “They indicated that it’s very unlikely for the BOJ to change policy anytime soon.”

The two men are likely to be approved by parliament, and will join the policy board for the April meeting. Along with Kuroda, who was nominated for another term, they will continue to face questions and doubts about the sustainability and future of the BOJ’s policies. Even after five years of stimulus under Kuroda, inflation is still less than half the bank’s target and it’s bought so many assets over that period that its balance sheet is almost the same size as Japan’s annual output.

The two men had the same take on the overall effects of BOJ policy - the positives outweigh the side-effects, including the impact that the negative rate is having on financial institutions. However, while Amamiya cautioned that the position of Japan’s banks were getting worse and that was partly due to the BOJ’s low-interest rate policy, Wakatabe said that the negative side-effects of BOJ stimulus hadn’t manifested much yet.

The yen fluctuated as the two nominees spoke. It was trading at 105.55 per dollar as of 6:03 p.m. in Tokyo after hitting a high of 105.25 against the greenback on March 2, the highest in more than a year.

Amamiya on Exit

Amamiya said the BOJ has tools to normalize its balance sheet and raise interest rates, saying that the bank won’t need to sell lots of JGBs to raise rates. Instead it could use maturing debt to cut its balance sheet, undertake operations to absorb short-term funds, or raise the interest rate it charges banks on part of the money that they have to keep at the central bank.

“When that situation arrives, I think it’s technically possible to adjust rates gradually while maintaining the market’s stability,” Amamiya said. “In what order and how we use policy options will depend on economic conditions at that time. That’s why we’ve been saying it’s too early.”

Morita said it was interesting to see Amamiya admitting limits and costs of monetary policy while Wakatabe said there was no limit. Amamiya pledged to be watchful about costs and benefits of current easing, while Wakatabe offered the expected dovish tone with his comments on the importance of hitting 2 percent inflation target before any exit, according to Morita.

For Wakatabe, just reaching 2 percent inflation isn’t enough - prices in Japan need to continue at that level for some time before it’s safe to start cutting back on stimulus, he said. “The BOJ must especially avoid the risk of slipping back into deflation as a result of changing its policy too early.”

“From an academic economic perspective, there is no limit to monetary policy,” Wakatabe said. “We must think deeply about the sustainability of monetary policy, and what would be most sustainable, but I think there are no problems concerning sustainability.”

— With assistance by Toru Fujioka

‘President for Life’? Trump’s Remarks About Xi Find Fans in China - New York Times

‘President for Life’? Trump’s Remarks About Xi Find Fans in China

By JANE PERLEZMARCH 4, 2018

President Donald Trump and first lady Melania Trump arrive aboard Air Force One at Joint Base Andrews in Maryland on Saturday, after spending some of the weekend in Florida. Credit Al Drago for The New York Times

BEIJING — The comment was made behind closed doors, and appeared to be in jest: President Trump told donors on Saturday that China’s president, Xi Jinping, was now “president for life,” and added: “I think it’s great. Maybe we’ll want to give that a shot someday.”

The remarks, confirmed by a leading Republican lobbyist who attended the luncheon at Mr. Trump’s Mar-a-Lago estate in Florida, were first aired by CNN, which obtained an audio recording of his comments.

The statement, which drew laughter from those in attendance and was said by a smiling president, according to the lobbyist, was given on a day when Mr. Trump was out for laughs. On Saturday evening, at the annual Gridiron dinner in Washington, Mr. Trump jokingly said of possible talks with the North Korean leader, Kim Jong-un: “As far as the risk of dealing with a madman is concerned, that’s his problem, not mine.”

Nonetheless, the remarks appeared to be the first comments made by Mr. Trump about China’s decision to scuttle the two terms for its presidency — part of a remarkable consolidation of power around Mr. Xi — and Chinese analysts took them seriously.

At the luncheon, Mr. Trump also called Mr. Xi “a great gentleman” and “the most powerful president in 100 years,” who treated the American leader “tremendously well” during his state visit there in November.

That Mr. Trump left the impression of a positive endorsement of Mr. Xi was “unexpected” and “matters for China,” said Zhang Baohui, a professor of international relations at Lingnan University in Hong Kong.

“Chinese leaders care very little whether Trump is seen negatively outside China,” he said. “The U.S. still represents the reference point for China.”

The Trump comments would be especially welcome because Mr. Xi’s step toward dictatorship was a sensitive issue inside China, and one about which public discussion has been barred.

Mr. Trump, an admirer of strongman leadership, has prided himself on his good personal relationship with Mr. Xi, even as Washington differs with Beijing on major issues from trade to North Korea. Mr. Xi accorded Mr. Trump a lavish state visit to Beijing last November that the president has enthused about ever since.

Leaders of democracies, including America’s allies in Europe and Asia, have abstained from criticizing Mr. Xi, concerned in part by retaliatory economic reprisals. Authoritarian governments from Russia to Turkey have remained quiet, offering no explicit support but apparently confident of the growing acceptance of one-man rule, analysts said.

China’s state-run media has given minimal coverage to the Communist Party leadership’s decision to change the Constitution. The tightening of Mr. Xi’s power is considered so delicate that censors have squashed online commentary of almost any kind.

Similarly, Mr. Trump’s remarks were not carried on Chinese television, online or in the state-run newspapers. When CNN, which is restricted in the venues it can broadcast in China, reported Mr. Trump’s comments on Sunday, censors turned television screens blank.

“What Trump said should give Xi a modest boost,” said Minxin Pei, a China expert at Claremont McKenna College in California.

Ordinary Chinese who support Mr. Xi are likely to latch on to Mr. Trump’s validation, even though Mr. Trump is viewed by many Western observers as an embattled president, said Shen Dingli, director of the Center for American Studies at Fudan University.

“Chinese people who really support this change will say: ‘Look, we are great. The superpower has endorsed our way,’” Mr. Shen said.

President Trump and President Xi Jinping of China arrive for a state dinner at the Great Hall in Beijing, during Mr. Trump’s visit to China last year. Credit Doug Mills/The New York Times

A nearly two-week long meeting of the national legislature, the National People’s Congress, which opens in Beijing on Monday, is scheduled to formalize the changes to the Constitution and abolish the two-term limit on the presidency.

At a news conference Sunday to highlight the main events at the Congress, the spokesman for the legislature, Zhang Yesui, played down Mr. Xi’s decision to scrap the two-term rule for the presidency.

Asked by a Western reporter whether the amendment scrapping two term limits meant Mr. Xi would be leader for life, Mr. Zhang ducked the question.

The changes were just intended to bring the presidency in line with two other positions Mr. Xi holds: general secretary of the Communist Party and general secretary and chairman of the commission that oversees the military, Mr. Zhang said. Neither post has a term limit.

The new arrangement “will help to strengthen and improve the national leadership system,” Mr. Zhang said.

The failure of Western leaders to speak out against Mr. Xi’s plans for limitless power was in step with a growing acceptance among democracies of one-man rule in many countries, said François Godement, director of the Asia and China program at the European Council on Foreign Relations.

“Criticism has been confined to human rights ‘excesses,’” and even those were limited, Mr. Godement said. “The mode of government is no longer addressed.”

During a visit in January, President Emmanuel Macron of France warned China that it should not create “vassal states” and should not act as a hegemonic power as it expanded its influence across Asia and Europe with its infrastructure program, the Belt and Road Initiative.

Mr. Macron was careful to limit his comments to “economic rules of the road” and not trespass into the question of governance inside China, Mr. Godement said.

In Japan, whose adversarial relations with China are growing slightly warmer, the government has so far not commented.

In Australia, where a national debate is roiling over China’s meddling in the country’s domestic affairs, the government has also stayed quiet.

The Australian prime minister, Malcolm Turnbull, was fearful of economic consequences that would rattle its vital trade relationship with China if it spoke out, China experts said.

“Australia is silent because America, the self-styled leader of the ‘free world’ after World War II, has abdicated that role under Trump,” said Feng Zhang, a fellow at the Department of International Relations at the Australian National University. “Australia’s accusation of Chinese interference in its domestic affairs has elicited a chilly response from Beijing. It doesn’t want to make a bad situation worse.”

In the United States, political observers lamented Mr. Trump’s latest off-the-cuff remark.

“Donald Trump has the strange habit of being completely transparent about his deepest desires, despite his long track record of false or misleading statements,” said Yascha Mounk, the author of “The People Vs. Democracy: Why Our Freedom Is in Danger and How to Save It,” and a political scientist. “We shouldn’t take his joke as a declaration of intent, but we should absolutely take it as evidence that he deeply admires dictators like Xi Jinping and would be tempted to emulate some of their repressive policies if he could.”

In his remarks, Mr. Trump may have inadvertently hearkened to the emperors who ruled China until 1912.

“‘President for life,’ is of course, very much in the imperial tradition and this may give the notion a certain historical resonance in China,” said Orville Schell, director of the Center on U.S.-China Relations at the Asia Society in New York. “In the U.S., however, the idea is an utter anathema to everything the Founding Fathers believed and the carefully crafted Constitution they bequeathed us, which was explicitly designed to limit just such a drift towards monarchy or autocracy.”

Trump's tariff threat on European cars could spell big trouble for Germany - CNBC News

5/3/2018

Trump's tariff threat on European cars could spell big trouble for Germany

The war of words between President Donald Trump and the EU could lead to some serious pressure on the German auto industry, one expert told CNBC.

Trump threatened via Twitter on Saturday to hit back at any tariff measures from the European Union — floated in response to Trump's recently announced global steel import tariffs — in kind, targeting European cars.

Additional duties on German imports into the U.S. in particular cold be "quite severe"for the industry, as Germany's carmakers are "very, very exposed," according to the analyst.

Natasha Turak | @NatashaTurak

CNBC.com

Germans very exposed to US car tarriffs Germans very exposed to US car tariffs: Evercore

The war of words between President Donald Trump and the EU could lead to some serious pressure on the German auto industry, one expert told CNBC.

Trump threatened via Twitter on Saturday to hit back at any tariff measures from the European Union — floated in response to Trump's recently announced global steel import tariffs — in kind. The billionaire businessman's potential next target? European cars. And the biggest victim of them all may be Germany.

"It would be quite severe if we were to face additional import duties to ship the cars into the U.S. — the Germans in particular are very, very exposed," Arndt Ellinghorst, the head of global automotive research for advisory firm Evercore ISI, told CNBC Monday.

He noted the example of BMW, which sells about 350,000 cars in the U.S. annually, roughly 70 percent of which come from Europe. "That's probably an $8 billion to $9 billion revenue stream, if you put a 5 to 10 percent additional cost on it, it would cost something like $400 million to $800 million. Some of that would be absorbed by the company, and some of it would have to be absorbed by the consumer in the U.S."

Ellinghorst did add that cars being shipped from the U.S. into Europe faced a 10 percent import duty while European cars into the U.S. faced a 2.5 percent import duty. "I think what the administration is talking about is to balance out this difference in tariffs to make it more of an equal playing ground for American and European carmakers," he said.

Fears of a trade war

Tensions between the U.S. and its longtime trade partners and allies spiked last week after Trump announced a sweeping 25 percent tariff on all foreign steel imports and 10 percent on all aluminum imports, sparking international condemnation and fears of trade war.

European Commission President Jean-Claude Juncker responded by suggesting the EU raise tariffs on iconic American products popular in Europe like Harley Davidson motorcycles, Kentucky bourbon and Levi's jeans. On Saturday, Trump hit back by threatening to hit car exports from the EU with a retaliatory tax.

@realDonaldTrump

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

4:53 AM - Mar 4, 2018

Experts have sounded the alarm on the risks of retaliatory measures and their threat to global growth if the Trump move triggers tit-for-tat responses from other countries. Trump's tweet was evidence of the president's willingness to double down when confronted by trade allies on his protectionist move.

German cars, American jobs

Trump in 2017 referred to Germany as "bad, very bad" for its millions of cars sold in the U.S., vowing to support greater sales if American car brands manufactured domestically.

Germany's carmakers responded by pointing out that German and European carmakers are major investors in the U.S. In 2017, German automakers alone were invested in 265 plants across the country and employed approximately 110,000 American workers.

According to Germany's Association of the Automotive Industry, Germans produced 854,000 vehicles in the U.S. in 2016, a four-fold increase in about seven years. More than 60 percent of those were exported to foreign markets.

A worker performs the final check of a BMW 3-series automobile on the production line, March 11, 2009.

Guenter Schiffmann | Bloomberg | Getty Images

A worker performs the final check of a BMW 3-series automobile on the production line, March 11, 2009.

There are, however, at least 10 major European carmakers who sell in the U.S. but do not produce there — these reportedly include Italy's Fiat, the U.K.'s Land Rover, Jaguar, Audi, and Porsche. Sweden's Volvo manufactured 6 percent of its cars in the U.S. in 2016.

European carmakers staying quiet

European carmakers have been mostly quiet following Trump's tweet Saturday, with German manufacturer Daimler issuing no comment when contacted by CNBC and Volvo saying it was too early to comment.

A spokesperson for McLaren Automotive said: "While North America is our biggest single market, as a luxury-automotive brand who retails in well over 30 markets, our long-standing policy is to balance our sales globally."

Toyota Europe declined to discuss the tweet, explaining that it was not yet policy, but Toyota Motor North America issued a warning on Trump's tariff announcement regarding steel and aluminum imports.

"...The majority of the steel and aluminum we directly purchase is from right here in the U.S.," Toyota said. "Nonetheless, the administration's decision to impose substantial steel and aluminum tariffs will adversely impact automakers, the automotive supplier community and consumers as this would substantially raise costs and therefore prices of cars and trucks sold in America."

China boosts defense spending, cites ‘war preparedness’ - NBC News

MAR 5 2018, 5:15 AM ET

China boosts defense spending, cites ‘war preparedness’

by REUTERS

BEIJING — China on Monday unveiled its largest rise in defense spending in three years, setting a target of 8.1 percent growth over last year.

The 2018 defense budget will be 1.11 trillion yuan ($175 billion), according to a report issued at the opening of China's annual meeting of parliament.

The defense spending figure is closely watched around the world for clues to China's strategic intentions as it develops new military capabilities, including stealth fighters, aircraft carriers and anti-satellite missiles.

China will "advance all aspects of military training and war preparedness, and firmly and resolvedly safeguard national sovereignty, security, and development interests," Premier Li Keqiang told the opening session in an address.

"Faced with profound changes in the national security environment" the absolute leadership of the military by the ruling Communist Party must be observed, and the unity between the government and the military, and the people and the military, must always be "strong as stone," he said.

“It is extremely alarming for Australia and many other countries in the region.”

The 2018 defense spending increase comes as China's economic growth expanded 6.9 percent last year, the first acceleration in annual growth since 2010. But China kept its 2018 economic growth target at around 6.5 percent, said Li, the same as in 2017, despite exceeding that year's target.

Last year, defense spending was set to increase by just 7 percent, to 1.044 trillion yuan ($164.60 billion), or about one-quarter of the proposed U.S. defense spending for the year. In 2016, it grew by 7.6 percent.

"The pace and scale of this build-up is really dramatic. It is extremely alarming for Australia and many other countries in the region," said Sam Roggeveen, a visiting fellow at the Strategic and Defence Studies Centre of the Australian National University in Canberra.

Military delegates arrive for the opening of the first session of the 13th National People's Congress at the Great Hall of the People in Beijing on Monday. How Hwee Young / EPA

"There is every indication that China wants to expand what it will call defense capabilities in the South China Sea. I expect eventually we will see warships and aircraft there regularly, if not based there permanently. What is unclear, however, is whether the United States will want to rise to that challenge."

President Donald Trump has proposed a military budget that is the largest since 2011 and focused on beefing up the United States' nuclear defenses and countering the growing strength of China and Russia.

The proposal, part of Trump's budget request for the U.S. government, would provide the Pentagon $617 billion and an additional $69 billion to fund ongoing wars in fiscal year 2019. That is $74 billion more than in the previous fiscal year's budget