Business

By David Milliken and Andy Bruce

LONDON (Reuters) -Britain’s new finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing on Friday in an economic agenda that floored financial markets, with sterling and British government bonds in freefall.

Kwarteng scrapped the country’s top rate of income tax, cancelled a planned rise in corporate taxes and for the first time put a price tag on the spending plans of Prime Minister Liz Truss, who wants to double Britain’s rate of economic growth.

Investors unloaded short-dated British government bonds as fast as they could, with the cost of borrowing over 5 years seeing its biggest one-day rise since 1991, as Britain raised its debt issuance plans for the current financial year by 72.4 billion pounds ($81 billion). The pound slid below $1.11 for the first time in 37 years.

Kwarteng’s announcement marked a step change in British economic policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s that critics have derided as a return to “trickle down” economics.

“Our plan is to expand the supply side of the economy through tax incentives and reform,” Kwarteng said.

“That is how we will compete successfully with dynamic economies around the world. That is how we will turn the vicious cycle of stagnation into a virtuous cycle of growth.”

A plan to subsidise energy bills will cost 60 billion pounds just for the next six months, Kwarteng said. The government has promised households support for two years as Europe wrestles with an energy crisis.

Tax cuts – including an immediate reduction in the Stamp Duty property purchase tax plus a reversal of a planned rise in corporation tax – would cost a further 45 billion pounds by 2026/27, he said.

The government said raising Britain’s annual economic growth rate by 1 percentage point over five years – a feat most economists think unlikely – would increase tax receipts by around the same amount.

Britain also will accelerate moves to bolster the City of London’s competitiveness as a global financial centre by scrapping the cap on banker bonuses ahead of an “ambitious deregulatory” package later in the year, Kwarteng said.

The opposition Labour Party said the plans were a “desperate gamble”.

“Never has a government borrowed so much and explained so little… this is no way to build confidence, this is no way to build economic growth,” said Labour’s finance spokeswoman Rachel Reeves.

HISTORY REPEATS?

The Institute for Fiscal Studies said the tax cuts were the largest since the budget of 1972 – which is widely remembered as ending in disaster because of its inflationary effect.

The market backdrop could barely be more hostile for Kwarteng, with the pound performing worse against the dollar than almost any other major currency.

Much of the decline reflects the U.S. Federal Reserve’s rapid interest rate rises to tame inflation – which have sent markets into a tailspin – but some investors have taken fright at Truss’s willingness to borrow big to fund growth.

“In 25 years of analysing budgets this must be the most dramatic, risky and unfounded mini-budget,” said Caroline Le Jeune, head of tax at accountants Blick Rothenberg.

“Truss and her new government are taking a huge gamble.”

A Reuters poll this week showed 55% of the international banks and economic consultancies that were polled judged British assets were at a high risk of a sharp loss of confidence.

On Thursday the Bank of England said Truss’s energy price cap would limit inflation in the short term but that government stimulus was likely to boost inflation pressures further out, at a time when it is battling inflation near a 40-year high.

Financial markets ramped up their expectations for BoE interest rates to hit a peak of more than 5% midway through next year.

“We are likely to see a policy tug of war reminiscent of the stop-go 1970s. Investors should be prepared for a bumpy ride,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.

Despite the extensive tax and spending measures, the government had decided against publishing alongside its statement new growth and borrowing forecasts from the Office for Budget Responsibility, a government watchdog.

Kwarteng confirmed the OBR would publish its full forecasts later this year.

“Fiscal responsibility is essential for economic confidence, and it is a path we remain committed to,” he said.

($1 = 0.8872 pounds)

(Writing by Andy Bruce; Additional reporting by Kylie MacLellan, Kate Holton, Paul Sandle, Sachin Ravikumar, Alistair Smout, William James, James Davey, Andrew MacAskill, Farouq Suleiman, Huw Jones and Elizabeth Piper; Editing by Catherine Evans and Toby Chopra)

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By Hannah Lang

(Reuters) – Cryptocurrency exchange Kraken has no plans to delist tokens the U.S. Securities and Exchange Commission has labeled as securities, or to register with the agency as a market intermediary, said incoming chief executive officer Dave Ripley on Thursday.

The stance of the San Francisco-based platform, which says it has more than nine million clients, underscores the challenges the securities regulator is facing in its effort to rein in the crypto industry.

Kraken, which made news earlier this year when it denied requests to block the digital wallet addresses of Russian users following the invasion of Ukraine, has long championed the libertarian values associated with cryptocurrency. Its new CEO has promised to stay the course on the company’s culture.

Kraken announced on Wednesday that its often-controversial co-founder Jesse Powell would step down and that Ripley, Kraken’s chief operating officer, will assume the CEO role after the firm hires a new COO.

Ripley will take the helm of Kraken not only at a time when the crypto market is facing a major rout, with bitcoin down nearly 60% this year, but also as the fast-growing industry has been at odds with regulators like the SEC.

Despite reports that the SEC is scrutinizing Coinbase for listing several tokens on its platform the regulator identified as securities in a July insider trading lawsuit, Kraken has no plans to remove those tokens from its exchange, Ripley said.

Ripley added Kraken also sees no reason to register with the SEC as an exchange because his company does not offer securities, despite calls from SEC Chair Gary Gensler for crypto platforms to register.

“There are not any tokens out there that are securities that we’re interested in listing,” he said. “There could be some new token out there that becomes interesting and also happens to simultaneously be a security [and] in that case, we would potentially be interested in that path.”

In a summer when once-formidable players in the crypto market like Celsius Network and Voyager Digital filed for bankruptcy, and others like Coinbase announced layoffs, Kraken has managed to avoid the market downturn, and is now eyeing opportunities.

“To the extent that there are opportunities for M&A in this environment, and perhaps if it’s a company that is actually going through a bankruptcy process, then that’s a potential for us to consider for sure,” said Ripley, adding the company has not made any moves yet.

However, he said Kraken would consider acquisitions that bolster its product and tech portfolio, particularly as the exchange looks to broaden its offerings with a forthcoming platform for non-fungible tokens and banking services for institutional clients.

(Reporting by Hannah Lang in Washington; Editing by Josie Kao)

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PARIS (Reuters) -Societe Generale, which is seeking a new chief executive, said on Friday two senior female executives would be stepping down before the end of the year.

France’s third-biggest listed bank said Chief Risk Officer Sadia Ricke would leave on Nov. 30 and Caroline Guillaumin, the head of human resources and communication, would quit on Dec. 15.

Ricke, a SocGen veteran, will become group chief risk officer of Asia and Africa-focused bank Standard Chartered, the London-based bank said in a separate statement. She will join on Feb. 1, replacing Mark Smith, who retires at the end of this year.

Ricke joined Societe Generale in 1994 and held a series of senior positions within the corporate and investment banking division before being appointed as chief risk officer last year.

Guillaumin, who has been at SocGen since 2010, will pursue a new career outside the banking sector, SocGen said, adding the successors to the two executives would be announced at a later date.

In May, Chief Executive Frederic Oudea said he would step down next year after running the lender for 15 years.

A decision on a new chief executive is expected next month, with the head of the bank’s retail networks, Sebastien Proto, and investment banking chief Slawomir Krupa seen as the leading internal candidates.

(Reporting by Dominique Vidalon and Silvia Aloisi, editing by Kirsten Donovan)

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By Lisa Baertlein and Nathan Gomes

(Reuters) -FedEx Corp on Thursday outlined cost cuts of up to $2.7 billion from parking planes, suspending some Sunday deliveries and shuttering corporate offices after falling demand hammered first-quarter profits.

The company reported that earnings per share fell 21.3% for the quarter ended Aug. 31, in line with the warning it delivered last week. It blamed a rapidly deteriorating global economy, but analysts and investors were skeptical – in large part because revenue increased 5.5%.

FedEx committed to repurchasing $1.5 billion of FedEx common stock this fiscal year, including $1 billion in the current quarter, even as the company confirmed investors’ and analysts’ suspicion that it did not cut costs fast enough to offset the hit to demand.

“The impact of cost actions lagged volume declines and operating expenses remained high relative to demand,” FedEx said in a release detailing its plans to cut costs by $2.2 billion to $2.7 billion in fiscal 2023.

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand,” said Chief Executive Raj Subramaniam, who was promoted lead the company in June.

FedEx said it booked $300 million in first-quarter savings and plans to slash expenses by $700 million in savings in the current second quarter.

The company said other expense reductions would come from cutting FedEx Express flights, trimming variable incentive compensation meant to motivate and retain workers, closing certain package sorting centers, and delaying certain projects.

On the revenue side, FedEx announced plans to raise average rates by 6.9% starting on Jan. 2.

“I am confident the cost actions we’re implementing with urgency will enhance efficiency and drive improved profitability in support of our long-term financial targets,” FedEx Chief Financial Officer Michael Lenz said.

News that the company had plans for reducing excess capacity sent shares 0.8% to close at $154.54. Earlier in the session they touched a 52-week low of $150.36.

Last week, the Memphis-Tennessee-based company said adjusted earnings per share for the quarter ended Aug 31 fell to $3.44 from $4.37 a year earlier, even though revenue rose to $23.2 billion from $22 billion. It also pulled its full-year forecast, blaming macroeconomic weakness in Asia, service challenges in Europe and soft revenue in its U.S. Ground delivery unit.

“They sound a lot more confident today that they’ve got a plan in place. They’re able to quantify the plan,” said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York, which holds about 58,000 FedEx shares.

“They’re still not giving guidance for the year. However, they definitely are giving a lot more detail in terms of the plan,” Katz said.

With the share repurchase announcement, FedEx threw a bone to frustrated investors, who have been waiting for a turnaround at the company where profits have lagged those of rival United Parcel Service.

“If the wheels were truly falling off or they did not have confidence that their plan was going to work, they might suspend the share buy back,” investor Katz said.

“They’ve got a lot to overcome, but at least it’s a start,” said Gary Bradshaw, a portfolio manager with Hodges Capital Management in Dallas, which owns FedEx shares.

(Reporting by Lisa Baertlein in Los Angeles, Nathan Gomes in Bengaluru and Ben Klayman in Detroit; Editing by Shinjini Ganguli and David Gregorio)

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(Updates Trenchev’s estimate for unsecured lending)

By Elizabeth Howcroft and Hannah Lang

LONDON/WASHINGTON (Reuters) -On May 11, Scott Odell, an analyst at British crypto lender Blockchain.com, instant messaged Edward Zhao of Three Arrows Capital asking that the Singapore hedge fund repay at least part of a $270 million loan.

Three Arrows had just taken a hit from the collapse of cryptocurrency Terra, raising doubts about its ability to repay. That was a worry for Blockchain.com since it had not taken collateral to secure the loan, court filings show.

“This is time sensitive so let’s sort if you’re available,” Odell said of the repayment.

Zhao appeared lost for words.

“Yo,” he replied.

“uhh”

“hmm”

Three Arrows filed for bankruptcy in July and Blockchain.com told Reuters it had yet to recover a cent of its loan. The text exchange is among the affidavit documents filed by liquidators as part of the hedge fund’s liquidation proceedings.

Three Arrows did not respond to requests for comment. Odell declined to comment, while Reuters was unable to reach Zhao.

The loan was part of an opaque web of unsecured lending between crypto companies that left the industry exposed when cryptocurrency prices crashed 50% earlier this year, according to a Reuters review of bankruptcy court and regulatory filings, and interviews with about 20 executives and experts.

Institutional crypto lending involves lending cryptocurrencies as well as cash in return for a yield. By waiving the requirement for the borrower to put up collateral – such as stocks, bonds or more commonly other crypto tokens – lenders can charge higher rates and ramp up profits, while borrowers can generate cash quickly.

Blockchain.com has since largely ceased its unsecured lending, which had represented 10% of its revenue, chief business officer Lane Kasselman told Reuters. “We’re not willing to engage in the same level of risk,” he said, although he added the company would still offer “extremely limited” unsecured loans to top clients under certain conditions.

Unsecured lending has become common across the crypto industry, according to the review of filings and the interviews. Despite the recent shakeout, many of the industry insiders said the practice was likely to continue and could even grow.

Alex Birry, chief analytical officer for financial institutions at S&P Global Ratings, said the crypto industry was in fact broadly seeing a trend towards unsecured lending. The fact that crypto was a “concentrated ecosystem” raised the risk of contagion across the sector, he added.

“So if you are only lending to people operating in this ecosystem, and especially if the number of these counterparties are relatively limited, yes, you will see events such as the one we’ve just seen,” he said about the summer collapse of lenders.

CRYPTO BOOM AND BUST

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits. On the flip side, institutional investors such as hedge funds looking to make leveraged bets paid higher rates to borrow the funds from the lenders, who profited from the difference.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

Voyager Digital, which became one of the biggest casualties of the summer when it filed for bankruptcy in July, provides a window into the rapid growth of unsecured crypto lending.

The New Jersey-based lender’s crypto loan book grew from $380 million in March 2021 to around $2 billion in March 2022, and it took collateral for just 11% of that $2 billion, the company’s regulatory filings show.

The lender collapsed after Three Arrows defaulted on a crypto loan worth more than $650 million at the time. Although neither party have said if this loan was unsecured, Voyager did not report liquidating any collateral over the default, while Three Arrows listed its collateral status with Voyager as “unknown”, the companies’ bankruptcy filings show.

Voyager declined to comment for this article.

Rival lender Celsius Network, which also filed for bankruptcy in July, offered unsecured loans too, court filings show, although Reuters could not ascertain the scale.

Since most loans are private, the amount of unsecured lending across the industry is unknown, with even those involved in the business giving wildly different estimates.

Crypto research firm Arkham Intelligence put the figure in the region of $10 billion, for instance, while crypto lender TrueFi said at least $25 billion.

Antoni Trenchev, co-founder of crypto lender Nexo, said that his company had turned down requests from funds and traders asking for unsecured loans. He estimated uncollateralized lending across the industry was in the tens of billions of dollars.

BULLISH ON BORROWING

While Blockchain.com has largely pulled back from unsecured lending, many crypto lenders remain confident about the practice.

Most of the 11 lenders interviewed by Reuters said they would still provide uncollateralized loans, though they did not specify how much of their loan book this would be.

Joe Hickey, global head of trading at BlockFi, a major crypto lender, said it would continue its practice of offering unsecured loans only to top clients for which it had seen audited financials.

A third of BlockFi’s $1.8 billion loans were unsecured as of June 30, according to the company, which was bailed out by crypto exchange FTX in July, when it cited losses on a loan and increased customer withdrawals.

“I think our risk-management process was one of the things that saved us from having any bigger credit events,” Hickey said.

Furthermore, a growing number of smaller, peer-to-peer lending platforms are seeking to fill the gap left by the exit of centralized players such as Voyager and Celsius.

Sid Powell, co-founder and CEO of unsecured crypto lending platform Maple, said institutional crypto lenders were more cautious after Three Arrows’ insolvency, but conditions have since normalized and lenders are now again comfortable lending unsecured.

Executives at two other peer-to-peer lenders, TrueFi and Atlendis, said they had seen an increase in demand as market makers continue to seek unsecured loans.

Brent Xu, CEO of Umee, another peer-to-peer platform, said the crypto industry would learn from its mistakes, and that lenders would fare better by extending loans to a more diversified range of crypto companies.

For example, that would include firms seeking to make acquisitions or to fund expansion, he added, rather than focusing on those making leveraged trades on crypto prices.

“I’m very bullish on the future of unsecured borrowing and lending,” Xu said.

MILLION DOLLARS OF BITCOIN

To be sure, many crypto loans are secured. Even then, though, the collateral is frequently in the form of volatile tokens that can quickly lose value.

BlockFi over-collateralized a loan to Three Arrows but still lost $80 million on it, the lender’s CEO Zac Prince said in a tweet in July. BlockFi said its lending to the hedge fund was secured with a basket of crypto tokens and shares in a bitcoin trust.

“A more traditional lender would likely want more than full collateral coverage on a loan backed by crypto, because in any given day the collateral value could swing by 20% or more,” said Daniel Besikof, a partner at Loeb & Loeb who works in bankruptcy.

“Lending a million dollars against a million dollars of bitcoin is riskier than lending against more traditional, stable collateral.”

(Reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; Editing by Michelle Price and Pravin Char)

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By David French

(Reuters) – Major Wall Street indexes ended lower on Thursday, falling for a third straight session as investors reacted to the Federal Reserve’s latest aggressive move to rein in inflation by selling growth stocks, including technology companies.

The Fed lifted rates by an expected 75 basis points on Wednesday and signaled a longer trajectory for policy rates than markets had priced in, fuelling fears of further volatility in stock and bond trading in a year that has already seen bear markets in both asset classes.

The U.S. central bank’s projections for economic growth released on Wednesday were also eye-catching, with growth of just 0.2% this year, rising to 1.2% for 2023.

Jitters were already present in the market after a number of companies – most recently FedEx Corp and Ford Motor Co – issued dire outlooks for earnings.

As of Friday, the S&P 500’s estimated earnings growth for the third quarter is at 5%, according to Refinitiv data. Excluding the energy sector, the growth rate is at -1.7%.

The S&P 500’s forward price-to-earnings ratio, a common metric for valuing stocks, is at 16.8 times earnings – far below the nearly 22 times forward P/E that stocks commanded at the start of the year.

Nine of the 11 major S&P sectors fell, led by declines of 2.2% and 1.7%, respectively, in consumer discretionary and financial stocks.

Shares of megacap technology and growth companies such as Amazon.com Inc, Tesla Inc and Nvidia Corp fell between 1% and 5.3% as benchmark U.S. Treasury yields hit an 11-year high. [US/]

Rising yields weigh particularly on valuations of companies in the technology sector, which have high expected future earnings and form a significant part of the market-cap weighted indexes such as the S&P 500.

The S&P 500 tech sector has slumped 28% so far this year, compared with a 21.2% decline in the benchmark index.

“If we continue to have sticky inflation, and if (Fed Chair Jerome) Powell sticks to his guns as he indicates, I think we enter recession and we see significant drawdown on earnings expectations,” said Mike Mullaney, director of global markets at Boston Partners.

“If this happens, I have high conviction under those conditions that we break 3,636,” he added, referring to the S&P 500’s mid-June low, its weakest point of the year.

The Dow Jones Industrial Average fell 107.1 points, or 0.35%, to 30,076.68, the S&P 500 lost 31.94 points, or 0.84%, to 3,757.99 and the Nasdaq Composite dropped 153.39 points, or 1.37%, to 11,066.81.

Major U.S. airlines – which have enjoyed a rebound amid increased travel as pandemic restrictions end – were also down, with United Airlines and American Airlines falling 4.6% and 3.9% respectively. This took losses in the last three days to 11% for United and 10.6% for American.

JetBlue Airways Corp, off 7.1% and also recording a third straight loss, closed at its lowest level since March 2020.

Darden Restaurants Inc slid 4.4% after the Olive Garden parent reported downbeat first-quarter sales.

Volume on U.S. exchanges was 11.39 billion shares, compared with the 10.91 billion average for the full session over the last 20 trading days.

The S&P 500 posted one new 52-week high and 123 new lows; the Nasdaq Composite recorded 18 new highs and 699 new lows.

(Reporting by Sruthi Shankar, Medha Singh, Devik Jain and Ankika Biswas in Bengaluru and David French in New York; Editing by Shounak Dasgupta, Anil D’Silva and Deepa Babington)

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(Reuters) – Costco Wholesale Corp beat Wall Street estimates for quarterly revenue on Thursday, helped by strong demand for its fresh food, candies and fuel offerings despite steeper prices and rising inflation.

Costco benefits from strong spending by well-to-do Americans with club memberships even as lower-income consumers spend lesser, hit by rising prices of everything from edible oils to gas due to the Ukraine war and supply chain disruptions.

The company’s efforts to keep gas prices several cents below the national average helped drive sales for the company.

The big-box retailer’s total revenue rose 15% to $72.10 billion in the fourth quarter, beating analysts’ average estimate of $72.04 billion, according to IBES data from Refinitiv.

Net income attributable to Costco rose to $1.87 billion, or $4.20 per share, in the quarter ended Aug. 28, from $1.67 billion, or $3.76 per share, a year earlier.

Shares of the warehouse club operator, fell 1.5% in extended trading as the company’s operating expenses rose for the reported-quarter due to higher labor costs and freight costs.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Shailesh Kuber)

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Actions by Facebook and its parent Meta during last year’s Gaza war violated the rights of Palestinian users to freedom of expression, freedom of assembly, political participation and non-discrimination, a report commissioned by the social media company has found.

The report Thursday from independent consulting firm Business for Social Responsibility confirmed long-standing criticisms of Meta’s policies and their uneven enforcement as it relates to the Israeli-Palestinian conflict: It found the company over-enforced rules when it came to Arabic content and under-enforced content in Hebrew.

It, however, did not find intentional bias at Meta, either by the company as a whole or among individual employees. The report’s authors said they found “no evidence of racial, ethnic, nationality or religious animus in governing teams” and noted Meta has “employees representing different viewpoints, nationalities, races, ethnicities, and religions relevant to this conflict.”

Rather, it found numerous instances of unintended bias that harmed the rights of Palestinian and Arabic-speaking users.

In response, Meta said it plans to implement some of the report’s recommendations, including improving its Hebrew-language “classifiers,” which help remove violating posts automatically using artificial intelligence.

“There are no quick, overnight fixes to many of these recommendations, as BSR makes clear,” the company based in Menlo Park, California, said in a blog post Thursday. “While we have made significant changes as a result of this exercise already, this process will take time — including time to understand how some of these recommendations can best be addressed, and whether they are technically feasible.”

Meta, the report confirmed, also made serious errors in enforcement. For instance, as the Gaza war raged last May, Instagram briefly banned the hashtag #AlAqsa, a reference to the Al-Aqsa Mosque in Jerusalem’s Old City, a flash point in the conflict.

Meta, which owns Instagram, later apologized, explaining its algorithms had mistaken the third-holiest site in Islam for the militant group Al-Aqsa Martyrs Brigade, an armed offshoot of the secular Fatah party.

The report echoed issues raised in internal documents from Facebook whistleblower Frances Haugen last fall, showing that the company’s problems are systemic and have long been known inside Meta.

A key failing is the lack of moderators in languages other than English, including Arabic — among the most common languages on Meta’s platforms.

For users in the Gaza, Syria and other Middle East regions marred by conflict, the issues raised in the report are nothing new.

Israeli security agencies and watchdogs, for instance, have monitored Facebook and bombarded it with thousands of orders to take down Palestinian accounts and posts as they try to crack down on incitement.

“They flood our system, completely overpowering it,” Ashraf Zeitoon, Facebook’s former head of policy for the Middle East and North Africa region, who left in 2017, told The Associated Press last year. “That forces the system to make mistakes in Israel’s favor.”

Israel experienced an intense spasm of violence in May 2021 — with weeks of tensions in east Jerusalem escalating into an 11-day war with Hamas militants in the Gaza Strip. The violence spread into Israel itself, with the country experiencing the worst communal violence between Jewish and Arab citizens in years.

In an interview this week, Israel’s national police chief, Kobi Shabtai, told the Yediot Ahronot daily that he believed social media had fueled the communal fighting. He called for shutting down social media if similar violence occurs again and said he had suggested blocking social media to lower the flames last year.

“I’m talking about fully shutting down the networks, calming the situation on the ground, and when it’s calm reactivating them,” he was quoted as saying. “We’re a democratic country, but there’s a limit.”

The comments caused an uproar and the police issued a clarification saying that his proposal was only meant for extreme cases. Omer Barlev, the Cabinet minister who oversees police, also said that Shabtai has no authority to impose such a ban.

___

Associated Press reporter Josef Federman contributed from Jerusalem.

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By Leika Kihara

TOKYO (Reuters) -The Bank of Japan maintained ultra-low interest rates and dovish policy guidance on Thursday, as it seeks to reassure markets that it will continue to swim against a global tide of central banks tightening monetary policy to combat soaring inflation.

The decision came after the U.S. Federal Reserve delivered its third straight rate increase of 75 basis points on Wednesday and signalled more hikes, underscoring resolve not to let up in its battle to contain inflation.

As widely expected, the BOJ kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield by a unanimous vote.

The BOJ remains an outlier among a global wave of central banks withdrawing stimulus to battle soaring inflation, and will likely become the last major monetary authority in the world with a negative policy rate.

Markets had focused on whether the BOJ will show initial signs of changing the approach by tweaking its pledge to keep interest rates at “current or lower” levels, and ramp up stimulus as needed to support the economy.

BOJ Governor Haruhiko Kuroda is expected to hold a news conference to explain Thursday’s policy decision.

Japan’s core consumer inflation quickened to 2.8% in August, exceeding the BOJ’s 2% target for a fifth straight month, as price pressure from raw materials and yen falls broadened.

But Kuroda has ruled out the chance of a near-term withdrawal of stimulus on the view that wages need to rise more to sustainably achieve his 2% inflation target.

Kuroda’s dovish message has worked to weaken the yen, contradicting the government’s efforts to slow the currency’s decline through verbal threats of yen-buying intervention.

Once welcomed for the boost it gives to exports, a weak yen has turned into a headache for Japanese policymakers as it pushes up the cost of importing already expensive fuel and raw materials.

The world’s third largest economy expanded an annualised 3.5% in April-June, but its recovery has been hobbled by a resurgence in COVID-19 infections, supply constraints and rising raw material costs.

(Reporting by Leika Kihara; Editing by Sam Holmes and Richard Pullin)

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(Reuters) – The Bank of Japan maintained ultra-low interest rates and dovish policy guidance on Thursday, reassuring markets that it will continue to swim against a global tide of central banks tightening monetary policy to combat soaring inflation.

Here are some analysts’ views on the move and market reaction:

SHIGETOSHI KAMADA, GENERAL MANAGER – RESEARCH DEPARTMENT, TACHIBANA SECURITIES, TOKYO

“The outcome was in line with our expectations. It became clearer that the Bank of Japan will continue to be committed to support the economy. The yen fell to 145 yen to the dollar for a moment (after the announcement). Unstable move of the yen increases uncertainties of Japanese stocks. Even as some companies benefit from the weak yen, some suffer as costs increases so in total that is going to be a worry.

“For a while Wall Street move will remain as the main market cue for the Japanese stock market.”

HIROAKI MUTO, ECONOMIST, SUMITOMO LIFE INSURANCE CO, TOKYO

“The BOJ was aware that an announcement like this should surely prompt a weak yen beyond 145 per dollar.

“Although the statement says “we must be vigilant at financial, currency market moves”, looking at how the BOJ communicates, it doesn’t seem they are seriously mindful of that. They might be thinking a weak yen beyond 145 level is not a bad thing that will bring negative impacts to the economy.”

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO

“While the monetary policy decisions in the United States and Japan were both as expected, U.S. interest rates actually rose so that caused the yen to weaken somewhat. That trend is likely to continue.

“The difference in direction of U.S. and Japan’s monetary policy has caused the yen to depreciate…. Unless U.S. interest rates peak, there won’t be any relief in the pressure on the yen to depreciate and interest rates to rise.

“It’s true that Japan’s economy is weak…. The BOJ is right in maintaining the status quo, considering the risk that raising interest rates pose and the harm that would do to current conditions.”

SAKTIANDI SUPAAT, REGIONAL HEAD OF FX RESEARCH & STRATEGY, MAYBANK, SINGAPORE

“I think the next level at 147 is a possibility. Going forward, yen weakness I think it’s built in relatively to the dollar, especially with the rate differential being one of the big drivers.

“Eventually, an intervention may come. If it’s too rapid a move toward 147 and beyond, I think the intervention layer will come in. The verbal warnings have come in, the rate checks have come in, the next level would definitely be intervention.”

YASUNARI UENO, CHIEF MARKET ECONOMIST, MIZUHO SECURITIES, TOKYO

“The BOJ’s decision may have been taken into account the fact that the Fed announcement overnight on raising interest rates by 0.75% had caused little reaction in the currency market. As it turned out, the both central banks’ decisions were pretty much factored into the currency market.”

“We’re closely watching what Kuroda may say about recent sharp yen weakening lately. He has said lesser about any merit of the weak yen recently out of consideration towards public sentiment against rising costs of living.”

“Kuroda will probably underscore concerns about impacts from the weak yen on the economy, although he will steer clear of directly commenting on currency policy which falls in the jurisdiction of the Ministry of Finance, not the BOJ.”

(Reporting by Tokyo newsroom; Compiled by Rashmi Aich)

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