It’s better to make adjustments as early as possible, even if only little by little.–— Bank of Japan Governor Kazuo Ueda on the decision to raise rates for only the second time since 2007
Japan’s central bank hikes key rate hours before the Fed
The Bank of Japan (BOJ) raised its benchmark interest rate and unveiled plans to halve bond purchases, underscoring its determination to normalise monetary policy.
The BOJ hiked its policy rate to around 0.25% from a range of 0%–0.1%, according to a statement on July 31. It also said it would reduce its monthly pace of bond-buying to around JPY3 trillion ($26.6 billion) by the first quarter of 2026.
The recent pace of purchases has been about double that amount. The yen strengthened more than 1.5% against the US dollar and equities advanced after the decision, led by a surge of almost 5% in a gauge of bank stocks.
The yield on 10-year government bonds rose 6 basis points to 1.055% and yields on two-year notes hit a 15-year high.
See also: ECB’s Schnabel sees only limited room for further rate cuts
While only about 30% of BOJ watchers predicted a hike as their base-case scenarios, almost everyone saw the risk of a July move, according to a Bloomberg survey. The high degree of uncertainty leading up to the meeting kept the yen and Japanese stocks on a roller-coaster ride in recent days.
The BOJ’s decision showcased Governor Kazuo Ueda’s determination to proceed with normalisation after years in which the central bank pursued an ultra-easy policy that included the world’s last negative interest rate until March.
Its actions on July 31 fuelled speculation that one more hike may come this year. Ueda said at a press conference that any additional hikes this year would be data-dependent and would be undertaken only after considering the impact of today’s move as well as the March rate increase.
See also: Stubborn US inflation set to reinforce Fed’s go-slow approach
Asked if the BOJ could lift rates beyond 0.5%, Ueda said: “If you’re asking if we view that as a wall, we don’t really have that sense.”
He also cited the weak yen as a risk factor for rising inflation. “It’s better to make adjustments as early as possible, even if only little by little,” the governor said, adding that rates remain extremely low in real and nominal terms.
Coming hours before the Federal Reserve is set to meet, Ueda’s hawkish tilt may spell a turning point for the beleaguered yen, as traders position for a narrowing of the US-Japan interest rate gap.
Any comments by the Fed hinting at the possibility of a rate cut in September would support the narrative of a shrinking rate gap and likely support the yen.
While the BOJ’s interest rate remains low by global standards, it is now at its highest since December 2008. — Bloomberg
SE Asia likely to outpace China’s growth this decade: report
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Southeast Asia is set to outpace China over the next 10 years in terms of gross domestic product (GDP) and foreign direct investment (FDI) growth, according to a new report by DBS Bank, Bain & Company and the Angsana Council, a non-profit advisory council by Monk’s Hill Ventures.
The report, titled Navigating High Winds: Southeast Asia Outlook 2024–2034, finds that the GDP of the top six economies in Southeast Asia (SEA-6) will grow at an annual average rate or 5.1%, with Vietnam and the Philippines driving the region’s growth, exceeding 6% each.
The report provides a 10-year growth forecast for SEA-6 economies by reviewing factors that impact labour, capital and productivity. It also highlights the historical economic performance of SEA-6 markets against traditional and contextual drivers of growth.
In 2023, for the first time in 10 years, the SEA-6 attracted more FDIs than China; the SEA-6’s FDI grew to US$206 billion ($276.83 billion) while China recorded US$43 billion.
Between 2018 and 2022, SEA-6 grew its FDI by 37%, compared to China’s 10%.
This is mainly due to politics and not competitiveness as the main driver of change, says Charles Ormiston, the founding partner of Bain & Company’s Singapore office, at a briefing on July 30.
Ormiston says both Southeast Asia’s internal political openness and geopolitical tensions between the US and China will contribute to this.
Yet, China’s domestic capital formation is at a high 90%, which Ormiston says does not mean China will have lower growth rates because it is losing out on FDI flows. “Is this because Southeast Asia is now so much more competitive versus China? No, it’s really because politics and tariffs is the main driver of this change,” he adds.
Driving home the point about China’s competitiveness compared to Southeast Asia, Ormiston says: “Chinese businesses are so competitive in most of the industries that are being worked on. And there are reasons for that number of engineers, the quality of infrastructure, and it’s only increased over time.”
He notes that the cost of moving operations outside of China to a country in Southeast Asia because of the China-plus-one strategy will often be higher. This is due to a lack of infrastructure, supplier base and help from the local government. In addition, China remains the largest trading partner for each of the SEA-6.
Therefore, the report recommends that Southeast Asian companies should work as closely as possible with China to benefit from its low cost and steady financing in order to benefit from the US China trade competition.
Vietnam and the Philippines are set to grow at an average annual rate of more than 6% over the next 10 years. For Vietnam, this can be attributed to the country’s domestic ecosystem, which promotes a “healthy inter-provincial competition” and a strong workforce.
This sets them up to attract diverse investment sources. Meanwhile, the Philippines’ pro-growth administration, which is prioritising infrastructure investments, particularly with renewable energy projects, are gaining investor interest.
Taimur Baig, chief economist at DBS Bank, says Malaysia’s 4.5% projected growth shows “real optimism for the first time”, which is a substantial step-up in his view due to the excitement around its semiconductor and data centre ambitions in Penang, Kuala Lumpur and Johor.
“By comparison, Singapore’s 2.5% average annual growth number looks terrible, a far cry from the 4%–5% [of its peers], but the nation will suffer a huge drag from ageing.”
Looking ahead, the report encourages the SEA6 to adopt opportunities in five areas: in emerging growth sectors, being proactive in leveraging technology, developing financial markets, accelerating the green transition and embracing collective growth.
The report highlights that Singapore, Malaysia and Thailand are set to become major players in creating various financial products and services, including those related to banking, insurance, private equity and microlending.
Meanwhile, the Philippines, Vietnam and Indonesia are well-positioned to provide affordable energy, which will support the region’s increasing energy demands. — Nicole Lim
EDB, IETA launch invitation-only Singapore Carbon Market Alliance
The Singapore Economic Development Board (EDB) and IETA have launched the Singapore Carbon Market Alliance (SCMA), the first platform in Singapore aimed at helping companies obtain access to high-quality, Article 6-aligned carbon credits.
SCMA is a by-invitation-only alliance that will connect developers and suppliers of carbon credits with Singapore-based corporates that are keen to purchase such carbon credits.
Article 6 of the Paris Agreement sets out how countries can pursue voluntary cooperation to reach their climate targets. SCMA says these credits can help companies meet their corporate climate goals. They can also be used towards Singapore’s Nationally Determined Contributions (NDCs).
The initiative was launched on July 31 by Low Yen Ling, Senior Minister of State, Ministry of Trade and Industry, at the Bloomberg Sustainable Business Summit.
SCMA’s member companies of more than 50 include chemicals company Evonik Methionine SEA, tech giant Google Asia Pacific and non-profit The Nature Conservancy.Members also include Singaporean firms Sembcorp Industries U96 , Changi Airport Group and GenZero, Temasek’s decarbonisation-focused investment subsidiary.
SCMA will hold workshops and networking sessions for its members to better understand the carbon-credit ecosystem. It will also facilitate exchanges between the industry and the Singapore government on national requirements and initiatives, say EDB and IETA, formerly known as the International Emissions Trading Association.
The launch of SCMA comes amid growing demand for high-quality carbon credits here, say the two parties. From this year, companies in Singapore will be allowed to use international carbon credits to offset up to 5% of their taxable emissions.
SCMA is the first platform in Singapore focused on catalysing Article 6 credits, says Jacqueline Poh, managing director at EDB.
The alliance is not a marketplace, she adds. “When we set up those marketplaces in a public-private partnership a few years ago, we realised that they are very far downstream, and there’s no point being very far downstream if there’s nothing providing the solutions that are upstream.”
Poh hopes SCMA will serve as a convening platform for carbon-credit buyers and sellers, solving “upstream” obstacles before firms decide to transact in the carbon markets. “This is where we need to be at this point in time,” she adds. “We’re facilitating a space and platform to foster knowledge and meaningful connections between the different stakeholders here.”
According to Poh, EDB will announce more initiatives around the carbon markets in the coming months, with Climate Week NYC 2024 in New York this September and COP29 in Azerbaijan this November.
Singapore is home to more than 120 firms across the carbon management value chain, says Low in her opening remarks. “Many of these firms are, in fact, global organisations that play a key role in driving environmental impact and supporting companies in achieving climate goals.”
Recent controversies in the carbon markets have “unfortunately” heightened concern and scrutiny on the use of credits, adds Low. “But having said that, I feel rather than being discouraged, we should see it as glass half-full and not glass half-empty. Do not wait for things to be cleared up. Because that might take some time, I think we all need to now roll up our sleeves and get involved.”
Singapore is committed to contributing to the growth of the carbon markets “by convening constructive actors and trusted expertise”, she adds. “This includes carbon services and trading firms specialising in low-carbon advisory, project development, financing, as well as verification.”
Singapore is pursuing Article 6.2 partnerships with more than 20 countries, says Low. Article 6.2 allows countries to exchange mitigation outcomes bilaterally and to report their trade, and use them towards their NDCs.
This means Singapore can one day exchange carbon credits and even renewable power directly with other countries through bilateral agreements.
Singapore has signed implementation agreements with Papua New Guinea and Ghana to cooperate on carbon credits. The republic has also signed memoranda of understanding with 14 countries across Latin America, Asia and Africa. — Jovi Ho
