Aswat Asharq Al-Awsat :

Aswat Asharq Al-Awsat : Bank of Japan to Trim Bond Buying, Keeps Rates Steady

An aerial view of Tokyo, Japan. (Reuters)
An aerial view of Tokyo, Japan. (Reuters)

Bank of Japan to Trim Bond Buying, Keeps Rates Steady

An aerial view of Tokyo, Japan. (Reuters)
An aerial view of Tokyo, Japan. (Reuters)

The Bank of Japan said on Friday it would start trimming its huge bond purchases and announce a detailed plan next month on reducing its nearly $5 trillion balance sheet, taking another step toward unwinding its massive monetary stimulus.
While it will continue to buy government bonds at the current pace of roughly 6 trillion yen ($38 billion) per month for now, the central bank decided to lay out details of its tapering plan for the next one to two years at its July meeting, Reuters said.
The plan to slow bond purchases was widely anticipated. However, the lack of immediate details was seen by some investors as an indication the central bank will be cautious in adjusting monetary policy going forward. That dovish market interpretation sent the yen and Japanese bond yields lower.
"Today's decision suggests that the BOJ is very careful about reducing the bond buying amounts, which means the central bank is also cautious about raising rates," said Takayuki Miyajima, senior economist at Sony Financial Group. "It has become less likely that the BOJ will raise rates in July."
The BOJ said it will collect views from market players, before deciding on the long-term tapering plan at its next meeting.
As widely expected, the BOJ kept its short-term policy rate target in a range of 0-0.1% by a unanimous vote.
The central bank also maintained its view the economy continues to recover moderately with consumption holding firm.
After the announcement, the yield on the benchmark 10-year Japanese government bond (JGB) fell to 0.915% while the yen hit a more than one-month low of 158.255 to the dollar.
"In trimming bond buying, it's important to leave flexibility to ensure market stability, while doing so in a predictable form," BOJ Governor Kazuo Ueda said at a briefing after the meeting. "The size of reduction will likely be significant. But specific pace, framework and degree will be decided upon discussions with market participants”.
Analysts; focus now on whether recent economic weakness, particularly in the consumer sector, will affect the timing of the BOJ's next rate hike.
"It is possible that the BOJ got concerned about the real economy and thus felt reluctant to tighten too fast," said Shoki Omori, chief Japan desk strategist at Mizuho Securities, on the bank's decision to hold off on tapering immediately.
"Governor Ueda has been always worried about weakness in consumption, in my view," he said, adding there was now a smaller chance the BOJ would hike interest rates in July.
The BOJ exited negative rates and bond yield control in March in a landmark shift away from a decade-long, radical stimulus programme.
It has also dropped signs that it will keep raising short-term rates to levels that neither cool nor overheat the economy - seen by analysts as being somewhere between 1-2%.
Many market participants expect the BOJ to raise rates again some time this year, though they are divided on the timing.
The central bank has also been under pressure to embark on quantitative tightening (QT) and scale back its massive balance sheet to ensure the effects of future rate hikes smoothly feed into the economy.
The BOJ's efforts to normalize monetary policy come as other major central banks, having already tightened monetary policy aggressively to combat soaring inflation, look to cut rates.
The Federal Reserve held interest rates steady on Wednesday and signaled the chance of a single cut this year. The European Central Bank cut interest rates last week for the first time since 2019.
However, the normalization of Japan's still-loose monetary policy is clouded by weak consumption and doubts over the BOJ's view that robust domestic demand will keep inflation on track to durably hit its 2% target.
Receding prospects of steady US interest rate cuts may also keep the yen weak against the dollar, complicating the BOJ's policy deliberations.
Japan's battered currency has become a headache for policymakers by inflating import prices, which in turn boosts living costs and hurts consumption.

Aswat Asharq Al-Awsat : Saudi SAMA Explores Potential of Digital Currencies to Facilitate Payments Globally

The Saudi Central Bank. (Aswat Asharq Al-Awsatt)
The Saudi Central Bank. (Aswat Asharq Al-Awsatt)

Saudi SAMA Explores Potential of Digital Currencies to Facilitate Payments Globally

The Saudi Central Bank. (Aswat Asharq Al-Awsatt)
The Saudi Central Bank. (Aswat Asharq Al-Awsatt)

With many consumers abandoning physical cash, and in light of the accelerating development of crypto-currencies, central banks in the world have started working to ensure a legal and safe cover for the use of digital currencies.

According to the Bank for International Settlements (BIS), 135 countries and monetary unions, representing 98 percent of global GDP, are exploring digital currencies for central banks, compared to only 35 countries in 2020.

The International Monetary Fund (IMF) indicates that about two-thirds of the countries in the Middle East and Central Asia are considering adopting digital currencies for their central banks as a means to enhance financial inclusion and improve the efficiency of cross-border payments.

The Central Bank of Saudi Arabia (SAMA) joined as a full participant in a multi-country digital currency initiative, known as the mBridge project, which was positioned as a potential alternative to the SWIFT payment system to enable faster and potentially cheaper international payments.

Head of Development at Binance in Saudi Arabia Bandar Altunisi told Aswat Asharq Al-Awsatt that the mBridge project was a cooperative initiative led by the BIS to explore the potential of digital currencies issued by central banks to facilitate trade and instant cross-border payments.

The project includes the central banks of China, Thailand, Hong Kong, the United Arab Emirates and Saudi Arabia.

In addition to the five participating central banks, the project includes 27 other official entities with observer status, such as the IMF, the World Bank, and central banks in many countries, including Norway, South Korea, and Türkiye, according to Altunisi.

“The mBridge project, which was launched in 2021, represents an innovative solution to address the gaps and challenges of inequality in the current procedures used for cross-border payments,” he explained.

Altunisi believes that the success of this project will contribute to accelerating cross-border payments and reducing their cost.

As for the importance of this project for Saudi Arabia, he noted that it will provide new settlement solutions for oil and gas exports. On a broader scale, trade will become more efficient, ultimately benefiting all parties involved, including the final consumer, he remarked.

He added that additional expertise in the field of Blockchain and distributed ledger technologies (DLT) provided by the mBridge project will give regulatory authorities in Saudi Arabia more comfort and ease in allowing broader regulation and application of crypto-currencies and other solutions based on Blockchain technology.

Altunisi spoke about the difference between digital currencies that central banks are considering adopting and encrypted ones, such as Bitcoin and Ethereum. He noted that the latter are decentralized currencies that use encryption techniques to boost the security of transactions and rely on Blockchain technology to ensure transparency and immutability of transaction records.

Digital currencies are digital copies of paper currencies issued and regulated by central banks, Altunisi stated, adding: “Unlike crypto-currencies, these digital currencies are centralized and usually aim to improve the efficiency of payment systems, bolster financial inclusion, and provide governments with better monetary policy tools.”