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Analysis-Japan keen to speed up digital yen launch as China adds geopolitical twist

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Analysis-Japan keen to speed up digital yen launch as China adds geopolitical twist
© Reuters. FILE PHOTO: A man wearing a protective mask stands in front of the headquarters of the Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon/File Photo

By Leika Kihara

TOKYO (Reuters) – Japan’s new political leadership is calling on the country’s financial bureaucrats to ramp up efforts toward issuing a digital currency, pointing to China’s far quicker progress as a potential challenge to the global economic order.

The government has increased staff looking into legal and technical aspects of issuing a central bank digital currency (CBDC), which are digital forms of existing currencies.

While the political attention has yet to translate into any other direct investment, it is also likely to keep the Bank of Japan (BOJ) under pressure to shift away from its cautious, baby-step approach toward issuing a digital yen, analysts say.

“We must think about what could happen to Japan’s national security if other countries move ahead on CBDC,” said Takayuki Kobayashi, a minister overseeing economic security – a new role created under Prime Minister Fumio Kishida’s administration.

“Japan must speed things up so it’s ready to issue a digital yen any time,” he said.

A global front-runner, China has already run tests in major cities for a possible launch of a digital yuan next year. Japan, along with other G7 advanced nations, have moved much slower.

The BOJ only started the first phase of its experiment in April, and says it has no immediate plans to issue a digital yen. Pilot programmes, if any, won’t take place until 2023 at the earliest.

That lukewarm stance may be put to test as Kishida has made economic security a policy priority, and framed questions around CBDC beyond finance into one of national security.

While G7 central banks generally agree on the need to counter China on issues around privacy, the case is particularly strong for Japan as lawmakers worry about the growing economic might of its assertive neighbour.

Some influential ruling party lawmakers see China’s advances on CBDC as a potential threat to the dollar’s status as a global reserve currency, and the financial dominance of Washington – Japan’s biggest ally.

A close aide to Kishida told Reuters Japan must “work closely with the United States to counter any attempt that threatens the dollar’s reserve-currency status,” adding the BOJ was coordinating with the finance ministry to ensure speedy progress for issuing a digital yen.

Opposition parties have also called in their election campaign platforms for speeding up CBDC plans.

BOJ officials say China’s plan won’t directly affect the timeframe for their CBDC experiments as the key purpose of issuing a digital yen is to provide convenient, efficient payment and settlement means to the public.

What could affect the BOJ more than China’s plan would be how quickly its European and U.S. counterparts announce plans for issuing CBDCs, say sources familiar with its thinking.

Debate over issuing a digital yen may intensify next year as Kishida’s administration lays out details of its economic security plans, and as China is seen promoting its digital yuan at the Beijing Winter Olympic Games in February.

“It’s clear Kishida’s administration and his ruling party are keen on issuing a digital yen,” said former BOJ board member Takahide Kiuchi, who is currently an economist at Japan’s Nomura Research Institute.

“If China launches a digital yuan next year and Europe’s central bank announces plans to issue a digital euro, that will have a huge impact on Japan and pile pressure on the BOJ.”

Forex

The US dollar rate today is stable against the euro, rising against the yen

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us dollar rate today

The US dollar rate today is stable against the euro, rising against the yen and weakly rising against the pound. The market is waiting for the publication of the Federal Reserve’s (Fed) July meeting minutes.

The Fed will release the minutes of the Federal Open Market Committee (FOMC) meeting on Wednesday, July 26-27.

Fed Chairman Jerome Powell said during a news conference following the July meeting that the U.S. Central Bank may slow the pace of increases in the base interest rate, and the minutes may give the same signal, according to a currency market analyst at MUFG Bank Sophia Ng, whose opinion leads to Dow Jones. This will confirm market participants in the opinion that the Fed will raise the rate by less than 75 basis points in September, the expert said.

Dollar rate chart

The euro/dollar pair is trading at $1.0169, compared to $1.0171 at the close of the previous session.

The U.S. currency went up by 0.26% to 134.55 yen against 134.22 yen in Monday trading. The pound grew by 0.12% to $1.2111 from $1.2096 a day earlier.

The index, calculated by ICE, which shows the dollar trend against six currencies (euro, Swiss franc, yen, Canadian dollar, pound and Swedish krona), lost 0.13%, while the broader WSJ Dollar Index – 0.07%.

As of Tuesday’s trading results, the dollar fell 0.14% against the euro and 0.37% against the pound, while strengthening 0.68% against the yen.

Earlier we reported that the quarterly GDP growth estimate for the euro zone had worsened to 0.6%

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Is the EU economy growing? Quarterly GDP growth estimate for the eurozone worsened to 0.6%

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Eurozone gdp growth 2022

Is the EU economy growing? Quarterly estimate of eurozone GDP growth worsened to 0.6%Eurozone GDP growth quarterly estimate worsened to 0.6%In the 2nd quarter, the economy of 19 eurozone countries increased by 0.6% compared with the previous quarter, according to the revised data of the EU Statutory Administration.

Thus, the indicator was worsened from the preliminary estimate of 0.7%.

Eurozone gdp growth 2022

Analysts on average did not expect a revision from the previously announced level, according to Trading Economics. On an annualized basis, eurozone GDP grew by 3.9% in April-June, rather than 4% as previously reported. Experts also did not forecast a revision of this indicator.

Among the largest economies of the region, the GDP of Spain increased by 1.1% in quarterly terms. Italy – by 1%. France – by 0.5%. Meanwhile, the German economy remained unchanged from the first quarter, while the GDP of Portugal, Lithuania and Latvia decreased by 0.2%, 0.4% and 1.4% respectively.

In Q1 this year, eurozone GDP growth was 0.5% quarter-on-quarter and 5.4% year-on-year. This is the second of three estimates of quarterly economic growth in the currency bloc. The final data will be published on September 7. The quarterly GDP growth estimate for the euro area has been downgraded to 0.6%. 

Earlier we talked about crude oil price forecast for 2022.

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Crude oil price forecast 2022: WTI in free fall amid global turmoil

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crude oil price forecast 2022

Crude oil prices are in free-fall at the beginning of the week, with a barrel of West Texas Intermediate currently trading at $86.63, not far from this month’s low of $86.40. What is the crude oil price forecast for 2022? 

Several factors are affecting oil prices, the main one being the worsening demand outlook. Data from China showed that in July, the country’s crude oil transshipment fell to its lowest level since March 2020, at 53.21 million tons of crude oil. This figure was also 8.8% lower than in the same period last year. Also, disappointing data on retail sales and industrial production in China revived fears of a global recession.

Crude oil price forecast chart – what affects the forecast? 

On the supply side, Saudi Aramco’s CEO said Sunday that they could increase production to a maximum capacity of 12 million barrels per day if the government demanded it. Looking ahead, Iran’s response to the EU’s proposal to reopen the 2015 nuclear deal, which is expected to be announced later in the day, could affect crude oil prices. Should Iran and the U.S. reach an agreement, it could lead to the lifting of sanctions on oil and gas exports from Iran.

The aforementioned August low is WTI’s lowest level since February, which means that a break below it could lead to a sharper drop. The initial bearish target and immediate support level is the $86.10 area, where the black gold has several intraday highs and lows since January of this year. A bearish breakout could lead to a test of the $85.00 level. The sour tone in stocks will likely keep crude oil prices in a downtrend for the rest of the day.

If Wall Street recovers, WTI could also find some demand. Intraday resistance is at the $88.50 and $90.00 levels. Nevertheless, technical indicators suggest that oil prices will be declining in the near term, adding to the negative fundamental picture.

Earlier we reported that the dollar is rising against the euro and the pound

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