TOKYO, May 17: The Bank of Japan is expected to hold off on boosting asset purchases when it reviews policy next
week, preferring instead to save ammunition as Europe’s deepening debt crisis could warrant action in coming months to
fend off damage to the fragile economy.
BOJ officials, keeping a wary eye on developments in Europe,
are ready to pull the trigger if fears of a Greek exit from the euro zone push the yen well above its record high and hit share prices enough to threaten Japan’s recovery prospects.
Otherwise, the central bank hopes to stay put and assess the
effect of its monetary easing steps in February and April.
Data on Thursday underscored expectations that policy will
be on hold. Japan’s economy rebounded from a lull in the first
quarter, adding to evidence of a fragile but steady recovery,
giving BOJ some breathing space although not for long as the export outlook remains uncertain.
‘The economy is moving in line with the BOJ’s forecast, but
the bank must be watching financial markets closely as they remain jittery over Europe’s sovereign debt crisis,’ said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute in Tokyo.
‘The timing of further monetary easing would depend more on
(global) financial market movements than on the real economy.’
The BOJ now regards asset purchases as its key monetary easing tool and is expected to hold its main policy rate at a
range of zero to 0.1 percent.
PAUSE BUT NOT FOR LONG
The BOJ last month increased government bond purchases by 10
trillion yen ($124 billion) under its asset-buying programme in a largely symbolic move to show its resolve of achieving its 1 percent inflation target.
The move failed to sustainably weaken the yen or nudge up
share prices partly due to renewed market jitters over Europe’s debt crisis, keeping the BOJ under pressure for steps to prevent a strong yen from hurting the export-reliant economy.
But central bank policymakers have signalled that they prefer to pause with the yen off last year’s record high and the
economic outlook brightening.
Behind their reluctance lies the fact that the BOJ, which
has pledged to buy 29 trillion yen in Japanese government bonds
(JGB) under the asset-buying fund by June 2013, is already struggling to force-feed funds to markets awash with cash.
It failed to meet its target for bond buying on Wednesday
for the first time since adopting the asset-buying programme in 2010, while safe-haven demand for JGBs sent the two-year bond yield to a seven-year low of 0.095 percent.
Any further easing will likely take the form of further increases in JGB buying which may involve targeting bonds with
longer dates until maturity such as those with duration of up to five years, say sources familiar with the BOJ’s thinking.
That is a step the bank does not want to take easily as it
would tie its hands for longer than it prefers, making an exit from ultra-loose policy more difficult, they say.
While the BOJ will likely stress its readiness to ease again
when necessary, it will time its actions carefully.
Many market players expect the BOJ to next ease policy in
July, when it conducts a quarterly review of its economic and
price projections that may show the slow progress the country is making in emerging from deflation.
Even if it were to act, the BOJ is unlikely to cut the interest it pays on excess cash reserves parked with it to zero
from 0.1 percent as doing so would not help push down already very low borrowing costs.
($1 = 80.3550 Japanese yen)
(AGENCIES)

SINGAPORE/HONG KONG, May 17: Royal Bank of Canada and Credit Suisse are among suitors who have put in initial bids to buy the non-U.S. Wealth management business of Bank of America in a deal that could be worth about $2 billion, so ur ces said.
Swiss bank Julius Baer was also keen to bid for some of BofA’s units in Europe, the Middle East, Latin America and Asia excluding Japan, the sources, who had knowledge of the matter, told Reuters. It was not clear whether Switzerland’s third-biggest bank had submitted an initial bid.
The deal would be the biggest in the wealth management industry since ING Group sold its private banking assets in Europe and Asia in 2010 to Julius Baer and Singapore’s Oversea-Chinese Banking Corp, respectively, for a total of about $1.9 billion.
Bank of America, which the sources said has already received non-binding bids, is auctioning off the businesses, Reuters reported last month, as its non-U.S. wealth division is too small to produce meaningful profits.
The units manage about $90 billion of an estimated $2 trillion that the wealth division oversees at the second-largest U.S. Bank by total assets.
Some earlier estimates put the deal value at as much as $3 billion but sources said the units up for sale could realistically fetch $1.5-$2 billion based on a multiple of about 2 percent of client assets under management. Emerging market assets could command higher multiples.
CONSOLIDATION THEME
Consolidation in the wealth management industry has been a major theme in the banking sector since the 2008 financial crisis, as an increase in costs and regulation forces players to sell off the units that serve the rich.
‘Bank of America is selling because it is shrinking the company. This must be its first priority,’ said Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida. ‘There are likely to be multiple buyers at a relatively low price.’
Bank of America has lagged peers in recovering from the financial crisis, largely because of huge losses and lawsuits tied to its 2008 acquisition of subprime mortgage lender Countrywide Financial.
The first-round bids closed this month and Bank of America is in the process of notifying the shortlisted suitors, one of the sources said.
The sources declined to be identified because the bidding process is not public. Bank of America, Julius Baer, Credit Suisse and Royal Bank of Canada (RBC) declined to comment.
‘We’re in a quiet period and we wouldn’t comment on rumour,’ said RBC spokeswoman Rina Cortese.
Canada’s largest bank, which will release second-quarter results on May 24, has been growing its wealth management business and made acquisitions that included British fund manager BlueBay Asset Management for $1.5 billion about two years ago.
RBC, which has said it wants to expand its wealth operations organically and with small- and medium-sized acquisitions, is also buying some overseas units of the Coutts private banking business from Royal Bank of Scotland.
ALL IN ONE GO?
In any auction, companies generally prefer to sell the entire group in one go, as that is easier and faster to negotiate and execute, sources say.
A source with knowledge of the deal said it looks very likely that Bank of America is interested in selling the business in one chunk.
‘It will definitely complicate them immensely if they have to cut it up,’ the source said. ‘My view is that they are going to sell it as a whole and therefore the number of banks that actually can do it will be more limited.’
But, like so many sellers of businesses that span the globe, Bank of America may explore selling the units in geographical chunks, some sources said. That process is more complicated but could generate more money in the end by selling multiple parts at a premium instead of one.
Such a strategy could attract bids from China, South Korea and Singapore as banks in the three countries are trying to expand their wealth management services to tap Asia’s growing affluence.
SLOW BURN
The sale process is not advanced and Bank of America’s commission-based compensation model is proving to be a challenge for many suitors, the sources said. That is because the structure competes in a private banking world where financial advisers increasingly are being paid fees based on assets under management in a move towards curbing risk.
Integrating the two compensation models will be difficult for potential buyers, sources said. The other option is to run the two models separately.
‘A lot of suitors are having a hard look at the business model,’ one source said.
In Singapore, the most visible interest could come from United Overseas Bank, which does not have a wealth management business as big as those run by rivals DBS Group and OCBC, banking sources said.
UOB was not immediately available to comment. The Singapore bank is among suitors who have bid for ING’s Asian asset management business, sources said earlier this week.
The size of the emerging market wealth opportunity is tantalizing, outlined in several reports that show just how large the business could be in a place like Asia.
The combined wealth of the rich from Hong Kong and Singapore alone is forecast to surge nearly 70 percent to $1.3 trillion by 2015, according to a survey by Julius Baer released late last year.
At 3.3 million, the number of Asian millionaires has risen above Europe’s 3.1 million and just trails the 3.4 million in North America, according to the Merrill Lynch/Capgemini Asia-Pacific wealth report issued last year.
McKinsey & Co forecast the number of rich in Asia will rise 14 percent per year through 2015 compared with 4 percent growth in Europe and 5 percent in North America. (AGENCIES)

TOKYO, May 17: Japan’s economy bounced back in the first quarter from a year-end lull, powering ahead of other major industrial nations thanks to rebuilding of the tsunami-battered northeast, solid private spending and some improvement in exports.
The world’s third-largest economy grew 1.0 percent in the January-March quarter, just above a median forecast of 0.9 percent. A 0.2 percent contraction in the economy reported for the final three months of 2011 was revised up to flat in the government data released on Thursday.
The figures underlined expectations that growth would slow down during the rest of the year, partly as the impact of the rebuilding effort fades. They also did little to alter the view that the Bank of Japan will leave policy settings unchanged at a meeting next week, having eased last month.
‘Consumer spending and public investment are what drove the economy, with auto demand stirred by government subsidies and investment helped by extra budgets after the earthquake,’ said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.
‘So, with government policies behind the quarterly growth, we can’t say this is a reflection of real strength in the Japanese economy.’
The first-quarter rise in gross domestic product translated into an annualised rate of growth of 4.1 percent, stronger than 3.5 percent expected by analysts.
That pace exceeds annualised growth of 2.2 percent in the United States in the same quarter, and outperformed European heavyweights Germany, Britain, France and Italy.
The earthquake and tsunami stalled growth for the full financial year to the end of March 2012 after the economy had expanded 3.2 percent a year earlier. A Reuters poll predicted a 2.0 percent rebound in growth in the current financial year.
EXPORT OUTLOOK UNCERTAIN
Private consumption, which makes up about 60 percent of economic activity, rose 1.1 p ercent, higher than an expected 0.8 percent, helped by government subsidies on sales of fuel-efficient cars.
It contributed 0.7 percentage point to the quarter’s growth, while public investment, which would cover the post-tsunami rebuilding effort, added 0.3 percentage point to the expansion.
A fall in the yen in the first quarter compared with the fourth quarter and a pick-up in overseas demand saw exports contribute 0.1 percentage point, after taking away 0.7 percentage point from growth in the previous quarter.
But the yen’s longer-term rise and global uncertainty because of Europe’s debt turmoil could weigh on Japan’s exports, a factor keeping policymakers jittery.
‘I’m closely watching the situation in Europe as it sways foreign exchange market moves. We’ll take bold steps against excessive foreign exchange moves,’ Economics Minister Motohisa Furukawa told reporters.
Economists expect the first quarter to mark the peak of growth in 2012. They produced median growth forecasts of 0.5 percent for the second and third quarters and 0.4 percent for the fourth quarter, projecting a slowdown as the effect of rebuilding fades.
‘Consumer spending is proving robust, but the key to sustainability for the economic recovery is whether or not exports regain strength,’ said Takeshi Minami, chief economist, at Norinchukin Research Institute.
In fact, the Markit/JMMA purchasing managers’ index for April suggested exports may cool. The PMI showed the manufacturing sector expanded in April from March, but that new export orders fell.
Japan is also struggling to beat chronic deflation that prompts consumers to delay purchases, although price falls as measured by the GDP deflator eased in the first quarter thanks to higher fresh food prices.
Prime Minister Yoshihiko Noda kept up pressure on the BOJ for additional monetary stimulus, saying he hopes the central bank continues to take bold action when necessary to beat deflation.
Improvements in private consumption, output and exports nevertheless will cause the government to consider upgrading its economic assessment in a monthly report for May, due out on Friday, the Asahi newspaper said.
(agencies)

KABUL, May 17: Afghanistan, which has only a semblance of a capital market, intends to sell Islamic bonds as it braces for a possible sharp fall in Western financial support as the war against the Taliban winds down, a senior central bank official said this week.
The official said the sale of short-term Islamic bonds, also known as sukuk, is still in the planning stage, but could be a new way of raising money for the government.
‘The purpose is so that the ministry of finance can have tools for their financing to cover their expenses,’ Khan Afzal Hadawal, first deputy governor at the Afghan central bank, told Reuters in an interview.
‘We have to develop the financial markets of Afghanistan. We have to offer those instruments not only for the banks, (but) so that the government has an alternative to finance their projects and the central bank can control money growth.’
Billions of dollars in Western aid have propped up the economy since the Taliban government was toppled in 2001. Now Afghanistan faces the prospect of Western cash evaporating after most foreign combat troops withdraw by the end of 2014.
One of the world’s most unstable, corrupt countries hopes financial creativity based on Islamic sharia law will help soften the blow, and ultimately deepen its nascent financial markets.
The sukuk are expected initially to be issued in the Afghani currency and offered to local banks within the next year. They may gradually be expanded to medium- and long-term bonds.
A draft law on the bonds must be approved by the justice ministry, and possibly parliament, and should be completed by the end of September, Hadawal said.
Afghanistan may need around $7.8 billion a year in foreign funding to help pay its security and other bills after most U.S.-led NATO combat troops leave, according to the World Bank. It is likely to receive about $4.1 billion in aid for its security forces per year after 2014, but that number could fall.
In the runup to a NATO summit this weekend, the U.S. government has been pressing reluctant European allies to offer around one third of the estimated $4 billion annual cost of financing Afghan forces after 2014.
If international backers slash funds severely, Afghanistan’s government may be forced to reduce spending on security and development, making it even more unpopular, and its control of the country even more fragile.
The reputation of Afghan financial institutions was badly damaged in 2010 by a scandal involving Kabulbank, which gave hundreds of millions of dollars in unsecured and undocumented loans to the country’s elite, including sitting ministers.
SOMETHING NEW, SOMETHING SECURE
The government hopes the Islamic bonds will give Afghans a sense of stability, and expand financial activities beyond the primary and secondary markets for central bank paper.
‘(Sukuk) are something new and people have access to financing, something compliant with sharia … And the most important thing is, something very secure, guaranteed and people are not worried that they will lose it,’ Hadawal said.
Islamic bonds will gradually replace capital notes that used to manage liquidity and have weekly auctions of around $40-$80 million depending on market conditions, central bank officials said. Total investment in capital notes stands at around $714 million with yields of about 2.13 percent for 28-day paper.
Unlike mainstream bonds, sukuk do not involve interest payments, which are forbidden in Islamic finance. Instead, holders receive returns from underlying assets. For more details on Islamic finance, click
Details of the assets, amount, maturities and issuance time-frame would be determined after Afghanistan gets technical assistance from the International Monetary Fund, Hadawal said.
‘We do not have the people … Who are familiar with the products, with the terms and then with the maturities,’ he said.
The Afghan finance ministry declined to comment.
Afghanistan is one of the poorest countries in the world, with annual per capita income of just $528. Its fast-growing population means that to provide jobs, the economy must expand far more rapidly than in other countries.
The central bank forecasts economic growth of 7.3 percent this year versus 3.7 percent in 2011, driven by agriculture and agri-business, but future expansion is likely to depend on major mining projects coming online.
(agencies)

SINGAPORE, May 17: Singapore’s economy grew by 1.6 per cent on a year-on-year basis in the first quarter of 2012, compared to 3. 6 per cent in the preceding quarter, official announcement said today.
But the city-state cautiously maintained its GDP growth forecast at between 1 per cent and 3 per cent for this year, citing fragile global economic outlook.
On a quarter-on-quarter, seasonally-adjusted annualised basis, the economy expanded by 10 per cent, reversing the 2.5 per cent contraction in the previous quarter, said the Ministry of Trade and Industry (MTI) today.
It said Singapore’s growth momentum has picked up, supported by a strong upturn in the manufacturing sector as the global economy started the year on a firmer footing.
But the recovery in the global economy remains fragile and vulnerable to downside risks, especially the sluggish US market and the Eurozone sovereign debt troubles.
In Asia, notwithstanding the support from rising domestic demand, growth would be curtailed by lacklustre export performances amidst the external headwinds, said MTI.
Additionally, there was increased uncertainty surrounding the Eurozone’s political climate and fiscal outlook.
“A disorderly sovereign debt default in the Eurozone cannot be ruled out at this stage. If it materialises, there will be considerable downsides for the global economy and Singapore’s externally oriented industries,” said the Ministry. (PTI)