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Tuesday November 29th, 2022

Tokyo stocks plunge over 4-pct after Wall Street sell-off

AFP – Tokyo stocks plunged more than four percent in opening trade Tuesday with investor sentiment hit by a sell-off on Wall Street and the yen’s surge against the dollar.

The benchmark Nikkei 225 index lost 4.16 percent or 943.70 points to 21,738.38 in early trade while the broader Topix index was down 3.94 percent or 71.94 points at 1,751.80.

"Investors fled to sell after the large drops on Friday and Monday" on Wall Street, said Toshihiko Matsuno, analyst at SMBC Nikko Securities.

"The gains since the turn of the year were rapid and the sudden downturn came as a shock" to market players, he told AFP.

As Wall Street continued its record-setting advances, Tokyo’s Nikkei had also hit 26-year highs on the recovering global economy and robust corporate earnings.

Markets were now entering "a correction phase," he said. "It’s natural that we see a correction though the pace is a bit too fast."

Wall Street stocks plunged in chaotic trading Monday, as the Dow’s gains for 2018 were erased in a brutal pullback from months of stock market euphoria that had been acclaimed by President Donald Trump.

The Dow Jones Industrial Average saw its steepest ever one-day point drop on inflation fears, wiping 4.6 percent off the value of America’s 30 largest companies to finish at 24,345.75, having at one point plummeted nearly 1,600 points to a low of 23,923.88.

The Japanese currency, which often draws safe-haven buying in times of uncertainty, held firm after jumping on Monday, darkening the outlook for Japanese exporters.

The dollar was trading at 109.10 yen against 109.13 yen in New York, sharply lower than rates around 110 yen seen a day earlier.

A strong yen hits Japanese exporters as it makes their products less competitive abroad and erodes profits when repatriated.

Toyota, which is to announce earnings later Tuesday, was down 3.14 percent at 7,265 yen while Canon fell 3.15 percent to 4,112 yen.

Sony lost 4.0 percent to 5,345 yen and Nintendo plunged 4.60 percent to 44,750 yen.

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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