Bank of Japan stuns markets

This is an audio transcript of the FT News Briefing podcast episode: ‘Bank of Japan stuns markets’

Jessica Smith
Good morning from the Financial Times. Today is Wednesday, December 21st. And this is your FT News Briefing.

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Japan’s central bank finally caved and markets trembled. A group of FTX customers is trying to get to the front of the line for refunds. And the FT’s Tom Wilson looks back on a dramatic year in energy markets.

Tom Wilson
I mean, there, in this chapter, this chapter would really be called “Russia”, wouldn’t it?

Jessica Smith
I’m Jess Smith, in for Marc Filippino, and here’s the news you need to start your day.

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The Bank of Japan rattled markets with a surprising shift in monetary policy. Japan’s central bankers had long stuck to an ultra loose policy, and they refused to join other central banks in raising interest rates. But yesterday, BOJ officials, led by governor Haruhiko Kuroda, said they’ll allow 10-year bond yields to fluctuate by half a per cent instead of a quarter of a per cent. The FT’s Jennifer Hughes says Japan’s move amplified the hawkish message that markets have been hearing.

Jennifer Hughes
It’s like there was a sort of “hold my beer” competition among the biggest central bankers in the world. Last Wednesday, we had the Fed’s Jerome Powell sort of stressing that we still have a long way to go before regaining price stability. Then the next day, Christine Lagarde from the ECB, the European Central Bank, kind of did her “hold my beer” moment, and she was even more hawkish. And now we’ve got Kuroda, this guy who’s stuck to this extreme easing policy that is, he’s been the one guy that wouldn’t budge. And now he’s come to the party, too.

Jessica Smith
Jen, did markets react because of what the Bank of Japan did or what they think it means for where the direction of monetary policy is headed?

Jennifer Hughes
It’s a bit of both. I don’t think we’re expecting the BOJ to throw out their current rule book and suddenly race to join the interest rate rises like the Fed and the ECB anytime soon. And so you’ve had the governor Haruhiko Kuroda, who steps down next year. He’s been adamant that inflation is transitory. The government has spent billions propping up the yen a little earlier this year in intervening in the currency markets. So now to see this change we weren’t expecting suggests that the next Bank of Japan governor is going to change policy more significantly, which will mean huge things for the Japanese markets.

Jessica Smith
That’s the FT’s US markets editor, Jennifer Hughes.

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Sam Bankman-Fried has signed extradition papers, and he’s expected to return to the US from the Bahamas. The former head of bankrupt cryptocurrency exchange FTX faces charges of fraud. His former company, meanwhile, has been hit by various lawsuits. The latest legal action comes from a group of FTX customers who have a collective $1.6bn stuck in the bankrupt company. They’re pushing to get their money back more quickly. Here is the FT’s Josh Oliver.

Joshua Oliver
So what’s important about this legal action when it’s taken is that it’s really about the customers’ assets and whether a significant portion of all the money that’s in play in this bankruptcy is going to be walled off and basically given back to customers as soon as possible. The question is, you know, does FTX, the now bankrupt company, own these assets or do they still legally belong to the customers because they were the customers’ assets all along and FTX held them in custody? And that affects what assets are left that are owned by FTX and all of its related companies to be divided up among the other creditors.

Jessica Smith
At this point, how do you see the FTX collapse affecting the broader cryptocurrency industry?

Joshua Oliver
I think part of what’s happening is a reckoning around not necessarily crypto in general, but crypto middlemen. And the fact that you have, you know, largely unregulated intermediaries that are performing functions that very much resemble financial institutions but they’re, you know, they’re avoiding regulation partly by where they’re located and partly by dealing in novel assets. Even some people in crypto think that that’s not something that is good or sustainable. So it’s less the case of: will there be such a thing as bitcoin, you know, in one year, in two years, in ten years? It’s more a question of: how much longer will it be tolerable to have, you know, companies operating as, you know, taking customer deposits in the way that they do with so little oversight.

Jessica Smith
Josh Oliver is an asset management reporter for the FT.

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2022 was a tumultuous year for energy markets. The big factor was, of course, Russia’s invasion of Ukraine. But our energy correspondent Tom Wilson says it wasn’t until a few days after the invasion that he realised how much upheaval there would be.

Tom Wilson
The big moment for me that really made me realise the implications of Russian invasion of Ukraine on the energy market was BP’s decision back in February, three days after the invasion, to announce that it was planning to divest its stake in the Russian state-owned producer Rosneft. With, it’s now easy with hindsight to see, to say, “Well, look, of course BP had to do that.” But thinking back, BP was actually the first western company to say it would divest following the Russian invasion. And as we now know, it was then followed by several other, almost every other western oil major in the country and then by many, many other western corporations. And that and, when BP made that decision, you thought, “OK, right. This is serious”.

Jessica Smith
But Tom, this invasion had been suspected for a while and Russia had already invaded Crimea. So what you’re talking about is not so much what Russia did, but how the world reacted, right?

Tom Wilson
Exactly. I mean, the thinking on Russia was that Russia’s energy ties with Europe were so tightly intertwined that even in the event of a war, that energy would still flow. For example, on gas, that Gazprom’s gas contracts through which they delivered gas into Europe were ultimately sacrosanct. And then even if there was an invasion, that gas would continue to flow. And you take, for example, the Russian invasion of Crimea uhm, didn’t impact the flow of gas. Similarly, I think the Russian invasion of Georgia had an impact on the flow of gas. So there was this latent feeling in the energy sector that even in the event of the invasion, that potentially energy markets would be protected and, but for me, BP making that decision was, was very significant because it basically said, “Look, western business is not gonna, is no longer gonna be comfortable working in Russia.” And if that was the case, then the natural consequences there, as time wore on, was gonna have to be disruption to energy flow.

Jessica Smith
In addition to markets, how much did Russia’s invasion shake up assumptions about energy security?

Tom Wilson
Prior to 2022 and Russia’s invasion of Ukraine, a large part of the west had taken energy security for granted. For decades, there was a sense that energy was available, abundant and relatively affordable for most of the population in the west. And with one eye on the climate crisis, the plan had been to rather quickly reduce production of oil and gas and transition to greener forms of power. And then the Russian invasion of Ukraine really turned that plan on its head. Availability of energy became an issue, and energy security became a massive talking point. Basically, having cut Europe off from one of the world’s biggest oil and gas exporters and having seen the consequences of those measures on energy prices. European policy makers are now wrestling with how fast that energy transition can happen.

Jessica Smith
So, Tom, now I have to ask you what next year’s chapter in energy markets will be titled, or at least what do you suspect it will be about.

Tom Wilson
Well, unfortunately, next year is still gonna be about Russia. We have to see what impacts the European ban on Russian crude exports, which came in at the start of December, to see what impact that has. That’s gonna be followed in February by the EU’s ban on the import of Russian refined petroleum products. And then looking beyond that, when we come through this winter and get to next summer in the gas market, we’ll be looking at what does Russia do in terms of Russian gas exports into Europe? And the other big player to watch is Saudi Arabia and the Opec+ alliance, which Russia is a part of. They really had a big year and you could argue that November, December with them was the moment that the Opec+ alliance, and particularly Saudi Arabia, sought to take control back over the oil market. Many eyes will be on the Opec+ alliance and Saudi Arabia, particularly in the first few months of 2023, to see where the oil price is in January and February and what Opec+ does in response.

Jessica Smith
That’s our energy correspondent, Tom Wilson. Thanks, Tom.

Tom Wilson
Thanks very much.

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Jessica Smith
You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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