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Explainer-Key challenges for Japan PM Kishida’s stimulus plan

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November 7, 2021

By Tetsushi Kajimoto and Takaya Yamaguchi

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida’s pledge to deliver a big economic stimulus this year faces challenges, including negotiations within his coalition and a tight schedule to secure funding for the spending.

Below are key issues confronting Kishida, his ruling Liberal Democratic Party (LDP) and the finance ministry, as discussions on the package begin in earnest on Monday:

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WHAT’S AT STAKE?

The case for supporting Japan’s economy is urgent as supply disruptions hurt mainstay exports for the world’s third-biggest economy even as consumption has yet to accelerate after the Sept. 30 lifting of COVID-19 curbs.

Having deployed huge fiscal stimulus last year, Japan risks a drop-off in support needed to support the fragile recovery, finance ministry officials say.

Delay in approving Kishida’s promised extra budget for this year could disrupt passage of other key legislation as parliament’s regular session next year must end in time for a summer upper house election.

“The government’s hope is for parliament to pass the extra budget by year end so that the spending would underpin the economy in the first quarter of next year,” a finance ministry official with knowledge of the matter told Reuters.

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HOW TIGHT IS THE TIMEFRAME?

Japan’s government and ruling bloc usually agree on additional spending plans around October, giving the finance ministry time to draft an extra budget to be enacted before previous funding runs out.

This time, the schedule is tight because procedures to craft the package and extra budget were disrupted by the Oct. 31 general election, which affirmed Kishida’s rule weeks after he took office.

Kishida says the package will focus on helping households hit hardest by the COVID-19 pandemic and include steps to distribute wealth more broadly to households. He has offered little detail on the size of the package beyond that it will be worth several hundred billion dollars.

Negotiations on the details have just begun, leaving little time for bureaucrats to compile a draft budget. The extra budget must pass through parliament next month to avoid a delay in enacting next year’s budget by the March end of this fiscal year.

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DELAY RISKS?The size and timing of the package will be swayed by how smoothly the LDP and its coalition partner Komeito agree on the size of payouts to individuals.

The government and coalition have agreed to pay each person up to age 18 about $900, costing the government some $18 billion, the Yomiuri newspaper reported on Friday.

The coalition parties on Monday will discuss details on how much to offer children, said Kyodo news agency.

The spending plan will require delicate negotiations among lawmakers and bureaucrats. In a potential signal of resistance, the ministry’s top bureaucrat, Koji Yano, recently issued a rare criticism of politicians engaging in pork-barrel spending.

MARKET FOCUS?

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Another contentious issue will be how much debt the government must issue to fund the package, another area Kishida has not detailed. The lack of clarity leaves economists guessing.

Some tip the scale of the stimulus spending around 30 trillion yen ($260 billion), a figure once floated by Kishida, but estimates vary widely.

Takashi Miwa, chief economist at Nomura Securities, expects the package to total 45 trillion yen ($400 billion), funded by an extra budget one-third that size requiring the issuance of more than 5 trillion yen ($45 billion) in fresh government debt.

Takuya Hoshino, senior economist at Dai-ichi Life Research Institute, forecasts a notably smaller budget of 20 trillion to 30 trillion yen ($180-$260 billion) but which would require up to twice as much in bond issuance at 10 trillion yen ($90 billion).

($1 = 113.8400 yen)

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(Reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Additional reporting by Yoshifumi Takemoto; Editing by Leika Kihara and William Mallard)

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Buying the Omicron dip

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November 29, 2021

A look at the day ahead from Danilo Masoni.

Sell first, get answers later. With stocks near lifetime peaks, the Black Friday reaction to the new fast-spreading virus strain Omicron was hardly surprising.

But a weekend later, investors look heavily engaged in buying the dip, as markets take a more balanced view of risks attached to what the WHO called a “variant of concern”.

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After their ninth biggest drop ever on Friday, gains in crude prices topped 5% earlier in Asia and stock futures point to a solid bounce across Europe and America.

A South African doctor said patients with Omicron have “very mild” symptoms and investment houses don’t look to have budged that much. Credit Suisse, for example, made no portfolio changes, staying slight overweight on equities.

Perhaps more telling is that retail traders poured north of $2 billion into U.S. stocks on Friday, setting the second biggest daily inflow on record, per Vanda Research data.

Of course there are uncertainties and that will likely make for volatile days heading into the Christmas shopping season.

Understanding the level of severity of the variant “will take days to several weeks”, said WHO. And vaccine maker BioNTech needs up to two weeks to figure out whether the shot it makes with Pfizer needs to be reworked.

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So while Omicron has spread from Australia to the Netherlands and governments ban travel and mull lockdowns, markets may also gamble on central bankers turning more patient in their path towards rates normalisation.

Lots of speakers from the Federal Reserve and the European Central Bank are lined up for today. On Sunday, speaking about risks to the recovery, ECB’s Lagarde said: “We now know our enemy and what measures to take.”

Key developments that should provide more direction to markets on Monday:

* ECB speakers: Governor Lagarde, ECB board members AndreaEnria, Isabel Schnabel, Pentti Hakkarainen; ECB Vice PresidentLuis de Guindos * Euro zone consumer sentiment/inflation expectations * German preliminary CPI/HICP * Fed speakers: Chairman Jerome Powell, New York PresidentJohn Williams, Governor Bowman * Emerging markets: Kenya central bank meets; Turkey tradebalance and bank NPL ratios (This story refiles to fix chart)

(Reporting by Danilo Masoni; Editing by Saikat Chatterjee)

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UK regulator set to block Meta’s Giphy deal – FT

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November 29, 2021

(Reuters) -The UK competition regulator is expected to block Meta Platforms’ acquisition of online GIF platform Giphy in the coming days, the Financial Times reported https://www.ft.com/content/662c8e3f-4909-4bec-9131-c0237bb4897d on Monday.

The Competition and Markets Authority is set to reverse the deal in what would be the first time the watchdog has reversed a Big Tech acquisition, the report said, citing individuals close to the matter.

Meta Platforms and the regulator did not respond to requests for comment from Reuters sent outside working hours.

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The regulator had in October fined the U.S. social media giant Facebook, now Meta, 50.5 million pound ($67.35 million) for breaching an order that was imposed during an investigation into its purchase of the GIF platform, Giphy.

Facebook bought Giphy, a website for making and sharing animated images, or GIFs, in May last year to integrate it with its photo-sharing app, Instagram. The deal was then pegged at $400 million by Axios.

($1 = 0.7499 pounds)

(Reporting by Sneha Bhowmik in Bengaluru; Editing by Uttaresh.V)

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Evergrande shares fall after chairman cuts stake; Fantasia suspends trading

Published

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November 29, 2021

HONG KONG (Reuters) – Shares in China Evergrande Group fell as much as 4.8% on Monday morning, after its chairman trimmed his stake in the cash-strapped property developer to raise about $344 million.

The group’s electric vehicle unit, China Evergrande New Energy Vehicle Group Ltd, also dropped more than 5% after it said the company was still exploring ways to pump capital into the unit with different investors.

Evergrande has been scrambling to raise capital as it grapples with more than $300 billion in liabilities and Chinese authorities have told its chairman, Hui Ka Yan, to use some of his personal wealth to help pay bondholders, sources have said.

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Evergrande failed to pay coupons totalling $82.5 million due on Nov. 6 and investors are on tenterhooks to see if it can meet its obligations before a 30-day grace period ends on Dec 6.

The developer disclosed late on Friday that Hui had sold 1.2 billion shares in the company at an average price of HK$2.23 each, lowering his stake in the Shenzhen-based real estate developer to 67.9% from 77%.

Once China’s top-selling developer, Evergrand’e troubles have hit the broader Chinese property sector with a string of debt defaults and credit rating downgrades of its peers in the last couple of months.

Fantasia Holdings suspended trading in company shares on Monday pending release of information. On Thursday, the developer said a winding-up petition was filed against a unit related to an outstanding loan.

(Reporting by Sumeet Chatterjee; Editing by Stephen Coates)

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