Japan's Interest-Rate Increase That it Says Wasn't Really an Increase; Cleveland Fed Names Next Research Director

Japan's Rate Increase That it Says Wasn't Really an Increase; Cleveland Fed Names Next Research Director By James Christie

Good day. Tuesday's sudden interest rate increase by the Bank of Japan recalled some of central bank governor Haruhiko Kuroda's greatest hits-the "bazooka" of government-bond purchases in 2013 that helped stem Japan's chronic deflation and the 2016 introduction of negative short-term interest rates. The latest move differed, however, because Mr. Kuroda wasn't trying to juice Japan's long-sluggish economy and reach his 2% inflation target. Instead, it was a defensive move more likely to tamp down the economy than stimulate it, Megumi Fujikawa reports for The Wall Street Journal. Meanwhile in the U.S., the Federal Reserve Bank of Cleveland said Tuesday it appointed Edward S. Knotek II as its next director of research, effective Jan. 1. He will succeed Ellis W. Tallman, who is transitioning to a new role as executive vice president, senior economic policy advisor. Mr. Knotek will serve as chief economic advisor to Cleveland Fed President Loretta Mester and will lead the bank's staff of economists and analysts, attend Federal Open Market Committee meetings and continue to lead the bank's Center for Inflation Research. Mr. Knotek joined the bank as a vice president in its research department in 2012 and has played a key role in expanding its macroeconomic forecasting group and in designing and launching the Center for Inflation Research.

Now on to today's news and analysis.

Top News Japan Bends to Global Forces Pushing Up Interest Rates

TOKYO-The Bank of Japan's governor, nearing the end of a decade in office, gave markets one more surprise in the form of an interest-rate increase that he said wasn't really an increase.

It capped an event-filled year for developed-world central bankers in which the Federal Reserve lifted its benchmark rate above 4% and the European Central Bank moved up to 2%. The inflationary forces that pushed the U.S. into rapid clampdown mode proved so powerful that even Japan's central bank, which long stuck to near-zero rates, felt it had to budge-in part to protect the value of the yen, analysts said.

U.S. Economy Investors, Big-Company CEOs Split on Economic Optimism

At least two-thirds of CEOs of the biggest companies surveyed said they expected the next six months to bring worsening customer demand, industry conditions, access to capital, and domestic and global growth, a survey found.

Lawmakers Boost Military, Domestic Spending in Omnibus Bill

Lawmakers unveiled a wide-ranging spending bill for fiscal 2023 with sharp increases in military and domestic funding, kicking off a sprint to pass the bill before Christmas in the last act of the Democratic-controlled Congress.

What Is and Isn't in the $1.65 Trillion Government Funding Package Key Developments Around the World Ukraine Repels Bakhmut Assault as Zelensky Heads to U.S.

The Ukrainian military said it had repelled a fresh wave of Russian assaults around the eastern city of Bakhmut following a visit there on Tuesday by President Volodymyr Zelensky, who is due to visit the U.S. on Wednesday.

Cubans Spend Thousands to Flee to the U.S. Through Nicaragua

Ferrying Cubans to the U.S. in the past year has become a billion-dollar business involving airlines, charter operators and travel agents working from strip malls in Florida to airports across Central America and the Caribbean.

Financial Regulation Roundup Wells Fargo to Pay Record CFPB Fine

Wells Fargo reached a $3.7 billion deal with the Consumer Financial Protection Bureau to resolve allegations that it harmed more than 16 million people with deposit accounts, auto loans and mortgages.

Big Changes to 401(k) Retirement Plans Move Ahead in Congress

The bill nearing approval raises the age people are required to start withdrawing money from tax-deferred retirement accounts from 72 to 75, and increases retirement savings contribution limits for older workers.

Congress Clamps Down on Land-Conservation Tax Deals

Congress is on the verge of imposing strict new tax limits on certain land deals, so-called syndicated conservation easements , and the change would mark a victory for the Internal Revenue Service.

FTX Wants to Claw Back Sam Bankman-Fried's Donations

New management at collapsed crypto exchange FTX said it would try to recoup donations made by Sam Bankman-Fried and other executives, which include tens of millions of dollars in contributions to U.S. politicians.

Forward Guidance Wednesday (all times ET)

8:30 a.m.: Canada consumer-price index for November

10 a.m.: The Conference Board Consumer Confidence Index for December; U.S. existing home sales for November

Thursday

8:30 a.m.: U.S. real consumer spending for third quarter; U.S. gross domestic product for third quarter

10 a.m.: The Conference Board Leading Economic Index for November

Research Hawkish ECB Shift Likely to Weigh on Eurozone Growth in 2023, 2024

The European Central Bank's plans to keep monetary policy tighter for longer will produce a larger drag on eurozone economic activity due to a lagged hit from rising interest rates, Pantheon Macroeconomics senior Europe economist Melanie Debono writes in a note. The eurozone economy is expected to expand by 0.5% in 2023 and by 1.5% in 2024, 0.3 percentage points less than previously forecast for both years, she says. The ECB is expected to increase interest rates at least four times next year, taking the deposit rate to 3.5% by June, according to Pantheon. The eurozone economy should pick up steam in 2025 as the ECB is likely to cut rates more aggressively in 2024 than initially anticipated, Ms. Debono adds.

-Xavier Fontdegloria

Canada Retail Sales Volumes Point to Weakening Consumption

Retail-sales volumes in Canada are struggling for momentum, with services spending indicators also showing some weakness, suggesting Canadian household consumption may be headed for a second consecutive quarterly contraction, Capital Economics says. A 1.4% on-month rise in retail sales in October was mainly due to increased gasoline sales as prices jumped, with overall monthly sales volumes unchanged. Capital Economics says it anticipates overall household spending will fall slightly this quarter, followed by further weakness over the first half of 2023 as consumers adjust to much higher interest rates.

-Robb Stewart

Commentary Bank of Japan Blinked in Standoff With Markets

The BOJ has begun its exit from its "yield-curve control" policy without, so far, crashing markets, which is good news considering a sudden switch could hit those who bet on the bank sticking to its guns, James Mackintosh writes.

Basis Points Global trade flows fell for the fourth straight month in October and more sharply than in previous readings, a sign that high energy prices and rising interest rates are weakening household demand for goods and slowing the global economy. An early indicator of trade flows developed by The Wall Street Journal and published Tuesday pointed to a 2.8% on month fall in October, adjusted for the seasonal ups and downs of exports of goods between countries. (Dow Jones Newswires) U.S. housing starts fell in November for a third consecutive month, driven by weakness in single-family units as home builders pulled back projects amid weakening demand. The Commerce Department said starts decreased 0.5% from October to a seasonally adjusted annual rate of 1.427 million. (DJN) Retail sales in Canada rebounded in October as higher prices, particularly at the gas pump, offered a tailwind to flat sales in volume terms. Sales rose 1.4% from September to a seasonally adjusted 61.97 billion Canadian dollars, the equivalent of about $45.41 billion, Statistics Canada said. Sales fell a downwardly revised 0.6% in September from August. (DJN) Consumer confidence in New Zealand is signaling widespread gloom during the Christmas trading period, as the ANZ-Roy Morgan Consumer Confidence Index fell 7 points in December to 73.8, its lowest level since the data began in 2004. (DJN) Consumer confidence in the eurozone increased in December for the third month in a row, reaching its highest level since May as energy prices continued to moderate. The European Commission said its confidence measure rose from minus 23.9 in November to minus 22.2, broadly in line with expectations from economists polled by The Wall Street Journal. (DJN) Confidence among German consumers is expected to recover further in January, driven by softening energy prices and the implementation of the government's energy price relief measures. Market research group GfK said Wednesday that its forward-looking consumer-sentiment index forecasts confidence to increase to minus 37.8 in January from minus 40.1 in December, posting a third consecutive monthly rise. The reading is broadly in line with expectations from economists polled by The Wall Street Journal. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

12-21-22 0715ET