By Leika Kihara

TOKYO (Reuters) - Many regional areas of Japan saw small and mid-sized firms aggressively raise wages, reflecting intensifying labour shortages, the Bank of Japan (BOJ) said on Monday, underscoring its growing conviction that wage hikes were broadening.

In a quarterly report, the central bank also said some firms were considering raising prices of their goods and services to guard against prospects of rising labour costs.

"Many regions reported cases where wage increases by small and mid-sized firms were broadening at a degree unseen in recent years," the BOJ said in the report analysing the economic situation of regional areas.

The BOJ raised its economic assessment for three of Japan's nine regions, and maintained that for the remaining six regions.

"All of the regions saw economic growth pick up or recover moderately," the report said.

Wage growth holds the key to how soon the BOJ phases out its massive stimulus programme.

BEIJING (Reuters) -China's factory-gate prices fell at the fastest pace in seven-and-a-half years in June, while consumer inflation was at its slowest since 2021, adding to the case for policymakers to use more stimulus to revive sluggish demand.

Momentum in China's post-pandemic recovery has slowed from a brisk pickup seen in the first quarter with demand for industrial and consumer products weakening, raising concerns about the health of the world's second-largest economy.

The producer price index (PPI) fell for a ninth consecutive month in June, down 5.4% from a year earlier, the National Bureau of Statistics (NBS) said on Monday, the steepest decline since December 2015. That compared with a 4.6% drop in the previous month and a 5.0% fall tipped in a Reuters poll of analysts.

The consumer price index (CPI) was unchanged year-on-year, compared with the 0.2% gain seen in May, driven by a faster fall in pork prices. That dashed expectation for a 0.2% rise and was the slowest pace since February 2021.

The weaker-than-expected inflation readings knocked financial markets with the yuan falling and Asian stocks also dipping into the red.

"We expect headline inflation to rise to around 1% by the end of this year. But this would still be soft and won't constrain the PBOC's ability to loosen policy further," said economists at Capital Economics.

"That said, with credit demand weak, and the currency under pressure, we think the bulk of support will come through fiscal policy. We expect only another 10 basis points of policy rate cuts this year."

Beijing has set a target for average consumer inflation in 2023 of about 3%. Prices rose 2% year-on-year in 2022.

China last month cut policy rates to boost liquidity and vowed to take measures to promote household consumption.

For producer prices, the biggest year-on-year declines were seen in energy, metals and chemicals as domestic and foreign demand weakened.

"The accelerating decline in PPI reflects the still weak real estate and construction sector as well as the strength of industrial production," said Bruce Pang at chief economist at Jones Lang Lasalle (NYSE:JLL).

"However, the year-on-year decline in the PPI is likely to have bottomed out and is expected to narrow gradually in the second half of the year," said Pang.

China's central bank is likely to cut lending rates further, said Hu Yuexiao, analyst at Shanghai Securities, who expects reductions in the reserve requirements ratio and interest rates in the second half.

However, economists say small cuts in rates will not have a big impact on demand for loans as families and businesses repair balance sheets damaged by COVID and repay debts, forcing Beijing to rely on fiscal stimulus and other means to spur demand.

AIX-EN-PROVENCE, France (Reuters) - France's central bank head Francois Villeroy de Galhau pushed back on Sunday against a suggestion from some French economists to raise the European Central Bank's (ECB) 2% inflation target.

Villeroy, who sits on the ECB's governing council, also said that its interest rate hikes were close to topping out and that rates would be kept at elevated levels long enough for the impact to feed through the economy.

The aim is to bring inflation down to the 2% target by 2025, Villeroy said at an economics conference in the southern French city of Aix-en-Province.

Former IMF chief economist, Frenchman Olivier Blanchard, has long called for a higher inflation target than the 2% shared by most major central banks, arguing that the increased flexibility that would provide would outweigh the costs.

Veteran French economist Patrick Artus also called for a higher target at the conference on Saturday and French Finance Minister Bruno Le Maire said that if economists were opening the debate there should be "no taboos about transgression".

In response, Villeroy said that a higher inflation target was a "false good idea" and would lead to higher rather than lower borrowing costs.

"If we announced our inflation target is no longer 2% but 3%, lenders would immediately demand higher interest rates, at least 1% (more)" in anticipation of higher inflation and uncertainty Villeroy said.

Bank of England Governor Andrew Bailey said on the same panel that the 2% target was a good balance because it is low enough that people do not have to take inflation into account in their everyday economic decisions, while zero would be too low to allow for relative changes in prices.

"If we change it, we will unpick not only that definition, we will unpick expectations," he said.

By Marc Jones

LONDON (Reuters) - An increasing number of countries are repatriating gold reserves as protection against the sort of sanctions imposed by the West on Russia, according to an Invesco survey of central bank and sovereign wealth funds published on Monday.

The financial market rout last year caused widespread losses for sovereign money managers who are "fundamentally" rethinking their strategies on the belief that higher inflation and geopolitical tensions are here to stay.

Over 85% of the 85 sovereign wealth funds and 57 central banks that took part in the annual Invesco Global Sovereign Asset Management Study believe that inflation will now be higher in the coming decade than in the last.

Gold and emerging market bonds are seen as good bets in that environment, but last year's freezing of almost half of Russia's $640 billion of gold and forex reserves by the West in response to the invasion of Ukraine also appears to have triggered a shift.

The survey showed a "substantial share" of central banks were concerned by the precedent that had been set. Almost 60% of respondents said it had made gold more attractive, while 68% were keeping reserves at home compared to 50% in 2020.

One central bank, quoted anonymously, said: "We did have it (gold) held in London... but now we've transferred it back to own country to hold as a safe haven asset and to keep it safe."

Rod Ringrow, Invesco's head of official institutions, who oversaw the report, said that is a broadly-held view.

"'If it's my gold then I want it in my country' (has) been the mantra we have seen in the last year or so," he said.

DIVERSIFY

Geopolitical concerns, combined with opportunities in emerging markets, are also encouraging some central banks to diversify away from the dollar.

A growing 7% believe rising U.S. debt is also a negative for the greenback, although most still see no alternative to it as the world's reserve currency. Those that see China's yuan as a potential contender fell to 18%, from 29% last year.

Nearly 80% of the 142 institutions surveyed see geopolitical tensions as the biggest risk over the next decade, while 83% cited inflation as a concern over the next 12 months.

Infrastructure is now seen as the most attractive asset class, particularly those projects involving renewable energy generation.

Concerns over China mean India remains one of the most attractive countries for investment for a second year running, while the "near-shoring" trend, where companies build factories closer to where they sell their products, is boosting the likes of Mexico, Indonesia and Brazil.

As well as China, Britain and Italy are seen as less attractive, while rising interest rates coupled with work-from-home and online shopping habits which became embedded during the COVID-19 outbreak meant property is now the least attractive private asset.

Ringrow said the wealth funds that performed better last year were those that recognised the risks posed by inflated asset prices and were willing to make substantial portfolio changes. It would be the same going forward.

"The funds and the central banks are now trying to get to grips with higher inflation," he said. "It's a big sea change."

By Kantaro Komiya and Lucy Craymer

TOKYO (Reuters) -Ukraine has submitted a formal request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to New Zealand, Japanese and New Zealand authorities said on Friday.

New Zealand, which performs the legal depositary functions for the partnership, had received a formal accession request from Ukraine on May 5, a New Zealand foreign ministry spokesperson said.

The next steps in the application process would be determined by all members of the CPTPP, who are due to meet in the New Zealand city Auckland on July 16, the spokesperson said.

The CPTPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, with Britain becoming the 12th member state. China, Taiwan, Ecuador, Costa Rica and Uruguay all also have requests pending to join.

Japan's economy minister, Shigeyuki Goto, told a regular press conference that Japan, as a CPTPP member, "must carefully assess whether Ukraine fully meets the high level of the agreement" in terms of market access and rules.

By Julie Zhu and Jane Xu

HONG KONG (Reuters) - Chinese authorities are likely to announce a fine of at least 8 billion yuan ($1.1 billion) on Ant Group as soon as Friday, sources with direct knowledge of the matter said, bringing an end to the fintech company's years-long regulatory overhaul.

The People's Bank of China (PBOC), which has been driving the revamp at Ant after its $37 billion IPO was scuttled in late 2020, is expected to disclose the fine in the coming days, the sources told Reuters.

The penalty, which would be one of the largest ever fines for an internet company in the country, will help pave the way for the fintech firm to secure a financial holding company license, seek growth, and eventually, revive its plans for a stock market debut.

For the broader technology sector, an Ant fine would mark a key step towards the conclusion to China's bruising crackdown on private enterprises that began with the scrapping of Ant's IPO and which has subsequently wiped billions off the market value of several companies.

Ant and the PBOC did not immediately respond to a Reuters request for comment. The sources did not wish to be named as they were not authorised to speak to the media.

Founded by billionaire Jack Ma, Ant undertakes payment processing, consumer lending and insurance products distribution, among other businesses. In mid-2020 before its IPO was pulled, it was valued by some investors at more than $300 billion.

Since April 2021, Ant has been formally undergoing a sweeping business restructuring, which includes turning itself into a financial holding company that would subject it to rules and capital requirements similar to those for banks.

Any announcement of the fine on Ant would come soon after China's ruling Communist Party appointed central bank Deputy Governor Pan Gongsheng as the bank's party secretary, a move two policy sources told Reuters would be a prelude to appointing him governor.

He is one of the main regulatory officials overseeing Ant's revamp and has attended several meetings with the company about the fine and the revamp, according to the sources.

The National Financial Regulatory Administration (NFRA), a new government body under the State Council, is now the primary regulator to grant Ant the license, said the sources.

The NFRA did not immediately respond to a Reuters request for comment. The PBOC did not immediately respond to a request for comment on Pan's role either

PENALTY FOLLOWS MA'S RETURN TO CHINA

The final amount of the fine has been revised to at least 8 billion yuan, the sources said. Reuters reported in April that Chinese regulators were considering fining Ant about 5 billion yuan, a lower sum than what they had in mind initially.

Ant's fine would be the largest regulatory penalty imposed on a Chinese internet company since ride-hailing major Didi Global was fined $1.2 billion by China's cybersecurity regulator last year.

The fintech firm's affiliate, e-commerce titan Alibaba (NYSE:BABA) Group, was fined a record 18 billion yuan in 2021 for antitrust violations.

A fine on Ant would come at a time Chinese authorities are keen to boost private sector confidence as the $17 trillion economy struggles to recover despite the lifting of zero-COVID curbs earlier this year.

It would also follow the return to China of Ma earlier this year after spending many months overseas. Ma, who also founded Alibaba, withdrew from public view in late 2020 after giving a speech criticising China's regulatory system, an event widely regarded as a trigger for the crackdown on industry.

He previously owned more than 50% of the voting rights at Ant, but in January it said he would give up control of the company as part of the revamp.

($1 = 7.2439 Chinese yuan renminbi)

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. growth likely slowed in June after surging in the prior two months, but labor market conditions remain tight, with the unemployment rate expected to have retreated from a seven-month high and fairly strong wage gains persisting.

The Labor Department's closely watched employment report on Friday will be among factors leading the Federal Reserve to resume raising interest rates this month as signaled by the U.S. central bank and Chair Jerome Powell, after pausing in June.

The labor market has remained unbowed despite the Fed delivering 500 basis points worth of rate hikes since March 2022 when it embarked on its fastest monetary policy tightening campaign in more than 40 years. It is for now helping the economy to defy analysts' predictions of a recession.

While the higher paying industries such as technology and finance are purging workers, sectors like leisure and hospitality as well local government and education are still catching up after losing employees and experiencing accelerated retirements during the COVID-19 pandemic.

"Monetary policy has been working in slowing employment growth since its peak about a year ago," said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles. "However, that doesn't mean that we will see a recession, the probability of a recession has diminished."

The survey of establishments is likely to show nonfarm payrolls increased by 225,000 jobs last month after rising 339,000 in May and 294,000 in April, according to a Reuters survey of economists.

The economy needs to create 70,000-100,000 jobs per month to keep up with growth in the working-age population. Payrolls could surprise on the upside as the survey was conducted before a slew of data on Thursday showing a surge in private payrolls.

Government data also showed there were 1.6 job openings for every unemployed person in May, while the Institute for Supply Management's measure of services employment rebounded strongly, with businesses reporting they were unable to find qualified candidates for some open positions and "finally able to fill some positions that have been open for some time."

A Conference Board survey last month showed consumers' perceptions of the labor market more upbeat in June relative to May. But first-time applications for unemployment benefits jumped to a 20-month high during the week that the government surveyed businesses for the nonfarm payrolls count.

The unemployment rate is forecast dropping to 3.6% from 3.7% in May, which would leave it just shy of a 53-year low of 3.4% touched in April.

WORKER HOARDING

Employment growth is also being driven by companies hoarding workers, a legacy of the dire labor shortages experienced as the economy rebounded from the COVID downturn in 2021 and early 2022.

"The pandemic has really caused businesses to hold on to labor more because they know how difficult it is to fill open positions," said Ryan Sweet, chief economist at Oxford Economics in West Chester Pennsylvania. "They are going to opt to cut hours worked, that is something we need to pay very close attention to, rather than the net gain in nonfarm payrolls."

The average workweek was forecast unchanged at 34.3 hours. It has declined from 34.6 hours in January.

But some economists argued that worker hoarding was masking weakness in the economy, pointing to worker productivity, which slumped in the first quarter. They also noted that while gross domestic product, the traditional measure of economic growth, was solid in the January-March quarter, an alternative gauge, gross domestic income, has contracted for two straight quarters.

While businesses were content for now to continue hoarding workers, that could change once slowing consumer spending starts to erode profits, the economists said, predicting major layoffs.

"When that becomes apparent businesses will say we can't afford to just keep paying people not to produce and that's what the productivity numbers show," said Milton Ezrati, chief economist at Vested in New York. "It's going to shock people when business realize they have excess employment."

Average hourly earnings were expected to have increased 0.3% in June, matching May's rise. That would lower the annual increase in wages to 4.2% from 4.3% in May, still way above levels consistent with the Fed's 2% inflation target.

The slowdown in wage growth is being driven by the loss of high-paying technology and finance jobs among others. While the moderation in wage inflation would be welcomed by policymakers, it also portends to slower consumer spending, the main anchor of the economy, making a recession likely for some economists.

"If we keep adding jobs at the lower end of the wage spectrum, but losing jobs at a higher end, that will lead to a significant slowdown in terms of growth in disposable personal income," said Yelena Shulyatyeva, a senior economist at BNP Paribus in New York. "That is not good for everybody, it could eventually lead to layoffs in all other industries, even in leisure and hospitality."

By Fergal Smith

TORONTO (Reuters) -The Canadian dock workers strike is another factor for the Bank of Canada (BoC) to consider ahead of its policy announcement next week because the longer it drags on, the greater the risk of supply-chain disruptions that fuel inflation, economists said.

Some 7,500 dock workers went on strike on Saturday for higher wages, upending operations at two of Canada's three busiest ports, the Port of Vancouver and Port of Prince Rupert. The two ports are key gateways for exporting the country's natural resources and commodities, and for bringing in raw materials.

The walkout impacting C$500 million ($374 million) in trade per day, now in its sixth day, could also hurt economic activity, though that is less of a concern for the central bank, especially if overtime work later clears backlogs.

"The supply-chain impact and any kind of inflationary pressure is the bigger risk," said Andrew Grantham, senior economist at CIBC Capital Markets.

"If there's a near-term volatility in the trade figures or even the GDP figures based on this, the Bank of Canada always looks through that volatility no matter where it comes from."

The BoC came off the sidelines in June after a five-month pause, raising interest rates to a 22-year high of 4.75%, blaming stronger-than-expected growth and a tight labour market for stubbornly high inflation.

Inflation was 3.4% in May, the latest data show, down from a peak of 8.1% last year, but the BoC has said it will take until the end of next year to get it all the way down to its 2% target.

Money markets expect the central bank to tighten further, possibly as soon as at a policy decision next Wednesday. Most economists surveyed by Reuters are convinced there will be another rate hike next week.

Canada's federal and provincial governments have been urging the parties to restart talks after they broke down on Tuesday.

"Industry, labour, and all levels of government want to see goods moving through our BC ports," Canada's minister of labour, Seamus O'Regan, said in a statement posted on Twitter on Thursday.

O'Regan said he spoke with Acting U.S. Secretary of Labor Julie Su on Thursday afternoon. Around two-thirds of Canada's total global trade is with the U.S., according to the federal government website.

The Canadian Manufacturers & Exporters (CM&E) industry body said the strike is disrupting C$500 million in trade every day.

"This is a serious disruption that will have some noticeable consequences if it drags on," Robert Kavcic, senior economist at BMO Capital Markets, said in a note.

($1 = 1.3360 Canadian dollars)

Investing.com -- Banks borrowing from the Federal Reserve's emergency lending programs decreased in week ended July. 5, according to latest Fed data released Thursday.  

In the week ended July. 5, banks borrowed an average of $3.36 billion each night, up from $3.21B from a week earlier, according to new Fed data released Thursday.

Borrowing from the Fed’s Bank Term Funding Program -- the new emergency lending program launched following the collapse of Silicon Valley Bank -- fell to $101.96B from $103.08B in the prior week.

Lending to the Federal Deposit Insurance Corporation, which took over the collapsed Silicon Valley Bank, fell $3.52B to $164.78B.

Total lending from the Fed's three main lending programs fell to $270.09B from $274.58B.

By Tommy Wilkes

LONDON (Reuters) -The remaining insurers in a United Nations-backed coalition aimed at tackling climate change are poised to loosen the alliance's membership requirements, after a recent exodus of members, according to two people familiar with the discussions. The U.N.-convened Net-Zero Insurance Alliance (NZIA) is set to remove a six-month deadline for members to publish greenhouse gas emissions targets alongside other changes to make membership less prescriptive, the sources said.

The hope is to "steady the ship" and create space for ex-members to consider returning later, they said. The NZIA has lost more than half its members including AXA, Lloyd's of London and Tokio Marine since attorneys general from 23 Republican-run U.S. states sent a May 15 letter seeking information about insurers' membership and threatening legal action.

The attorneys general said the NZIA's requirements for members to publish and meet greenhouse gas emission-reduction targets appeared to violate antitrust laws, and that the alliance's actions had pushed up insurance and other costs for consumers. Launched in 2021 to drive insurers' efforts to hit zero emissions on a net basis by 2050 in their underwriting portfolios, the NZIA is one of several industry coalitions under the Glasgow Financial Alliance for Net Zero (GFANZ) umbrella group.

The NZIA now has 12 members, down from a peak of 30. Other GFANZ alliances have also faced U.S. political pressure but have not seen many members leave.

CONCERN FROM CAMPAIGNERS The NZIA's 'target-setting protocol' published in January required insurers to publish their initial 2030 targets for reducing emissions by end-July, or within six months of joining for newer entrants, and then report their progress against the targets annually. But remaining members, among them Britain's Aviva (LON:AV), Italy's Generali (BIT:GASI) and South Korea's Shinhan Life, want to avoid insurers publishing targets simultaneously, which could invite fresh accusations of anti-competitive collaboration, the first source said, speaking on condition of anonymity because of the sensitivity of the matter.

An NZIA spokesperson declined to comment.

The potential for looser rules was met with concern by environmental campaigners, who say insurers are already doing too little to curb emissions and that aggressive collective action is needed.

"The NZIA has had very minimal requirements and expectations of membership from the start," said Peter Bosshard, coordinator of the Insure our Future campaign.

The alliance, Bosshard said, developed less stringent requirements - such as not restricting fossil fuel underwriting - than another investor coalition, the Net Zero Asset Owners Alliance, precisely to avoid accusations it was breaching anti-trust laws.

"The target-setting is the only thing left," he added. Without such requirements "the NZIA would just become another industry talking shop".

Other proposals being discussed include making the alliance a broader forum where insurance industry bodies participate in areas like target-setting best practice, the first source said.

The changes under discussion have not been finalised, the sources said, and it's not clear how the alliance would deal with insurers that drag their feet in publishing targets.

U.S. EXPOSURE

Insurers inside and outside the NZIA say they remain committed to their net-zero pledges despite the backlash in the United States.

They are convinced they are not violating antitrust rules, but companies departing the coalition were concerned about their exposure to regulatory and litigation risks, given U.S. states are the industry's primary regulator. Insurers with little U.S. exposure have also been quitting, threatening the alliance's viability.

Insurance Australia Group declined to explain its exit last month. Canada's Beneva said the U.S. political debate around environmental, social and governance (ESG) criteria was "a distraction from the actions around which the company wishes to rally".

Remaining members believe the NZIA still has a valuable role, and point to methodologies it developed for assessing and reporting on underwriting-linked emissions. France's AXA, which chaired the NZIA before quitting in May, last week published its first emissions goals for its insurance portfolio.