By Leika Kihara and Takahiko Wada

TOKYO (Reuters) - The Bank of Japan (BOJ) may abandon a controversial bond yield cap this year if risks clouding the outlook, such as global banking sector woes, subside, Toshihiro Nagahama, an economist who participated in a key government panel, told Reuters.

Nagahama, who was invited to speak at the panel's special session on economic policy held May 15, said Japan must avoid removing monetary and fiscal support prematurely to ensure recent positive signs in wage and consumption are sustained.

Until there is clarity that wages will keep rising steadily next year, the BOJ must hold off raising its short-term interest rate target from the current level of -0.1%, he said in an interview on Wednesday.

As long as short-term borrowing costs are kept low, however, the central bank could remove a 0.5% cap set on the 10-year bond yield without causing too much damage to the economy, said Nagahama, an economist at Dai-ichi Life Research Institute.

The BOJ will probably wait until concern over global banking sector woes and the U.S. debt ceiling standoff eases, he said.

"Once such risks subside and markets remain calm, the BOJ may tweak yield curve control," Nagahama said. "I won't be surprised if such a move occurs this year."

As part of efforts to reflate the economy and sustainably push inflation to its 2% target, the BOJ guides short-term rates at -0.1% and pledges to guide the 10-year bond yield around 0% under a policy dubbed yield curve control (YCC).

In December, the BOJ raised the cap to 0.5% from 0.25%, after being forced to ramp up bond buying to defend the ceiling against investors betting on a near-term tweak to YCC.

The 10-year Japanese government bond yield has recently hovered around 0.4%, after the BOJ took a range of steps to counter market attacks against the cap.

With inflation exceeding its 2% target, markets are simmering with speculation the BOJ will remove or raise the 0.5% yield cap that has drawn criticism for distorting market pricing.

BOJ Governor Kazuo Ueda said last week the central bank was unwavering in its commitment to maintain ultra-loose policy, ruling out the chance of a near-term tweak to YCC.

By Tim Kelly

TOKYO (Reuters) - More than nine out of 10 Japanese firms feel a sense of crisis about the country's accelerating birthrate decline, with few hopeful that Prime Minister Fumio Kishida's government can arrest the fall, according to a Reuters monthly poll.

Kishida unveiled a plan in March to reverse the birthrate trend, a problem that has worsened under successive Liberal Democratic Party (LDP) administrations, threatening to further shrink the country's workforce and sap consumer demand.

Those measures, which include expanding child allowance provisions, increasing paid parental leave and providing subsidies for fertility treatments came after the government revealed that annual births last year had dipped below 800,000 for the first time, eight years earlier than expected.

Of nearly 500 major companies surveyed by Reuters, 94% said they felt a sense of crisis when asked about the fall in annual births in 2022. Only 14% of firms said they were hopeful that Kishida's measures would work, with 34% saying they would not. The remaining companies that responded, did not express a view.

"The LDP response is about securing votes, it is not seriously tackling the problem," a representative from a transport machinery company said, on condition the company wasn't identified.

Like other major industrial economies, Japan is raising the retirement age and encouraging more women to work as its population ages. Unlike some countries, however, it has not sought out large numbers of foreign workers to fill its job vacancies.

"We need to develop overseas markets and also have to make use of foreign workers," a representative from a food maker said.

At 49, Japan's median age is second only to the city state of Monaco and it is one of the most expensive places in the world to raise a child.

Kishida's administration has said it will release the details next month of how it will fund a birthrate initiative that is expected to double government spending on childcare.

In the Reuters poll, 54% of companies said they wanted the government to increase taxes to pay for the increased spending, of which just under a half said they wanted a hike in the sales tax paid by consumers. Only 18% of firms urged an increase in government borrowing.

The Reuters Corporate Survey, conducted for Reuters by Nikkei Research between May 10 and May 19, canvassed 493 big non-financial Japanese firms, including 246 manufacturers and 247 non-manufacturers.

They were polled on condition of anonymity, allowing respondents to speak more freely.

Click here for a more detailed breakdown of the poll results.

By Kopano Gumbi

JOHANNESBURG (Reuters) - South Africa's central bank will likely extend its tightening cycle and push rates cuts further into the future amid countrywide power outages and currency weakness, analysts said, adding to inflationary pressures straining businesses and households.

The South African Reserve Bank (SARB) - which is facing a dilemma of how to keep a lid on inflation without further stifling already anaemic economic growth - has hiked its main lending rate by 425 basis points since November 2021.

But inflation continues to run hot.

The next rate decision is on Thursday, and a majority of economists surveyed by Reuters last week expect a 25 basis points (bps) hike to 8.00%.

But some analysts, like Nicolaie Alexandru-Chidesciuc at JPMorgan (NYSE:JPM), have ramped up their forecasts, now expecting the bank to deliver a 50 bps hike and predicting the first rate cut would not come until well into 2024.

"The risk of worsening electricity cuts as well geopolitical concerns after the U.S. ambassador claimed the country was not acting in a non-aligned manner in the Russia-Ukraine conflict have significantly impacted the currency," said Alexandru-Chidesciuc.

The outlook faced by South African policy makers is at odds with other developing economies' central banks, many of which have front-run the U.S. Federal Reserve in their hiking cycles and are gearing up to deliver cuts in the coming months.

This provides relief at a time when growth woes for the world's top two economies - the U.S and China - dominate. Among major emerging markets, only Israel and Colombia have recently raised rates. Hungary on Tuesday started the first policy easing cycle in Europe.

SARB Deputy Governor Rashad Cassim acknowledged in an interview with Reuters on May 3 that rate hikes were unpopular in a low-growth economy but said the priority was managing inflation expectations. Annual consumer price inflation is running at over 7%, above the central bank's target range of 3%-6%.

"We want to ensure that the depreciated exchange rate and (high) food prices don't permeate into other parts of the inflation basket," Cassim said.

"If we did nothing, (consumer) income is going to erode more and more. So maybe a little initial pain may benefit consumers in the medium to long run."

South Africans were already facing rising prices after COVID-19 and the Ukraine war disrupted supply chains. The power crisis has added to pressure, as businesses, including food producers and retailers, spend more on alternatives such as diesel generators and pass on the costs to consumers.

The central bank estimates that rolling blackouts - which can last up to 10 hours a day - will add 0.5 percentage points to headline inflation in 2023.

The rand weakening more than 10% this year makes imports more expensive.

"With the rand's substantial weakness and markedly higher production and retail costs coming from (power cuts), the risk to the inflation outlook on balance is still on the upside," said Annabel Bishop, chief economist at South African lender Investec.

"We expect on balance that a 50 basis points hike is more likely ... instead of a 25 basis points lift."

CREDIT WORRIES

Credit demand has been rising as household incomes have not kept up with prices, economists said, and higher borrowing costs could increase indebtedness.

The rate of new defaults on credit cards in the fourth quarter rose 20% year-on-year and those on home loans 19%, according to a Eighty20/XDS credit stress report.

"Even if interest rates come down at least by 2025, we may see the consumer still battling with the price pressures they had to deal with now, and how they might have chosen to deal with them," said Koketso Mano, senior economist at South African lender FNB.

By Philip Blenkinsop

BRUSSELS (Reuters) - The European Union and the United States are set to step up cooperation on artificial intelligence with a view to establishing minimum standards before legislation enters force, the EU's tech chief Margrethe Vestager said on Tuesday.

The European Union's AI Act could be the world's first comprehensive legislation governing the technology, with new rules on facial recognition and biometric surveillance, but EU governments and lawmakers still need to agree a common text.

Vestager, a vice-president of the European Commission, told a briefing on Tuesday that process might be completed by the end of the year.

"That would still leave one if not two years then to come into effect, which means that we need something to bridge that period of time," she said.

Vestager said AI would be one area of focus at the fourth ministerial-level meeting of the Trade and Technology Council (TTC) in Sweden on May 30-31, with discussions on generative AI algorithms that produce new text, visual or sound content, such as ChatGPT.

"There is a shared sense of urgency. In order to make the most of this technology, guard rails are needed," she said. "Can we discuss what we can expect companies to do as a minimum before legislation kicks in?"

Leaders of the G7 nations called on Saturday for the development of technical standards to keep AI "trustworthy", urging international discussions on topics such as governance, copyrights, transparency and the threat of disinformation.

Vestager, who is expected to discuss AI with Alphabet (NASDAQ:GOOGL) chief Sundar Pichai on Wednesday, noted these international talks had not yet happened. G7 leaders tasked relevant ministers to set up a G7 working group on AI by the end of the year.

"I think that we can talk about this within the TTC in a way that will help the G7 process to be as concrete as possible," she said.

By Chris Prentice

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission (SEC) on Tuesday said it obtained an order to shut down an alleged Ponzi-like scheme run by two individuals who raised nearly $62 million from investors for a sham cannabis business.

Since at least June 2019, Rolf Max Hirschmann and Patrick Earl Williams promised investors returns as high as 36% on funds they said would go toward expanding facilities for Integrated National Resources, or WeedGenics, in California and Nevada, the SEC said in a statement and court filing.

Those facilities did not exist, according to the SEC.

Hirschmann and Williams used most of the funds to pay off other investors, finance home upgrades, and buy luxury cars, jewelry and "adult entertainment," the SEC said in a complaint filed in federal court in California.

Neither Hirschmann nor Williams could be reached immediately for comment.

Williams, 34, lives in Florida and spent the money on his career as a rap musician known as "BigRigBaby," the SEC said.

Hirschmann, 52, lives in Idaho and went by "Max Bergmann" while communicating with investors, according to regulators.

"Rolf Hirschmann and Patrick Williams allegedly had no real company, no product, and no business, yet despite this, they promised investors everything and then delivered nothing," Michele Wein Layne, director of the SEC's Los Angeles regional office, said in the statement.

WeedGenics described itself as a vertically-integrated manufacturer of cannabis products on its website.

"It was all a sham," the SEC said.

Investing.com-- The Reserve Bank of New Zealand hiked interest rates as expected on Wednesday and said that rates will remain higher for longer given stubborn inflation, although local economic growth is likely to suffer as a result of monetary tightening.

The RBNZ raised its official cash rate (OCR) by 25 basis points (bps) to 5.5%, as widely expected by analysts. The move brings the OCR to its highest level since the 2008 financial crisis, after the bank hiked rates by a cumulative 525 bps since mid-2021.

While the RBNZ noted that its rate hike cycle was constraining spending and inflation pressure, it also expects interest rates to remain higher for longer to bring consumer price inflation within its 1% to 3% target range.

Annual consumer inflation was 6.7% in the first quarter of 2023, more than twice the bank’s target range. But it was also lower than an over 7% peak hit during the December quarter. 

The New Zealand dollar sank 1% after Wednesday’s decision, as the minutes of the RBNZ meeting showed that the bank had also considered a pause in future rate hikes to observe the effects of tight monetary policy on the economy.

Wednesday’s move comes after the RBNZ hiked rates by a bigger-than-expected 50 bps in April, citing overheated inflationary pressures. But the bank had then signaled a more data-driven approach to raising rates further. 

But the RBNZ also warned that economic growth was set to slow in the coming quarters, with rate-sensitive sectors already seeing a slowdown in demand and spending. 

Weak international economic conditions are expected to further stymie the New Zealand economy, especially as growth slows in the country’s biggest trading partners- Australia and China. 

Still, some facets of the economy remain resilient, the RBNZ said. Tourism has begun perking up after the lifting of anti-COVID measures last year, while rebuilding efforts in the wake of Cyclone Gabrielle, which was one of the worst storms to hit the country in over 50 years, will also stimulate growth.

New Zealand's labor market also remains tight with demand vastly outpacing supply. While the trend is expected to support economic growth in the coming months, it is also expected to reverse as monetary conditions tighten, the RBNZ said.

MEXICO CITY (Reuters) - Mexico's headline inflation likely slowed in the first half of May to its lowest level in 19 months, a Reuters poll on Tuesday showed, backing views of a sustained decline in consumer prices and that the central bank will keep its benchmark rate on hold.

The median forecast of 13 analysts sees annual headline inflation at 6.15%, the lowest since the first half of October 2021. Still, that is far above the Bank of Mexico's inflation target rate of 3%, plus or minus a percentage point.

The core index, which strips out volatile food and energy products, is forecast to have slid to 7.49% year-on-year, marking the seventh consecutive fortnight of declines.

Banxico, as the Mexican central bank is known, kept its benchmark interest rate steady at 11.25% last week in a unanimous decision, breaking a nearly two-year rate-hike cycle.

The bank forecast inflation would reach its 3% target in the fourth quarter of 2024 and suggested it would need to maintain the key interest rate at current levels for an extended period.

In the first half of May, consumer prices were forecast to have slipped 0.19% from the previous two-week period, while the core index likely rose 0.21%.

Mexico's statistics institute will release inflation data for the first half of May on Wednesday.

By Anant Chandak

BENGALURU (Reuters) - The Bank of Korea will keep interest rates unchanged for a third time on Thursday to assess the impact of previous hikes on inflation and economic growth, according to a Reuters poll of economists who were divided over the prospect of a rate cut by the end of the year.

Despite inflation running at nearly twice the central bank's 2.0% target, the BoK was expected to follow its regional peers and hold rates steady over the coming months to support a fragile economy which narrowly escaped a recession last quarter.

All 40 economists in the May 16-22 Reuters poll expected no change to the 3.50% base rate, already the highest since late 2008, at the May 25 meeting.

"Korea narrowly avoided a technical recession in the first quarter, but the GDP output gap runs negatively and we expect Korea's growth to remain below potential throughout 2023. That's why we believe no additional hikes from the BoK," said Min Joo Kang, senior economist at ING.

None of the economists who had a rate view through the end of 2023 expected the BoK to resume hiking rates. However, there was no clear consensus on whether there would be a cut this year.

While 17 of 33 respondents predicted at least a 25-basis-point cut, the remaining 16 forecast the base rate to remain at 3.50% until at least the end of 2023.

"We expect the BoK to stay on hold despite growth concerns and easing headline inflation, as core inflation is sticky at twice the inflation target. That said, the odds of a policy rate cut before the end of 2023 are rising," said Arup Raha, chief Asia economist at Oxford Economics.

South Korea's economic growth was expected to fall to 1.2% this year from 2.6% in 2022, a separate Reuters poll showed.

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan's inflation-adjusted real wages fell the most in eight years in the fiscal year 2022, government data showed on Tuesday, highlighting the pain of inflation eroding consumers' purchasing power.

The yearly data brought home the importance of accelerating wage increases to outpace stubbornly high inflation, which is not the kind of stable and sustainable inflation that the central bank wants to see, in achieving its 2% price target.

However, analysts expect real wages to rebound this fiscal year as inflation eases, while the job market remains tight and the economy is in moderate recovery, paving the way for the Bank of Japan (BOJ) to taper its monetary easing.

Still, BOJ Governor Kazuo Ueda has repeatedly maintained that the central bank would continue monetary easing for the time being to support a fragile economy while anticipating inflation to slow to less than 2% later this year.

"Risks to inflation and wages are rather skewed to the upside," said Atsushi Takeda, chief economist at Itochu Economic Research Institute. "A combination of easing inflation, tight job market and solid company profits will lay the ground for monetary policy normalisation as early as this year."

The labour ministry data also underscored the need for Prime Minister Fumio Kishida's government to stoke a virtuous cycle of inflation and wage growth.

Nominal wages rose 1.9% in the last fiscal year ending in March, the fastest increase in 31 years, but inflation at 3.8%outpaced those pay gains, resulting in real wages falling 1.8% in fiscal 2022, the data showed.

It was the biggest yearly decline since fiscal 2014, when sales tax increases stoked broader rises in prices and pushed real wages down by 2.9%.

The data suggested that wages must rise even more to outpace inflation and help boost consumers' purchasing power and private consumption that makes up more than half the economy.

Major firms have agreed to raise wages by nearly 4% this year, the fastest in three decades, in a sign cautious Japanese firms see the need of improving pay to secure skilled workers in the face of a labour crunch in the fast-ageing population.

Wages in Japan have barely grown over the past three "lost decades" since the burst of an asset-inflated bubble economy. In comparison, some other Group of Seven (G7) economies saw wages rising at a much stronger pace of about 1.4 times during the same period.

SEOUL (Reuters) - South Korea's household credit shrank at a record pace in the first quarter as high interest rates suppressed demand, central bank data showed on Tuesday.

The country's total household credit stood at 1,853.9 trillion won ($1.40 trillion) at the end of March, down 0.7% from December and down 0.5% from a year earlier, according to the Bank of Korea.

It was the biggest quarterly drop in the data series that started in the last quarter of 2002, faster than the 0.2% loss in the previous quarter and the previous record of 0.4% in the first quarter of 2009. Its annual fall was the first ever.

South Korea's central bank was on a tightening campaign for a full year through January, raising interest rates to the highest level in 14 years. It has paused since then.

($1 = 1,320.9300 won)