By Daniel Leussink

TOKYO -Japan’s household spending rose for a second consecutive month year-on-year in February, helped by a flattering comparison with last year’s sharp pandemic-induced slump but the consumer sector is now facing growing headwinds from soaring prices.

Households cut spending from the previous month as pandemic curbs, rapid food and fuel price rises and the coronavirus kept wallets shut, casting a shadow over the world’s third-largest economy.

In a sign of trouble for consumer sentiment, real wage growth stagnated in February as global inflationary pressures weighed on household purchasing power.

“Prices will outpace wage gains from now on, so consumption will be on a sluggish trend,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“While service spending is expected to pick up from April onwards, the likelihood is big that higher prices will weigh on other areas of consumption,” Minami said, adding that spending was likely to pick up nonetheless.

Household spending increased 1.1% in February from a year earlier, government data showed, much weaker than the market forecast of a 2.7% gain in a Reuters poll.

The month-on-month figures showed a sharp 2.8% decline, also weaker than a forecast 1.5% drop.

The data raises some concerns for policymakers looking for ways to offset the hit households are taking from soaring global inflation and a weakening yen, which is pushing up import costs, as the economy shakes off the pandemic’s drag.

Households increased spending on mobile phones as well as car insurance and parts such as batteries on pent-up demand due to price hikes, a government official said.

But slower spending on eating out, including on sushi, weighed on expenditures, as authorities prolonged pandemic curbs in response to a wave of Omicron infections during the month.

A separate survey showed that Japan’s services sector activity continued to shrink in March, though the pace of contraction slowed as domestic demand got a lift from the subsequent easing of the pandemic curbs last month.

Other government data on Tuesday showed inflation-adjusted real wages hit a standstill in February, as growth of consumer prices offset gains in nominal wage growth.

The economy is projected to grow in the current quarter following an expected contraction in the first three months of the year, though it is facing an unpredictable outlook in part due to the Ukraine situation and the weak yen.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

By Rodrigo Viga Gaier and Gabriel Araujo

RIO DE JANEIRO -Energy consultant Adriano Pires has backed out of the Brazilian government’s nomination for him to take the helm at Petrobras, the country’s Mines and Energy Ministry said on Monday, in the latest blow to succession plans at the state-run oil company.

“It was clear to me that I could not reconcile my consulting work with the exercise of Petrobras’ command,” Pires wrote in a letter published by the ministry on its website.

Pires’ decision to turn down the chief executive job came a day after soccer magnate Rodolfo Landim declined a nomination to chair the board of Petroleo Brasileiro SA, as the company is formally known.

Pires had been tapped by Brazilian President Jair Bolsonaro to take over as the top executive of Petrobras on March 28, following disagreements between the far-right leader and current CEO Joaquim Silva e Luna over the company’s fuel pricing policy.

The government will now need to find suitable replacements for the two top spots at Petrobras just days before the company’s April 13 annual shareholders’ meeting.

Pires’ decision to back out from the CEO job was reported earlier on Monday by Brazil’s O Globo newspaper. Preferred shares in Petrobras fell 1% after the O Globo article was published, but later recouped their losses.

Pires’ nomination had been facing internal compliance-related hurdles at Petrobras, as his consultancy, Rio de Janeiro-based CBIE, advises companies that do business with Petrobras, two sources with knowledge of the matter had previously told Reuters.

An internal compliance committee had also recommended against Landim’s becoming the next chairman on conflict-of-interest grounds, said the sources, who requested anonymity to discuss private internal deliberations.

Reached for comment, Landim said that he decided to withdraw from the board nomination in order to dedicate all his energy to Flamengo, the Rio de Janeiro soccer club he leads.

In a note to clients, analysts at Brazil’s Itau BBA maintained their “outperform” rating on Petrobras shares given what they described as strong fundamentals, but said uncertainty at the top would create negative noise.

“This uncertainty regarding the nominees to the chairman and CEO positions, arising so soon before the company’s next general shareholders’ meeting, will likely trigger some volatility in the stock this week,” the analysts wrote.

(Reporting by Gabriel Araujo and Peter Frontini in Sao Paulo and Rodrigo Viga Gaier in Rio de Janeiro; Writing and additional reporting by Gram Slattery; Editing by Marguerita Choy and Leslie Adler)

TOKYO – Japan’s central bank should hike interest rates to ensure the country will not fall out of lockstep with the rest of the world in its monetary policy, an associate of Prime Minister Fumio Kishida whose ideas likely inspired the premier’s economic policy framework said.

Kishida’s government should unleash as much as $400 billion in public spending over the next five years to boost medical and anti-disaster investment, businessman George Hara also told Reuters in an interview on Friday.

The vision of Hara, who heads an organisation that aims to reduce poverty around the world, likely served as a backbone of Kishida’s “new capitalism” agenda through which the premier is pushing for greater wealth distribution.

As the U.S. Federal Reserve and other central banks move forward with hiking interest rates, the Bank of Japan (BOJ) should follow along to avoid Japan’s yield spreads widening too much, according to Hara, who published a book in 2009 also called “New Capitalism”.

“The yen is weakening on yield differentials, so there’s no problem if rates in Japan rise,” said Hara, who added that Japan’s monetary policy should move in line with the rest of the world.

Keeping rates around zero was negative for the many people in Japan who rely on savings or pensions to get by, Hara said. He added that those who would be hurt by higher rates in Japan were likely financial players such as hedge funds and high-frequency traders.

Hara got to know Kishida during the premier’s 2012-2017 stint as foreign minister when Hara was serving as adviser to Japan’s Cabinet Office, which oversees the government’s long-term economic planning.

Hara, who also served as a finance ministry adviser for four years through 2010, said the government should ramp up spending on medical and anti-disaster infrastructure by as much as 10 trillion yen ($81.55 billion) a year over five years.

Kishida has so far ordered his cabinet to put together a relief package to offset the economic blow from rising energy prices, which would be funded by special reserves.

The premier has also faced pressure, including from his party’s ruling coalition partner Komeito, to compile an extra budget to enlarge the size of that spending.

Japan entered the coronavirus pandemic already saddled with debt more than double the size of its $4.6 trillion economy, making it the industrial world’s most-indebted nation as a result of decades of massive spending aimed at reviving growth.

($1 = 122.6300 yen)

(Reporting by Kaori Kaneko and Yukiko Toyoda; Writing by Daniel Leussink; Editing by Andrea Ricci)

By Rachel Savage and Marc Jones

LONDON -The fallout of the Russia and Ukraine war has just helped tip two of world’s poorest countries into full-blown crises, and the list of those at risk – and the queue at the International Monetary Fund’s door – will only get longer from here.

They may be far from the fighting in Ukraine, but a mass resignation of Sri Lanka’s cabinet on Monday and drastic weekend manoeuvres by Pakistan’s Prime Minister Imran Khan to avoid his removal, show how far the economic impact spreads.

Both Sri Lanka and Pakistan have seen their long-festering public disquiet about economic mismanagement come to a head, but there is a double-digit list of other countries also in the danger zone.

A handful were already on the brink of debt crises in the wake of the COVID pandemic, the war’s resulting surge in energy and food prices, however, have undoubtedly made things worse.

Turkey, Tunisia, Egypt, Ghana, Kenya and others that also import the majority of their oil and gas as well as basic foodstuffs, such as wheat and corn, which have all soared between 25% and 40% this year, have also been facing heavy pressure.

Mounting costs of imports and subsidies for those everyday essentials had already convinced Cairo to devalue its currency 15% and seek IMF help in recent weeks. Tunisia and a long-resistant Sri Lanka have asked for assistance too.

Ghana, still reluctant to approach the Fund, meanwhile is seeing its currency slide, while Pakistan, a country already with 22 IMF programmes to its name, is almost certain to need more having now sunk into turmoil again.

“This energy shock is certainly contributing to the political uncertainty in Sri Lanka and Pakistan,” said Renaissance Capital’s chief economist Charlie Robertson, flagging it as a key factor for both Egypt and Ghana too.

“It wouldn’t surprise me if more countries were impacted,” he added, citing Jordan as well and Morocco where a relatively sizable middle class makes it sensitive to political change.

HUNGER IN AFRICA

IMF Managing Director Kristalina Georgieva has given a stark warning that “war in Ukraine means hunger in Africa”.

The IMF’s sister organisation, the World Bank, has also said https://blogs.worldbank.org/voices/are-we-ready-coming-spate-debt-crises a dozen of the world’s poorest countries may now default over the next year, which would be “the largest spate of debt crises in developing economies in a generation”.

Overindebted “frontier’ economies”, as the least developed group of countries are referred to, now owe $3.5 trillion — some $500 billion above pre-pandemic levels, the Institute of International Finance (IIF) estimates.

Pakistan and Sri Lanka already spent the equivalent of 3.4% and 2.2% of their respective GDP’s on energy before the pandemic. In Turkey the figure was an even larger 6.5%, and with oil prices having been above $100 a barrel for months now, the pressures are getting worse.

Every additional $10 spent on a barrel of oil adds 0.3% to Turkey’s current account deficit, according to the IIF. For Lebanon it is 1.3%, while rating agency Fitch estimates that the cost of electricity subsidies in Tunisia could surge to over 1.8% of its GDP this year from 0.8%.

UNREST

Food prices are a biting problem too. They were already rising as countries emerged from lockdowns, exacerbated in some regions by droughts.

With Ukraine and Russia accounting for 29% of the world’s wheat exports and 19% of maize shipments, prices of these have gone up another 25%-30% this year.

Egypt buys over 60% of its wheat overseas, four-fifths from Russia and Ukraine. After devaluing its currency and approaching the IMF, President Abdel Fattah al-Sisi’s government has also just fixed bread prices to contain runaway food costs.

“For many countries these (energy and food price) rises will have repercussions for budgets, for subsidies and for political and social stability.” said Viktor Szabo, an emerging market portfolio manager at abrdn in London.

“If you don’t control prices you can have unrest, just think back to the Arab Spring and the role of food prices there.”

With global borrowing costs also now rising rapidly as major central banks start to raise interest rates, Max Castle, a fixed income portfolio manager at Mediolanum Irish Operations said several emerging markets commodity importers may have little choice but seek help.

“It is the right situation for the IMF to intervene supporting the more vulnerable countries – particularly the ones with a current account deficit,” he said.

(Reporting by Rachel Savage and Marc Jones; Additional reporting by Tommy Reggiori Wilkes and Karin Strohecker; Editing by Tomasz Janowski)