Business

By Noriyuki Hirata

TOKYO, May 29 (Reuters) – As Japan’s yen drifts back to levels that prompted official intervention a month ago, markets are sizing up Tokyo’s remaining financial firepower and political will to defend its ailing currency.

Japan spent about $63 billion in what were suspected to be multiple bouts of yen-buying intervention at the end of April and early May, a small fraction of its $1 trillion war chest. But traders think that spending all of that, or even much of it, is unrealistic. And as speculative bets against the yen creep up again, authorities will be looking to keep markets on edge.

“The more foreign reserves shrink, the more vulnerable Japan looks to speculators,” said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities. With yen-selling pressure showing no sign of easing, “the war of nerves between the authorities and the market looks set to continue.”

Yen-buying intervention requires selling foreign assets, of which Japan held about $1 trillion at the end of April. After subtracting the roughly 10 trillion yen ($62.78 billion) deployed in the April and May actions, based on calculations of Bank of Japan money market data, that leaves about 150 trillion yen, or enough for “around 30 rounds” of intervention, according to Goldman Sachs economist Yuriko Tanaka.

‘CRUCIAL’ UNDERSTANDING

But exhausting all of Japan’s foreign assets wouldn’t be feasible, particularly as it would negatively impact the value of U.S. Treasuries at a time when cooperation from the United States is critical. The U.S. Treasury conducted so-called “rate checks” that helped nudge the dollar-yen rate down in January.

“U.S. understanding is crucial” to sustaining the impact of any intervention, said Takeshi Ueno, a senior economist at NLI Research Institute. If Washington were to push back on such activity, it “could invite speculative yen selling.”

FREE-FLOAT RULES

Another potential check on intervention is an International Monetary Fund standard whereby a country that steps into markets too often can risk losing its “free-floating” exchange rate status. But chief currency diplomat Atsushi Mimura has said the IMF rules served as no constraint on how many times the government can intervene.

“The thinking is that curbing excessive volatility takes priority,” said Akira Moroga, the chief market strategist at Aozora Bank. Even if Japan were to lose its free-floating currency classification, “I don’t think they care at all,” he added.

The yen slid to 159.65 on Thursday, the weakest since April 30 when Japan is suspected to have made its first intervention in almost two years. The Ministry of Finance is scheduled to announce at 1000 GMT on Friday the total amount spent on foreign exchange intervention since April 28.

Japanese Finance Minister Satsuki Katayama on Friday again declined to comment on whether her agency had intervened, repeating that officials were ready to take “decisive action.”

CAUTIOUS BOJ

The yen has been battered by the three-month-long Middle East crisis, with soaring energy prices delivering a terms of trade shock to Japan, which imports almost all its oil. That exacerbated an already weakening trend amid the BOJ’s cautious approach to raising interest rates and expectations of expanded fiscal stimulus under Prime Minister Sanae Takaichi.

Whereas previous Japanese administrations have focused on the speed of change in deciding whether to intervene, the current government appears more centred on defending the 160 per dollar line. Rather than fearing intervention, some market participants are now positioning for it.

A dealer at a domestic bank said buy orders for dollars are clustering in the 155-157 yen per dollar zone, reflecting real dollar demand among importers as well as speculative positions. On the top side, market expectation is that the next intervention will come before the 162 level.

“The government will want to defend that level at all costs,” said a dealer at a domestic bank.

($1 = 159.2800 yen)

(Reporting by Noriyuki Hirata and Kevin Buckland, writing by Rocky Swift; Editing by Sam Holmes)

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BEIJING, May 29 (Reuters) – China’s factory activity likely remained flat in May after expanding for two months, indicating that weak domestic demand and cost pressures stemming from the U.S.-Israeli war on Iran may have begun to weigh on the manufacturing sector.

The official manufacturing purchasing managers’ ‌index (PMI) is expected to drop to 50 from 50.3 in April, hitting the threshold separating growth from contraction, according to the median forecast of a Reuters poll of 14 economists.

Results of the PMI survey, set to be released by the National Bureau of Statistics on Sunday, will shed some light on the impact of another month of logistics disruptions and price shocks on China’s manufacturers, as the Middle East conflict dragged on and the Strait of Hormuz oil supply chokepoint remained largely closed.

Economic indicators released earlier this month painted a mixed picture of the Chinese economy in April, with goods exports surging while growth in retail sales and industrial production sagged. Producer prices soared, raising input costs, yet profits of industrial firms recorded their fastest growth since November 2023.

On one hand, persistently weak domestic demand and industrial overcapacity expose the economy to external risks like energy price volatility and trade partners’ protectionist measures. On the other hand, a global artificial intelligence boom has fuelled demand for China-made electronics, underpinning expansion in advanced manufacturing sectors and sustaining the momentum in exports.

Although U.S. President Donald Trump’s visit to Beijing in May yielded no major breakthroughs, Beijing and Washington did agree, following the summit, to seek reciprocal tariff cuts on $30 billion or more worth of goods. Beijing’s Commerce Ministry also said it hoped the U.S. would “honour its commitment” to ensure that tariff levels on Chinese goods will not exceed the level set under a trade truce reached last year.

So far, resilient goods exports and China’s energy reserves have cushioned the economy from the effects of the war and reduced the urgency for major stimulus measures, especially after policymakers set a softer growth target for the year.

But if cost pressures keep mounting, policymakers will need to further boost domestic demand, stabilise the job market and support the struggling real estate market to shield the economy from external uncertainties.

(Reporting by Yukun Zhang and Ryan Woo; Polling by Pulkit Khanna and Susobhan Sarkar in Bengaluru and Jing Wang in Shanghai; Editing by Thomas Derpinghaus)

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May 29 (Reuters) – Chrysler-parent Stellantis is recalling 419,035 vehicles in the U.S. as a software error could delay the side air bags from deploying during a crash, the U.S. National Highway Traffic Safety Administration said on Friday.

This would leave the vehicles non-compliant with U.S. Federal Motor Vehicle Safety Standards, NHTSA added.

The recall affects models including the 2022-2026 Jeep Grand Cherokee and the 2023-2025 Jeep Grand Cherokee L, the auto regulator said.

Dealers will update the occupant restraint controller module software free of charge, NHTSA said.

(Reporting by Disha Mishra in Bengaluru; Editing by Ronojoy Mazumdar and Rashmi Aich)

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BANGKOK (AP) — Rescuers working at a flooded cave in Laos said Friday that they were trying to drain water out to help extricate five villagers who have been trapped for more than a week.

An overnight rainstorm has complicated their efforts, they said. Meanwhile, searching continues for two more people who still haven’t been located. The villagers had reportedly entered the cave to look for valuable minerals.

Rescue experts from Laos and neighboring Thailand have been working together for the past week, making their way through twisting, narrow passages with jagged walls and flooded sections of the cave located in a rugged area in the central province of Xaisomboun, about 120 kilometers (75 miles) north of the capital, Vientiane.

Those helping out included several divers who took part in the complicated 2018 rescue in northern Thailand of 12 schoolboys and their soccer coach who were trapped for more than two weeks in a cave.

The Lao organization Rescue Volunteer for People says that another diver from Malaysia is assisting in the operation. Kengkaj Bongkawong, head of Thai rescue group Metta Tham Rescue Kalasin, said that divers from Indonesia, Japan and France were also on their way.

The discovery on Wednesday of five trapped villagers triggered celebrations among the rescue teams. They said the search for the other missing two will continue.

A video filmed by Thai cave diver Norrased Palasing showed the emotional moment he and Finnish diving instructor Miiko Paasi emerged from the water and discovered the trapped men. In the footage, the men are wearing headlamps and sitting on a rock surrounded by floodwater.

The five men were identified by their first names as Khamla, Mued, Ee, Ing, and Laen, according to the Lao rescue group. They were reportedly in good health but exhausted from dehydration and lack of food. Divers have since delivered soft food and water to them.

The men could be heard wailing as they saw their rescuers, and Norrased inquired about their health and conditions.

Along with introducing themselves on camera, they delivered messages to their families telling them not to worry.

“Don’t worry mom, dad. I’m still strong, I’m still healthy. Tomorrow I will be home. I love you mom and dad,” said the man, who introduced himself as Mued.

Lao officials say the villagers normally forage in the mountainous, heavily wooded surroundings for a living.

The villagers had been reported to have entered the cave to look for gold deposits. Bounphong Khammanyvong, a local official in Longcheng, the district where the cave is located, said that they had noticed rocks or sand with unusual colors in the cave, so they entered it in the hope of digging them out to see if they were valuable.

Bounphong, in an interview on Thursday with local media outlet Xaisomboun Province Television, said the villagers were trapped when heavy rain caused flooding that blocked them from leaving. An eighth person who managed to escape alerted the authorities.

He said that the group went in on May 20, contradicting rescuers who put the date at May 19.

Rescue Volunteer for People posted on its Facebook page that Friday’s operation plan included pumping water out of the cave in an attempt to get the five villagers out later in the day, but that heavy early morning rain had complicated their efforts.

“The front of the cave is in a low-lying area. When it rains, all water will flow down to this area and into the cave,” Bounphong said in his interview.

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May 29 (Reuters) – Electric vehicle maker Lucid is recalling 2,039 vehicles in the U.S. due to a loss of drive power that increases the risk of a crash, the National Highway Traffic Safety Administration (NHTSA) said on Friday.

Here are some details:

• The company is recalling some of its 2024-2025 Air vehicles in the U.S, the NHTSA said.

• The auto safety regulator added that the recalls are due to an issue with the vehicle’s inverter, which may become damaged, resulting in a loss of drive power.

• Lucid will release an over-the-top software update to inspect the issue, the NHTSA said, adding that the EV maker will replace the inverter free of charge.

(Reporting by Gnaneshwar Rajan in Bengaluru; Editing by Rashmi Aich)

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CHICAGO, May 28 (Reuters) – Southwest Airlines CEO Bob Jordan said on Wednesday the carrier has seen no drop-off in demand after joining seven industry fare increases since February, making him increasingly confident the airline can offset higher fuel costs with stronger revenue.

Speaking at a Bernstein investor conference, Jordan said the fare increases were the most he could recall in his 38 years in the industry. But demand remained strong across leisure and business travel, geographies and the booking curve, he said.

(Reporting by Rajesh Kumar Singh, Editing by Franklin Paul)

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By Ann Saphir

May 28 (Reuters) – St. Louis Federal Reserve President Alberto Musalem on Thursday said the central bank may need to increase its policy rate if inflation does not resume easing within the next six months, adding his voice to an increasingly hawkish cohort of Fed policymakers just as Kevin Warsh takes the reins as Fed chair.

“If we don’t see disinflation in the next one to two quarters, that would concern me,” Musalem said at a Central Bank of Iceland and Northwestern University economic conference in Reykjavik as he laid out scenarios that in his view may require a Fed rate hike. “Right now my view is that the risks have tilted more towards the inflation side than the labor market side.”

U.S. inflation increased at its fastest pace in three years in April, data published Thursday by the Commerce Department’s Bureau of Economic Analysis showed, with the personal consumption expenditures price index rising 3.8% from a year earlier on higher energy prices amid the war with Iran. 

Musalem said he could see a world where a rate cut could be needed later this year, if for instance growth slows and the labor market, now stable, begins to weaken again. Unemployment was 4.3% in April and economists expect it to stay there this month. 

But he made clear that he is more worried about the opposite scenario, especially if inflation expectations continue to drift higher or remain elevated, a signal that the public doesn’t believe the Fed will beat back inflation and that the worries could become self-fulfilling. 

“I see risks that inflation may not converge to target as we would like,” he said. “So we need to be very vigilant.”

Musalem’s hawkish remarks followed a speech in which he warned of the risks of banking on AI’s potential for boosting productivity, and therefore pushing down on inflation, before there is clear evidence it is doing so.

Warsh, who was sworn in as Fed chair less than a week ago, has said he believes AI will be a strong disinflationary force, a view that suggests he could support the easier monetary policy that President Donald Trump says the economy needs and that he expects Warsh to deliver.

The Fed has kept its policy rate in the 3.50%-3.75% range all year and financial markets are pricing in a better-than-even chance of a rate hike by the end of 2026. Central bankers next meet to set policy in mid-June. 

(Reporting by Ann Saphir; Editing by Chizu Nomiyama )

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By Shadia Nasralla

LONDON, May 28 (Reuters) – Ousted BP Chairman Albert Manifold met with activist shareholder Elliott Management during his tenure without telling fellow board members directly, two sources with knowledge of the matter told Reuters.

BP dismissed Manifold this week after less than eight months as chairman, sending BP’s shares plunging and dealing a blow to the leadership’s attempt to prove that it had steadied the ship. BP cited governance and conduct issues when it ousted Manifold.

BP hired Manifold last year to oversee its efforts to rebuild investor confidence after years of strategy and leadership changes and high debt. He replaced Helge Lund, whose shareholder support sagged before his exit.

Manifold’s previously unreported meetings with Elliott come on top of complaints about bullying behaviour to both executive and lower-level staff which alarmed the board, according to sources.

A spokesperson for Manifold did not offer any formal comment on the meetings with Elliott.

Manifold’s interactions with Elliott were not technically a breach of any specific rule and not the main reason for his dismissal, but were an example of acting unilaterally and not in good faith towards other board members, one of the two sources with knowledge of the matter said.

The meetings with Elliott were not hidden from the company because Manifold had informed BP’s investor relations team that he met Elliott on several occasions and all shareholder interactions should have been reported to the board as part of routine investor relations updates, said one source with knowledge of the matter.

U.S. activist hedge fund Elliott disclosed last year that it had a stake of over 5% in BP and has given no public update since then on how much of the company it owns. 

Elliott wanted BP to cut costs, shift focus and spending from renewable projects to oil and gas and simplify BP’s organisational structure, sources have told Reuters over the past year. Manifold wanted to accelerate the revamp of BP, which implemented most of these changes in recent months.

Elliott did not reply to requests for comment on any meetings with Manifold. BP declined to comment and, when asked about the way information is supposed to flow about such meetings, referred back to earlier statements about Manifold’s conduct.

“FALSE NARRATIVE”

Manifold has said his dismissal came without warning, that he disputed the characterisation of his conduct and was ready to challenge any “false narrative”.

“Is it possible that in my determination to drive change on costs, performance, the balance sheet and shareholder communications, I pushed hard and challenged people directly? Yes, it is,” he said in a statement on Thursday.

“What I do not accept is that lies can be told about me, nor that anyone should be allowed to hide behind anonymity when commenting on my time at BP,” he added.

Manifold has hired law firm Mishcon de Reya to represent him in the aftermath of his dismissal, a source previously told Reuters on Wednesday.

A spokesperson for Manifold declined to comment on Thursday regarding what, if any, action he was planning to take against BP.

Manifold’s departure is the third abrupt or forced exit of a senior BP leader in three years after ex-CEOs Bernard Looney and Murray Auchincloss, raising questions about its ability to deliver a turnaround strategy investors had only just begun to back.

Manifold had acted aggressively with different colleagues across the company making his position untenable, four sources told Reuters on Tuesday. The company has appointed Ian Tyler as interim chairman.

(Reporting by Shadia Nasralla, additional reporting by Stephanie Kelly and Sarah McFarlane; Editing by Nina Chestney, Simon Webb and Sanjeev Miglani”)

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By Ann Saphir

May 28 (Reuters) – One of new Federal Reserve Chairman Kevin Warsh’s favorite inflation measures came in cool again on Thursday, offering evidence for his belief inflation is improving and against the view of a growing number of other policymakers that interest rate hikes may be needed to tamp down rising price pressures.

Year-over-year inflation by the Dallas Fed’s trimmed mean measure – the best-known of what Warsh referred to in his confirmation hearing as “trimmed averages” for inflation – was 2.3% in April, the Fed bank reported on Wednesday, down from 2.4% in March.

Trouble is, not even the trimmed mean measure’s publishers think it’s a good yardstick of the underlying inflation trend right now.

“You would want to be cautious on getting too much optimism from the level of the trimmed mean,” Dallas Fed economist Tyler Atkinson explained in an interview on Wednesday ahead of the latest data release.

In normal times, he said, the gauge works well to filter out the noise from outlying components, which in April included surging prices for gasoline, airfare and jewelry, and a drop in the prices for poultry, household linens and haircuts. It trims off the fastest-rising prices and fastest-falling prices, leaving a more representative middle set of price changes that typically serves as a good indicator of where inflation is heading.

Items with falling or very slow-rising prices typically outnumber items with steeply rising prices, so Dallas Fed researchers compensate by lopping off more high-inflation items than low-inflation ones.

But lately – because tariffs imposed by President Donald Trump over the last year have pushed up prices for a large chunk of goods – the usual “skew” is reversed. That means that trimming the top 31% and the bottom 24% of items in the index, as the gauge’s methodology calls for, ends up pushing the gauge downward, understating true price pressures, Atkinson explained.

This has happened twice before, in the aftermath of the financial crisis and during the post-pandemic inflation surge. Both times, the trimmed mean gave a false signal, suggesting inflation would be cooler than it turned out to be.

By contrast, the measure Fed policymakers have been using for some time to gauge underlying price pressures – the core personal consumption expenditures price index excluding volatile energy and food prices – rose 3.3% in the 12 months through April, the Commerce Department’s Bureau of Economic Analysis said on Thursday.

That is the fastest since 2023 and is, as Fed Governor Lisa Cook said on Wednesday, “clearly moving in the wrong direction.”

At his confirmation hearing last month, though, Warsh told lawmakers he prefers to take his signal from “trimmed averages” and, as he told Democratic Senator Catherine Cortez Masto, he believes inflation “has improved somewhat in the last year.”

Analysts are skeptical.

“We think it is difficult to argue that the disinflation signaled by the trimmed mean is real,” wrote Standard Chartered Bank analysts Steve Englander and Dan Pan, noting not just the Dallas Fed measure’s statistical properties but also that it historically has not been as good at predicting future inflation as core PCE.

The Dallas Fed has no plans to change its methodology, Atkinson said. If tariff-induced price pressures recede as expected, the problem should cure itself in coming months. Until then, maybe look elsewhere for a guide on the future of inflation, he suggested.

“At the Dallas Fed, we really like the trimmed mean,” he said. “But any policymaker would say, you don’t just look at a single measure, look at lots and lots of them.”

​

(Reporting by Ann Saphir; Editing by Dan Burns and Andrea Ricci )

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The average long-term U.S. mortgage rate rose again this week, reaching its highest level in nine months, another setback for prospective homebuyers.

The benchmark 30-year fixed rate mortgage rate rose to 6.53% from 6.51% last week, mortgage buyer Freddie Mac said Thursday. Despite the latest increase, the average rate remains below 6.89%, where it was a year ago.

When mortgage rates rise they can add hundreds of dollars a month in costs for borrowers, reducing their purchasing power.

Rates have been mostly trending higher since the war with Iran began, disrupting the passage of tankers ferrying crude oil from the Persian Gulf to customers worldwide. That’s sent oil prices sharply higher — a key driver of inflation.

Mortgage rates are influenced by several factors, from the Federal Reserve’s interest rate policy decisions to bond market investors’ expectations for the economy and inflation. They generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

Expectations of higher oil prices have pushed up long-term bond yields, causing mortgage rates to head higher.

Bond yields have been easing this week amid hopes that the United States and Iran may reach a deal to reopen the Strait of Hormuz and get oil flowing again. The yield on the U.S. 10-year Treasury note was at 4.46% in midday trading Thursday on the bond market, down from 4.57% a week ago. It was just 3.97% in late February, before the war broke out.

Meanwhile, borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week. That average rate rose to 5.87% from 5.85% last week. A year ago, it was at 6.03%, Freddie Mac said.

As recently as late February, the average rate on a 30-year mortgage had slipped just under 6% for the first time since late 2022. It’s hasn’t fallen below that threshold since. It’s now at its highest level since August 28, when it was 6.56%.

While average long-term mortgage rates remain lower than they were at this time last year, their recent increase has put a damper on sales so far this spring homebuying season.

Sales of previously occupied U.S. homes were essentially flat last month after declining from a year earlier in the first three months of the year, extending a nationwide housing slump that dates back to 2022 when mortgage rates began to climb from pandemic-era lows.

Demand for newly built homes has also been lackluster. New home sales fell 6.2% in April to a seasonally adjusted annual rate of 622,000 units, the U.S. Census Bureau reported Thursday.

Through the first four months of this year, new home sales are down 6.5% from where they were at this time last year, even as many homebuilders continue to lower prices and offer incentives to woo home shoppers.

New data on mortgage applications points to ongoing weakness.

Mortgage applications, which include loans to buy a home or refinance an existing mortgage, fell 8.5% last week from a week earlier as mortgage rates marched higher, according to the Mortgage Bankers Association. A pullback in demand for mortgage refinancing loans accounted for a big share of the overall decline.

One bright spot: Applications for loans to buy a home continued to run ahead of last year’s pace.

Home shoppers who are undeterred by rising mortgage rates are benefiting from buyer-friendly trends in many markets, including more properties on the market than a year ago and data showing home listing prices have started falling in many metro areas, especially in the South and Midwest.

“Buyers have more homes to choose from and asking prices continue to soften, but their dollars don’t stretch as far as they did a few months back,” said Jake Krimmel, senior economist at Realtor.com. “A resolution to the (U.S.-Iran) conflict, therefore, would do a world of good for mortgage rates, consumers, and housing market momentum.”

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