Month: August 2016

Japanese Prime Minister Shinzo Abe’s cabinet approved 13.5 trillion yen ($132.04 billion) in fiscal measures on Tuesday as part of efforts to revive the flagging economy, with cash payouts to low-income earners and infrastructure spending.

The stimulus spending is part of a renewed government effort to coordinate its policy with the Bank of Japan, but growing concerns that the BOJ policy has reached its limit triggered the worst sell-off in government bonds in three years.

“We compiled today a strong economic package draft aimed at carrying out investment for the future,” Abe told a meeting of cabinet ministers and ruling party executives on Tuesday morning.

Uber has bowed out of the world’s second-largest economy after selling its China business to domestic rival Didi Chuxing.

While investors and analysts have had a mixed reaction to the news, there are clear reasons why it happened.

Burning cash

Earlier this year, Uber chief executive Travis Kalanick said the start-up was losing USD 1 billion a year in China and, a source told CNBC, that the company had spent USD 2 billion in two years trying to battle Didi.

It was an unsustainable way to run the China operation, a fact that Kalanick acknowledged in a blog post circulating around Chinese social media.

“Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term,” Kalanick said.

Uber was also losing to Didi which claimed to have a nearly 80 percent market share, so it appeared to be a good time to leave China.

Removes a hurdle for IPO

Analysts believe Kalanick has been very vocal that Uber is not looking to go public anytime soon, but when that eventually happens, removing the cash-sucking China business could make the company more palatable to investors.

With China off of the company’s plate, Uber can now focus on the hundreds of other regions it operates in where it is also facing challenges.

In Europe, Uber has run into trouble with regulators while in the US, the company is in constant debate over whether its drivers are classed as employees or contractors.

India is another big potential growth market for Uber and it can now perhaps devote more resource there. But like China, Uber is battling local incumbent Ola in India.

“India is the single biggest un-won opportunity, there it is a much more level playing field than in China,” Rob Kniaz, partner at London-based venture capital firm Hoxton Ventures, told CNBC by phone.

Now that Didi owns Uber China, it’s less likely to invest in competitors to Uber around the world, Kniaz added.

New products?

Uber can also focus its effort on developing some of its other products such as UberEats, the food delivery business.

A report in the Financial Times said that the company is planning to invest USD 500 million into building its own mapping system.

Didi international expansion

The market shouldn’t be ruling out the possibility the Federal Reserve will hike interest rates again this year, William Dudley, president of the New York Fed, said on Monday.

Dudley said he expected the US economy to grow around 2 percent annualized over the next 18 months, boosted by improved consumption.

“If the upcoming information validates my view of the outlook, then US monetary policy will need to move at a faster pace than implied by futures prices to a more neutral posture as the labor market tightens further and US inflation rises,” Dudley said.

Additionally, Dudley noted that the market didn’t appear to be giving much weight to the possibility that the economy could grow faster than expected.

“The risks to growth from Brexit and other international developments could fade away. If such events were to occur, this might necessitate an even faster pace of adjustment,” he said.

“It’s premature to rule out further monetary policy tightening this year. It depends on the data, broadly defined, and as we all know, that’s not something one can predict with any great accuracy,” he said.

Last week, the Federal Open Market Committee kept its overnight interest rate target in the 0.25 percent to 0.5 percent range, but noted that the labor market had “strengthened” and said other indicators were pointing to growth.

The Fed last hiked its overnight rate in December after keeping it anchored near zero for seven years.

On the downside, the FOMC statement noted that inflation remains mired and is “expected to remain low in the near term” and then rise as the decline in energy prices turns and the labor market continues to strengthen.

Dudley said on Monday that the medium-term risks to the economy were “somewhat skewed to the downside.”

For that reason, he said it was “broadly appropriate” for market expectations to shift toward a flatter path for US interest rates.

He noted that the Fed takes a “risk management approach,” and that “we need to be a bit more careful about the risk of tightening monetary policy in a manner that proves to be premature as compared to the alternative risk of being a little late.”

But he noted that if the Fed were to be late in responding to inflation risks in the economy, policy could be adjusted by raising short-term interest rates more quickly.