Binance Seeks Permit to Return to Japan Market After Four Years

Summary:

Binance, the world's biggest cryptocurrency exchange, is seeking a licence to operate in Japan, four years after retreating from the country as it didn't have a permit, according to people familiar with the matter.

The nation's easing approach to crypto and substantial potential for user growth are the key reasons for Binance's renewed interest in the world's third-largest economy, one of the people said.

Japanese Prime Minister Fumio Kishida's agenda for reinvigorating the economy under the rubric of "New Capitalism" includes supporting the growth of so-called Web3 firms. The term "Web3" refers to a vision of a decentralised internet built around blockchains, crypto's underlying technology.

"It would be inappropriate to comment on any conversations with regulators," a Binance spokesperson said in response to request for comments. Binance is "committed to working with regulators and policymakers to shape policies that protect consumers, encourage innovation, and move our industry forward", the spokesperson added. An official at the Financial Services Agency declined to comment.

Last month, Japan's financial regulator proposed relaxing corporate tax rules for crypto assets. Lobbying groups have been calling for changes, saying high corporate taxes cause some firms to relocate to Singapore and elsewhere.

Such steps are somewhat of a contrast to the tougher regulatory oversight emerging in a range of countries after a US$2 trillion wipeout in digital assets from last year's peak led to blowups at crypto hedge funds and lenders.

Binance's billionaire co-founder Changpeng "CZ" Zhao in 2018 ditched a plan to build a base in Japan, following inquiries from the securities regulator that led to an official notice to stop operating in the country without a license. It got a similar warning three years later for not complying with registration rules.

In Asia, Binance is present in countries including Thailand, Malaysia, Indonesia and India through partnerships.

Binance has been the target of regulatory probes in a variety of jurisdictions, including the US. In response, the firm has said it works with authorities and will continue to meet requirements set by officials.

Source: Bloomberg

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Devin

When aluminium hit its all-time high of $4,073.50 per tonne in March, it did so in direct reaction to Russia's invasion of Ukraine.

The market was pricing the potential loss of metal from Russia's Rusal, which produced 3.76 million tonnes in 2021.

Aluminium traders had seen this movie before back in 2018, when U.S. sanctions on Rusal's owner Oleg Deripaska caused massive upheaval along the entire length of the global supply chain.

This time around, however, there have been no government sanctions on Rusal's aluminium in response to the Kremlin's self-styled "special military operation" in Ukraine.

Indeed, Russian supply shows every sign of increasing as Rusal ramps up a new smelter and looks to export more metal as domestic demand weakens.

But who will buy all this aluminium?

Self-sanctioning is likely to disrupt normal sales channels next year with the possibility of Russian metal flowing to the market of last resort, the London Metal Exchange (LME).

Plugging The Raw Materials Gap

The only government to take direct action against Russia's aluminium sector has been Australia, which in March banned the export of bauxite and intermediate product alumina to the country.

That effectively froze Rusal's alumina off-take stream from the Queensland Alumina joint venture. Another key alumina supply channel was shut off by the closure, also in March, of the Nikolaev refinery in Ukraine.

The alumina gap, however, is being filled by Chinese producers, which have dramatically stepped-up exports to Russia.

China has shipped 577,000 tonnes of alumina to Russia since March, compared with just 1,250 tonnes in 2020 and 1,750 tonnes in 2021.

The flows have been strong enough to tilt China towards being a net exporter for the first time since early 2019 and appear to have allowed Rusal to lift production despite the disruption to its own raw materials supply chain.

Rusal has stopped publishing its production numbers, which makes it hard to assess what operational challenges it may or may not be experiencing in running its Siberian smelter network.

The company started energising the new taishet smelter in December last year and was planning to ramp up to first-stage capacity of 428,500 tonnes over the course of this year.

The International Aluminium Institute's (IAI) monthly production reports suggest that Taishet may indeed be boosting Rusal's output.

Annualised production in the IAI's "Russia and Eastern Europe" category was 4.12 million tonnes in August, unchanged from March. Yet these regional figures include Romania, Slovakia and Slovenia, all of which have seen smelter capacity shuttered due to high energy prices.

The inference is that Rusal's production growth is offsetting falling run-rates in the rest of the region.

Continued Metal Flows

Certainly, the flow of Russian metal into Western markets has been robust since march.

European average monthly imports were up by 13% year-on-year in March through June, while the United States soaked up 21% more Russian metal in the same period.

The unfettered flow of Russian metal into the U.S. market is causing serious problems for local producers, according to Jakob Stausholm, chief executive officer of Rio Tinto, which holds extensive smelting assets in Canada. "It just looks strange", Stausholm told Bloomberg News.

From a purely market perspective, though, it's not strange at all, given the U.S. physical premium flexed out to $880 per tonne over the LME cash price at one stage in April. That extreme premium sucked in every spare unit of aluminium, including a lot of surplus Russian metal.

Which buyers have obviously been taking. Absent formal sanctions on Russian aluminium, most Rusal customers seem to be accepting deliveries under existing contracts or taking up spot metal from intermediates.

That, however, is going to change next year.

New Buyers Please

Novelis, a division of Hindalco Industries, and Norsk Hydro's extrusions unit have already said they will not enter into new Russian purchase contracts for 2023.

Plenty more smaller operators are also joining the self-sanction movement, which spells trouble for Rusal and potentially the aluminium price.

A partial boycott will coincide with increased Russian supply as Rusal's domestic market weakens further under the broader economic sanctions package.

Goldman Sachs thinks Russian metal exports will increase by around 340,000 tonnes this year and by another 200,000 to 3.6 million tonnes in 2023. ("Aluminium: Feeling Winter's Chill", Sep 21, 2022)

Increased exports will hit a European market that is now rapidly heading into recession as high-power prices, another consequence of Russia's action in Ukraine, stifle demand.

There is obviously potential for Rusal to direct more metal to physical buyers in Asia, particularly China.

Chinese imports of primary aluminium collapsed by 77% over the first eight months of this year but those from Russia were down by only 9%. Indeed, Russian imports of 231,000 tonnes accounted for 78% of all inbound shipments.

Imports of Russian alloy have also surged in recent months, totalling 42,000 tonnes in January-August, compared with 33,000 tonnes over all of last year.

China's aluminium sector, though, runs on its own internal cycle and it may not be able to absorb immediately what Western buyers don't want.

You can understand why the aluminium market is starting to worry about the prospect of large volumes of unsold Russian metal being dumped into LME warehouses.

Rusal is looking at the option of shipping from Russia's eastern seaboard to LME warehouse locations in Asia, according to Bloomberg.

The fear is that significant inflows of Russian metal into the LME system could turn the aluminium contract into a "de facto" Russian contract with a corresponding discount to Western market pricing.

The LME has said it is monitoring the situation. It's in a tricky situation, given the lack of official sanctions against Russian metal.

Yet the Russian question is likely to cause more ructions in physical aluminium pricing, adding an extra dimension to existing regional and nascent low-carbon premium structures.

It's hard to see how the LME aluminium contract isn't going to be affected in some way by the shifts in physical pricing, even if Rusal can find an alternative home for its metal.

Source: Reuters

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Devin

A lavish, taxpayer-funded funeral for Japanese former Prime Minister Shinzo Abe has triggered a public backlash against the ruling party he led for years.

Some opposition lawmakers are boycotting Tuesday's state funeral and a man set himself alight in an apparent protest against the $12 million event, to be attended by foreign dignitaries including U.S. Vice President Kamala Harris and Indian Prime Minister Narendra Modi.

Here is what you need to know about why the funeral for Abe - Japan's divisive but longest-serving premier - has become a lightning rod for public anger.

Why are people opposed?

Opposition has largely been fuelled by revelations of links Abe and his Liberal Democratic Party (LDP) had to the Unification Church, which became widely known after he was gunned down on the campaign trail in July.

The suspect in the shooting accused Abe of promoting the group, which critics call a cult due to its mass weddings and aggressive fund-raising tactics. The suspect said the church had impoverished his family, according to police.

Since then an investigation by the LDP has concluded that 179 of its 379 lawmakers had interacted with the church.

The rising cost of the funeral, which the government estimates at 1.65 billion yen ($11.5 million), has added fuel to the fire at a time of economic hardship for many.

Japan's last fully state-funded funeral for a prime minister was for Shigeru Yoshida in 1967. Subsequent ones have been paid for by both the state and the LDP.

How has opinion shifted?

Prime Minister Fumio Kishida announced his intention to host the state funeral six days after Abe was slain. At the time, the public was split in its support for the event, polls showed.

But as evidence of links between the LDP and the Unification Church mounted and the estimated costs of the funeral rose, opinion shifted. Some 62% of respondents in a recent poll by the Mainichi newspaper opposed the funeral, citing reasons such as Abe not being worthy of the honour and the high price tag.

The issue has pummelled Kishida's approval ratings. His support fell to 29% in a recent Mainichi poll, considered a danger level that means the government may run into trouble carrying out its political agenda.

In a grisly show of opposition less than a week out from the funeral, a man in his 70s was hospitalised after setting himself on fire near the prime minister's residence on Wednesday in an apparent protest against the funeral, local media reported.

What has the government said?

Kishida has apologised and pledged to win back public trust by asking LDP lawmakers to sever ties with the Unification Church. He has acknowledged the funeral lacks overwhelming public support but has repeatedly sought to justify his decision.

He has praised Abe's domestic and diplomatic contributions as well as his legacy of his lengthy tenure as reasons why a state funeral is warranted.

During his two stints in office, from 2006 to 2007 and 2012 to 2020, Abe's nationalist rhetoric and muscular defence policy riled many Japanese wary of any change to the country's pacifist constitution drawn up after World War Two.

Source: Reuters

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Owen Li

Global investors are preparing for more market mayhem after a monumental week that whipsawed asset prices around the world, as central banks and governments ramped up their fight against inflation.

Signs of extraordinary times were everywhere. The Federal Reserve delivered its third straight seventy-five basis point rate hike while Japan intervened to shore up the yen for the first time since 1998. The British pound slid to a fresh 37-year trough against the dollar after the country's new finance minister unleashed historic tax cuts and huge increases in borrowing.

"It's hard to know what will break where, and when," said Mike Kelly, head of multi-asset at PineBridge Investments (US). "Before, the thinking had been that a recession would be short and shallow. Now we're throwing that away and thinking about the unintended consequences of much tighter monetary policy."

Stocks plunged everywhere. The Dow Jones Industrial Average nearly joined the S&P 500 and Nasdaq in a bear market while bonds tumbled to their lowest level in years as investors recalibrated their portfolios to a world of persistent inflation and rising interest rates.

Towering above it all was the U.S. dollar, which has rocketed to its highest level in 20 years against a basket of currencies, lifted in part by investors seeking shelter from the wild swings in markets.

"Currency exchange rates ... are now violent in their moves," said David Kotok, chairman and chief investment officer at Cumberland Advisors. "When governments and central banks are in the business of setting the interest rates, they are shifting the volatility to the currency markets."

For now, the selloffs across asset classes have drawn few bargain hunters. In fact, many believe things are bound to get worse as tighter monetary policy across the globe raises the risks of a worldwide recession.

"We remain cautious," said Russ Koesterich, who oversees the Global Allocation Fund for Blackrock, the world's largest asset manager, noting his allocation to equities is "well below benchmark" and he is also cautious on bonds.

"I think there's a lot of uncertainty on how quickly inflation will come down, there's a lot of uncertainty about whether or not the Fed will go through with as an aggressive tightening campaign as they signaled this week."

Kotok said he is positioned conservatively with high cash levels. "I'd like to see enough of a selloff to make entry attractive in the U.S. stockmarket," Kotok said.

The fallout from the hectic week exacerbated trends for stocks and bonds that have been in place all year, pushing down prices for both asset classes. But the murky outlook meant that they were still not cheap enough for some investors.

"We think the time to go long in equities is still ahead of us until we see signs that the market has bottomed," said Jake Jolly, senior investment strategist at BNY Mellon, who has been increasing his allocation to short duration sovereign bonds.

"The market is getting closer and closer to pricing in this recession that is widely expected but it is not yet fully priced in."

After Feverish Week, Global Investors Lick Wounds and Brace for More Chaos_1

Goldman Sachs strategists on last Friday lowered their year-end target for the benchmark U.S. stock index, the S&P 500, to 3,600 from 4,300.

Bond yields, which move inversely to prices, surged across the world. Yields on the benchmark U.S. 10-year Treasury hit their highest level in more than 12 years, while Germany's two-year bond yield rose above 2% for the first time since late 2008. In the UK, five-year gilts leapt 50 bps -- their biggest one-day jump since at least late 1991, according to Refinitiv data.

"At some point, the fears will shift from inflation to growth," said Matthew Nest, global head of active fixed income at State Street Global Advisors, who thinks bond yields have moved so high they are starting to look "pretty attractive."

After Feverish Week, Global Investors Lick Wounds and Brace for More Chaos_2

Investors fear things will get worse before they get better.

"The question is now not whether we are going into a recession, it is how deep will the recession be, and might we have some form of financial crisis and major global liquidity shock," said Mike Riddell, a senior fixed income portfolio manager at Allianz Global Investors in London.

Because monetary policy tends to work with a lag, Riddell estimates the renewed hawkishness from central banks means the global economy will be even weaker by the middle of next year.

"We are of the view that markets are still massively underestimating the global economic growth hit that is coming," he said.

Source: Reuters

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Kevin Du

The Governor of California, Gavin Newsom, has vetoed a proposed bill that seeks to create license requirements for crypto companies in the state.

The bill sponsored by Democrat Assemblyman Tim Grayson was passed by the state assembly and senate last month. The Digital Financial Assets Law will create a much-needed framework for the crypto space.

In his letter to the California State Assembly, Newsom stated, "It is premature to lock a licensing structure."

"A more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases and is tailored with the proper tools to address trends and mitigate consumer harm," he added.

Governor points out financial constraints of bill

The bill was first read on the floor of the California State Assembly in February this year. Both the senate and state assembly eventually passed it on August 30. But Newsom doesn't think it is necessary, citing the cost of a new regulatory program.

Newsom wrote that this bill "would require a loan from the general fund in the tens of millions of dollars for the first several years. Such a significant commitment of general fund resources should be considered and accounted for in the annual budget process."

California Governor is waiting on White House regulations

Newsom also said that he wants federal regulations on digital financial assets to be more certain before he commits to any licensing requirement in conjunction with the legislature.

However, it might take a while before the federal government fully regulates the crypto sector. Federal agencies and White House offices have recently released various reports on different aspects of digital assets ranging from crypto mining to CBDCs.

Some of the reports based on President Biden's executive order have attracted several criticisms from industry experts. Such criticisms focus on the failure of some of these reports to provide more clarity.

Meanwhile, the absence of licensing requirements in California means there is still regulatory uncertainty in the Golden state even though it is crypto-friendly.

Unlike in New York, where there's a strict licensing requirement in place, digital assets firms in California will continue to enjoy the flexibility.

Source: beincrypto

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Damon

Hedge funds went into the Fed's Sept. 20-21 policy meeting betting on a sign that a dovish pivot is looming onto the horizon.

They got a pivot, but unfortunately for them it was a double-down, hawkish signal that interest rates will continue rising until inflation is firmly heading back towards target, no matter the economic fallout.

The latest Commodity Futures Trading Commission's report shows that speculators cut their short positions in interest rate, S&P 500, and Treasuries futures in the week to Sept. 20, and significantly reduced their net long dollar position.

A short position is essentially a wager that an asset's price will fall, and a long position is a bet it will rise. In bonds and rates, yields fall when prices rise, and move up when prices fall.

Perhaps it was inevitable that funds scaled back exposure ahead of the Fed's decision. Some positions, and the underlying assets, were already at or close to historical extremes - the dollar at a 20-year peak, implied Fed rates near 4%, and Wall Street and Treasuries having one of their worst years ever.

In the days following the third-rate hike of 75 basis points and clear message of more tightening ahead, however, stocks and bonds sank, and rates and the dollar soared. There's every chance funds will have re-loaded up on their "doom and gloom" trades.

"With financial conditions expected to become even more restrictive, our outlook now incorporates a shallow (GDP) downturn in 2023," Barclays U.S. economists wrote on Friday. "With a higher bar for ending hikes, risks of significant overtightening have intensified."

According to Goldman Sachs, U.S. financial conditions are now the tightest since April 2020

Worst Since the Depression

The most remarkable position shifts in the week to Sept. 20 were in currencies, where CFTC speculators and leveraged accounts slashed their bullish dollar bets by around $7 billion to $10.2 billion.

That was the biggest weekly shift against the dollar since March 2020. Most of it was due to funds flipping to a net long euro position for the first time since June.

The 45,000-contract swing was the biggest since March 2020 and sixth largest since euro futures contracts were launched in the 1980s. It looks like speculators latched onto the European Central Bank's newfound hawkishness, although that seems misplaced now with the euro comfortably below dollar parity.

Funds' Pivot Hopes Get Smoked as Fed Doubles Down_2

Similarly, funds reduced their net short sterling position by 13,000 contracts, the biggest move in six weeks. That was before the pound's 3.5% fall against the dollar on Friday, the seventh largest one-day decline in over 50 years.

In rates, CFTC speculators cut their net short position in three-month "SOFR" futures by 33,000 contracts to 788,000 contracts, the smallest net short in seven weeks.

They reduced their net short position in 10-year Treasuries futures by 123,000 contracts, the biggest short-covering move in almost five months.

And in equities, they scaled back their net short position in S&P 500 futures by 61,500 contracts to 219,500, the smallest net short in two months. That was the most "bullish" weekly swing since May.

Funds' Pivot Hopes Get Smoked as Fed Doubles Down_3

The selloff across all markets since then, however, has been brutal. According to Charlie Bilello of Compound Capital Advisors, a typical 60/40 portfolio of U.S. stocks and bonds is down 19.3% so far this year, putting 2022 on course to be the second worst year in history after 1931.

Source: Reuters

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Owen Li

China's central bank on Monday announced steps to slow the pace of the yuan's recent depreciation by making it more expensive to bet against the currency.

The People's Bank of China (PBOC) said it would raise the foreign exchange risk reserves for financial institutions when purchasing FX through currency forwards to 20% from the current zero, starting on Sept. 28.

In explaining its actions, the PBOC said it is "stabilising FX market expectations and strengthening macro prudential management", according to an online statement.

The move to resume FX risk reserves would effectively raise the cost of shorting the yuan at a time the local currency is facing renewed depreciation pressure, traders and analysts said.

"The move will make the cost of forward dollar buying more expensive," said a trader at a foreign bank.

"So, the effect of the policy move may be more powerful than verbal guidance and signal through midpoint fixing settings."

Spot yuan hardly budged on the announcement. The onshore yuan traded at 7.1485 per dollar, versus the previous late night close of 7.1298 on Friday. Its offshore counterpart briefly bounced to 7.13 before last fetching 7.1522 as of 0155 GMT.

Earlier on Monday, the PBOC again set firmer-than-expected official guidance for the 23rd straight trading session, at 7.0298 per dollar before market opening - the weakest level since July 7, 2020. It was 279 pips stronger than Reuters' estimate of 7.0019.

Little Impact

Over recent months, authorities have stepped up efforts to rein in yuan weakness through persistently setting firmer-than-expected midpoint fixings, verbal warnings and holding off immediate easing moves.

The yuan has slumped more than 4% to the dollar since mid-August to breach the psychologically important 7 per dollar level, and is on course for its biggest annual loss since 1994, when China unified official and market exchange rates.

The Chinese currency has been hit by a combination of broad dollar strength, China's wobbly economy and an easier monetary bias adopted by authorities to prop up growth.

The downturn in the yuan has picked up speed after the PBOC lowered key interest rates in August to further widen its policy stance from other major economies that are raising rates aggressively.

Monday's announcement by the PBOC marks the latest policy measure to stem the faltering currency after earlier this month it moved to lower the amount of foreign exchange that financial institutions must hold as reserves earlier.

China's central bank scrapped the risk reserve requirements in October 2020, when the yuan rose sharply.

The yuan is among a swathe of currencies facing relentless selling pressure as the dollar enjoys broad demand, underpinned by the U.S. Federal Reserve's rapid monetary tightening. In Japan, where the central bank is sticking to ultra-easy policy to revive a fragile economy, authorities last week intervened in the currency market to buy yen for the first time since 1998.

"Raising FX risk reserve showed the PBOC wants to stem the rapid yuan loss and stabilise the market," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

"It also shows that the central bank will step in whenever it is needed."

However, Cheung noted that given the higher dollar interest rates, with the Fed raising borrowing costs aggressively, the move is unlikely to reverse the yuan depreciation trend.