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Japan’s Abe abandons contentious labour reform after flawed data

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Japanese Prime Minister Shinzo Abe has abandoned for now a key labour law reform aimed at boosting productivity after admitting data used to support the change was flawed, an embarrassing political climb-down likely to disappoint businesses and investors.

Abe had pledged to pass in the current session of parliament, set to end in June, a package of reforms to increase labour market flexibility and allow a more efficient allocation of resources, a core part of his “Abenomics” recipe for growth.

But after weeks of defending the reforms against opposition attack after the government admitted some supporting data was flawed, Abe confirmed on Thursday that one of the most contentious parts of the package would be dropped for now.

The change would have expanded a system of “discretionary labour” where employees are regarded as having worked a certain number of hours and paid a fixed wage regardless of how long they actually work. The flawed data related primarily to this proposal.

“We’ve decided to delete every single element of discretionary labour from the reform bills at this time and have the labour ministry grasp the actual situation once more, and then to debate over again,” Abe told the upper house budget committee, confirming remarks to reporters late on Wednesday.

Abe came to office in December 2012 promising to revive the economy with “three arrows” of his “Abenomics” policies: hyper-easy monetary policy, fiscal spending and structural reforms. Critics say he has lagged on the third part of this agenda.

“In economic terms, labour reform was going to be the core of the productivity ‘revolution’ that he was going to engineer,” said Jesper Koll, head of equity fund WisdomTree Japan. “When you ask ‘what else is there?’, the answer is a yawning emptiness.”

Another part of the package would expand the categories of highly skilled and highly paid professions with no limits on their working hours. That provision remains for now, but is already facing similar opposition attacks. Some members of Abe’s Liberal Democratic Party favour cutting out this provision, too.

“Abe is trying to spin in such a way that he can put the blame on the labour ministry bureaucrats, but the fact that he is forced to abandon one of the central pieces of his incoherent compromise bundle of bills will entail a greater consequence than he would like to admit at this point,” said Koichi Nakano, a political science professor at Sophia University.

“This is not going to be the end of opposition and media scrutiny and criticisms.”

Also included in the proposed reforms is a legal cap on overtime of 100 hours per month — an effort to end phenomenon of “karoshi” — or death from overwork.

Critics on one side of the debate have said that cap would effectively condone a level of overtime that is harmful to workers’ health. On the other side, some economists say setting the cap reduces management flexibility.

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Fed decision January 2021: rates unchanged

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The Federal Reserve kept its foot to the floor Wednesday in terms of the help it is providing for an economy that central bank officials say has slowed down.

Consistent with market expectations, the policymaking Federal Open Market Committee said it was keeping its benchmark short-term borrowing rate anchored near zero and maintaining an asset purchasing program that is seeing the Fed buy at least $120 billion a month.

At the core of the move to keep policy historically accommodative was an economy in which the sectors most vulnerable to the pandemic are taking the hardest hit.

“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” the committee’s post-meeting statement said.

The statement reiterated that Covid-19 is “causing tremendous human and economic hardship across the United States and around the world.”

The committee otherwise left the statement unchanged other than adding to its position that growth will depend on the pandemic.

“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the statement said.

The decision means that the fed funds rate, which serves as a benchmark for a variety of consumer debt instruments, will remain anchored in a range between 0% and 0.25% and most recently was trading at 0.08%.

The Fed took the rate to zero in the early days of the Covid-19 pandemic and has left it there since. In recent months, officials have made their commitment to low rates even more aggressive, vowing not to start hiking even if inflation gets close to or slightly exceeds the central bank’s 2% target.

Markets were watching, though, to see whether the statement would provide any clues on the future of the asset purchases, or quantitative easing. Since the beginning of the coronavirus crisis, the Fed expanded its holdings by more than $3 trillion, bringing its balance sheet to nearly $7.5 trillion.

Though inflation remains low now, investors worry that the Fed could start to taper the purchases unexpectedly should conditions change and cause market tumult. The statement offered no new guidance on the matter, so market participants will look for Chairman Jerome Powell’s post-meeting news conference for further details.

Fed officials remain cautious on an economy that has seen a two-speed recovery, with earners in upper-income brackets doing well and those at the bottom, particularly workers in services industries, faring poorly. That disparity has formed much of the impetus behind the Fed’s flexible average inflation targeting regime.

Under the approach, the Fed no longer will raise rates in anticipation of inflation but rather will tolerate higher levels in the interest of a more inclusive recovery. In the past, when the jobless rate would fall to levels consistent with what appeared to be full employment, the Fed would institute preventive hikes to stop inflation in its tracks.

The current economy is showing conflicting signs of inflation, with housing and materials costs pushing higher and services inflation lower.

From a macro view, the economy grew strongly in the fourth quarter overall, though activity slowed into the end of the year. The Commerce Department releases Q4 GDP on Thursday, with expectations, according to economists surveyed by Dow Jones, of a 4.3% increase. On Friday, the Fed’s preferred inflation gauge, the personal consumption expenditures deflator, is expected to show a year over year core increase of 1.3%,

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‘Roaring 20s’ after the pandemic? Big banks warn be careful what you wish for

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GameStop jumps more than 100% even as hedge funds cover short bets, scrutiny of rally intensifies

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Patrick T. Fallon | Bloomberg | Getty Images

Shares of GameStop surged again Wednesday, continuing the streak of wild swings for the stock as several high-profile short sellers said they had backed away from their positions.

The name traded at roughly $342 per share when it was briefly halted at about 11:19 a.m. ET, up almost 131% from Tuesday’s close and giving the company a market cap of about $24 billion. The stock traded as high as $380 per share in premarket trading.

The latest move higher comes as some of the high-profile short sellers of GameStop, including Melvin Capital and Citron, announced that they covered most or all of their positions.

The stock lost some of its premarket gains after the short sellers made their announcements, but the shares rebounded to new highs shortly before the market open.

GameStop’s nearly vertical surge over the past week has come as retail traders, many of whom have documented their moves on the social media site Reddit, have piled into the stock and call options. The spiking share price has helped to create a stock squeeze, where shorts and options dealers are forced to buy shares of a rising stock to cover their positions, resulting in a feedback loop that drives the stock even higher.

The name appeared to get a boost in extended trading on Tuesday after Tesla CEO Elon Musk tweeted out the link to the Reddit board where much of the discussion has taken place.

The video game retailer, which had a market cap of less than $4 billion at the end of last week, was the most traded stock on the market by value Tuesday, according to Deutsche Bank strategist Jim Reid.

GameStop’s rapid rise has drawn comparisons to speculative trading during the tech bubble of the late 1990s and led many Wall Street veterans to warn investors about the potential for significant losses.

Hedge fund manager Michael Burry, who reported holding 1.7 million shares of the stock at the end of September, said in a now-deleted tweet that the rise was “unnatural, insane, and dangerous.” Burry also told Bloomberg News that he did not have a current long or short position in the stock.

William Galvin, Massachusetts’ top securities regulator, told Barron’s that the trading in GameStop could be “systemically wrong.”

Bank of America raised its price target on the stock to just $10 per share on Wednesday, saying in a note to clients that the increased share price could help GameStop’s turnaround plans but presented a risk for investors.

“While it is difficult to know how much very high short interest and retail ownership … could continue to put upward pressure on shares, we think fundamentals will again factor into valuation,” the note said.

The Securities and Exchange Commission declined to comment to CNBC.

— CNBC’s Michael Bloom contributed to this story.

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