Japan intervenes
Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.
As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? Read more
Proposals to wean eastern Europe off the euro may be misguided.
Plans are afoot to foster local currency wholesale funding: by giving banks local currency credit, the theory goes, they will be able to pass local currency loans on to consumers. Doing this would reduce FX risks for homeowners, who earn in local currencies but often pay back debts in the euro or swiss franc. Read more
Two points stand out from the latest BIS quarterly review.
First, a warning on mismatched maturities. Ingo Fender and Patrick McGuire, of BIS, point out the continued reliance of European banks on wholesale* instruments and FX swaps. Banks forced to roll over short maturity debt risk agreeing new debt on worse terms. The authors point out that if conditions worsen, maturities will become even shorter, exacerbating the problem (p63):
Such funding patterns put a premium on contingency funding arrangements for international banks and underline the need for further diversification in banks’ funding profiles … In particular, they point to potential benefits from improvements to FX swap market infrastructure, such as the use of central counterparties to allow multilateral netting and more efficient collateral management
Second, Naohiko Baba (BoJ) and Ilhyock Shim (BIS) find Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
