Not a milestone to rejoice in. Japan’s debt has tipped into the “quadrillion” zone for the first time. That is, as of the end of June, central government debt, looked like this: Y1,008,628,100,000,000, or $10.4tn.

It surely could not be a clearer message to Japanese Prime Minister Shinzo Abe that shilly-shallying over fiscal consolidation is no longer an option? Second-quarter economic output figures due on Monday are key to Abe’s decision about whether to raise consumption tax from 5 per cent to 10 per cent by 2015. Back in June in a speech in London, he pinned any decision to raise the tax – one he must make by October – on the strength of the economy in the second quarter. Read more

Claire Jones

Standard & Poor’s downgrade looks set to have little immediate impact on central bank reserve managers’ fondness for US Treasuries.

Despite China’s posturing, it – and others– look set to remain big holders of Treasuries for now. Japan – the second largest international holder of US debt after China – has said it thinks “there is no problem regarding the creditworthiness of US Treasuries and US government bonds will continue to be attractive assets.” Russian and Middle Eastern officials have said likewise. Read more

Banks in the quake-affected north-east of Japan will soon be able to borrow longer term from a new scheme worth ¥1,000bn ($11.7bn), offering one-year loans at 0.1 per cent.

The scheme comes on top of ¥21,800bn ($265bn) liquidity made available immediately after the quake and a doubling of the Bank’s asset purchase programme from ¥5,000bn to ¥10,000bn ($121bn). Tokyo has also been involved in an internationally co-ordinated effort to prevent the yen appreciating too sharply. So far, though, the BoJ remains unwilling to buy government bonds, a measure adopted in several other countries since the crisis.

In addition to such measures, at today’s meeting, the Bank judged it necessary to introduce a funds-supplying operation that provides financial institutions in disaster areas with longer-term funds in order to support their initial response efforts to meet the future demand for funds for restoration and rebuilding.

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What constitutes success for the world’s one-day yen policy? To minimise “excess volatility and disorderly movements in exchange rates,” if the G7 statement is anything to go by.

But then “volatility” is all a matter of time period. For instance, it has gone up over the one-day time horizon, with the very sharp weakening of the yen since central bank intervention began this morning. “Disorder” gives a little more wiggle room because it is defined by its effects. It might include, for instance, exchange rate movements that lead to a credit crunch. (One wonders, though, whether a rapid weakening of the yen would also have been classed as “disorderly”.)

Some pundits are saying the G7 action is at least partly self-interested. Certainly their participation is likely to cost them: their domestic currencies will appreciate, and the trades themselves are very likely to lose money as the yen eventually rebounds. Perhaps the tumbling Nikkei – and stocks elsewhere following – made these costs seem smaller. Success in these terms has been achieved – for today. American, European and British equities have gained today.

Other commentators suggest the moves are about defeating the speculators. If we could Read more

The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis.

Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. Read more

Nobody knows how much of Mrs Watanabe’s foreign stash she intends to bring home. But the choices made by this mythical Japanese housewife – astute, and hunting for a better return than she can find at home – could help to explain the rapidly strengthening yen.

It makes sense that the average Japanese investor would want to repatriate their money at the moment. The average Japanese investor, after all, lives in Tokyo. Many have lost homes and possessions, with 430,000 estimated to be living in temporary accommodation (and it is winter). Others will be trying to move away from the Fukushima atomic power station. Still more are facing food shortages or rationing. In all these cases, cash is king. Read more

Ralph Atkins

Will the earthquake in Japan delay the planned European Central Bank interest rate hike? Earlier this month – before the quake - Jean-Claude Trichet, president, hinted strongly at a quarter percentage point rise to 1.25 per cent in April. As this blog has already noted, financial markets think he might have to execute a u-turn.

I am not so sure. It is still three weeks until the next interest-rate setting ECB governing council meeting - so a lot could happen - and there is no need for its members to take any decisions just yet.  But the arguments for a rate hike have not necessarily changed. Read more

Markets predict Europe and the UK will start to raise interest rates later than they did before Japan’s earthquake. The delay is roughly three months for the Bank of England and three to four months for the ECB.

Markets now expect the UK’s first rate rise – quarter of a point to 0.75 per cent – to occur in August. Last week they averaged on June. Several factors had led markets to bring forward their expectations before the quake. Rising inflation in the UK, hawkish voting patterns and some ambiguous comments from Mervyn King led many to think a rate rise would happen as early as May, after GDP figures are due out. The base rate had been expected to reach 1 per cent in October; now it’s more like early February 2012.

In Europe, too, rising inflation and comments from the central bank governor had made a rate rise from 1 per cent seem likely earlier. Many analysts were predicting April 7 for the first rate rise, prior to the quake. They are still pricing in a 25bp rise by June and two more before the end of the year. Read more

This from the Bank of Japan, in spite of recent QE programme and a cut that takes the bank rate effectively to zero. More worrying still is the reasoning behind forecasts of increased export growth:

Japan’s economy is likely to grow at a slower pace for some time, but is expected to return to a moderate recovery path thereafter… Exports are likely to be more or less flat for the time being, but they are expected to increase moderately again, reflecting the improvement in overseas economic conditionsRead more

The Bank of Japan has unveiled details of a Y5,000bn ($61.4bn) asset-buying programme that marks its return to an unconventional “quantitative easing” policy, while keeping rates on hold and lowering its economic forecast.

The details of the scheme approved by the central bank’s policy board on Thursday were in line with initial plans it announced earlier this month that have been welcomed by Tokyo policymakers keen to see stronger monetary action to support Japan’s fragile economic recovery and combat entrenched deflation. Read more