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
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.
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
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 conditions. Read 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
Loan demand has improved in Japan following the recent rate cut and promise of further stimulus. Demand for credit from consumers and local government became slightly stronger during October, while demand from companies weakened but at a far less severe rate than last quarter, according to a survey of senior loan officers from the Bank of Japan.
The picture wasn’t entirely rosy, with local governments’ demand strengthening at a sixth of the rate last month (see chart). And we must be wary of seeing a new trend from this datapoint or even in attributing the change in this volatile and subjective indicator to the rate cut. This is clear from the respondents’ view of next quarter, also shown on the chart: i.e. a slight weakening of demand. (Their predictive power last quarter was excellent.) Banks continue to ease their credit standards, and point to increased competition and efforts to grow as reasons for the change. Read more
Japan’s central bank has lowered its key rate from 0.1 per cent to a range of 0-0.1 per cent and will consider setting up an asset-purchase programme worth about $60bn to enhance monetary easing and achieve price stability.
The Asset Purchase Program is, at this point, a consideration rather than a promise: the Chairman has asked staff to examine the specifics and report back. For a consideration, it is quite well fleshed out, however:
The Bank will examine the new purchase of assets so that, principally, the outstanding balance of the total assets purchased will reach about 5 trillion yen after around one year from the start of the purchase, with about 3.5 trillion yen for long-term government bonds and treasury discount bills and about 1 trillion yen for CP, ABCP, and corporate bonds
Signs that Japan’s economic recovery is faltering are fuelling expectations that the Bank of Japan’s policy board might order further monetary easing at a two-day meeting that opens on Monday.
Some analysts believe the action might include an expansion of the bank’s cheap three- and six-month credit facilities or greater purchases of government bonds. Such a move would ease pressure on the BoJ over what critics say is its failure to act forcefully enough to shore up the recovery, [which industrial and survey data has lately cast into doubt]. Read more
Speculation that Japanese authorities had intervened in the foreign exchange market to weaken the yen drove the currency sharply lower against the dollar. The dollar initially jumped 1.3 per cent to Y85.38 in reaction to market talk that the Bank of Japan had re-entered the market to sell yen and buy dollars. Read more
Japan’s economy grew by just 0.1 per cent in the second quarter, a sharp slowdown on the 1.2 per cent growth in Q1. Hurt by a strengthening yen, annualised, seasonally-adjusted Q2 growth is now 0.4 per cent, against last quarter’s (revised) 4.4 per cent.
The slowdown means China’s economy was larger than Japan’s during the second quarter. From the paper: Read more
An unscheduled statement from the Bank of Japan governor, though short, speaks volumes about worries over the strength of the yen. The currency broke a 15-year high of 85 to the dollar yesterday, which will add to recovery fears for the export-dependent economy.
Whenever the yen is strong, theories of currency intervention abound. It is thought likely the central bank would introduce further easing before the ministry of finance intervened to sell yen. The statement certainly tells us the BoJ is on the case: Read more
As expected, the Bank of Japan has held its key rate at 0.1 per cent and did not announce any new easing measures. But the Japanese economy is now forecast to grow at 2.6 per cent in the year to March 2011, up from April’s forecast of 1.8 per cent. The new forecast fits with yesterday’s estimate of 2.4 per cent from the IMF.
Deflation continues in Japan, and the BoJ response on this issue was: Read more
The Bank of Japan is set to increase its growth forecast to above 2 per cent, unnamed sources have told Reuters. The Bank’s forecast is currently 1.8 per cent for the fiscal year, and the next rate setting meeting is July 14-15.
The Bank would be playing catch-up with the government, if it does revise its forecast up. The finance ministry changed its growth forecast from 1.4 to 2.6 per cent last month. Private economists have apparently settled on a figure close to 2.4 per cent. Uncertainty about the economic recovery is likely to temper the Bank’s optimism, which was fuelled yesterday by a better-than-expected manufacturers’ confidence survey. Read more
Some of the broader measures of Japan’s money supply are now rising at their fastest rate since the current series started in 2003.
It’s hardly new, but this chart deserves to be reposted every couple of weeks, because it’s so striking and fundamental to any discussion about Japan. The scale on the left is Japan’s population in tens of millions.