Randomly Noted

The Federal Reserve has a committee studying how to improve communications with the public. But change was not in evidence in the latest statement issued today following the rate-setting meeting of the central bank.

In a bid to be more open with investors and the general public, the Fed should adopt a less stilted post-meeting announcement of its rate decision. Sure, each word the Fed utters must be carefully chosen because each word will be subject to over-the-top analysis by market types and analysts. But still, the Fed should indicate it doesn’t live in a cave.

Continue reading…

It’s war!

War is a pretty strong word and one not often used in financial reporting. But there it is, over and over, the word war used in direct quotes and out of them. It’s the operative term to describe what is going on in currency markets.

We might be short of war, but clearly things have changed. Just today, the rhetorical level aimed at China’s mostly unchanging yuan is higher than before. And it’s been pretty high.

The U.S. Treasury Secretary, Timothy Geithner, still employs non-threatening words and won’t use China’s name. But, still… “When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same, and this sets off a dangerous dynamic,” Geithner said.

A Dow Jones Newswires headline this afternoon reads, “EU President: Europe Demands China Budge On Currency,” implying the comments earlier today of Chinese Premier Wen Jiabao in Brussels, in which he implored Europe’s leaders not to “join the chorus pressing to revalue the yuan,” fell on deaf ears.

Japan has intervened and the country’s central bank will launch more quantitative easing. The currency is still strong against the dollar. Chile has publicly worried about its too-high currency, as has Brazil.

Meanwhile, in the U.S., markets are reacting as if it is a signed-and-delivered deal that the U.S. Federal Reserve will embark on more quantitative easing of its own, knocking more starch from the weakened dollar. A distressing September jobs report, due for release on Friday, might be the final catalyst.

The world’s major nations have done a solid job since the start of the credit crisis and subsequent broad and deep recession of avoiding significant protectionist trade measures. It would be disappointing indeed to mitigate that necessary success with a no-holds-barred fight to gain advantage through weaker exchange rates.

It might not be up to China to stop all this, but some real rather than apparent relaxation of controls on the yuan by the Chinese government surely would help calm things down.

The statement itself didn’t say much: “Today, in accordance with Article 17 of the Bank of Japan Act, the Chairman of the Policy Board decided to call an unscheduled Monetary Policy Meeting as follows.”

Clearly, the currency markets think this emergency meeting by the Bank of Japan will lead to a policy change to try to weaken the yen. The strong currency hurts the export-based economy. The markets are expecting an easing of monetary policy. Stay tuned.

The fiasco at Toyota creates an unprecedented opening for Ford and Hyundai. As Toyota’s brand grows more tarnished, American buyers will look for foreign- and domestic-made alternatives, and this will give a boost to these two auto makers, whose reputations for quality and reliability – as well as attractiveness – have been on the rise. Think about it: If you’ve been buying cars for a few decades – for yourself, for your teen or college-age kids, – you’ve tended to think about Toyota. The Japanese company made good-looking, high-quality vehicles that were so compelling they basically wiped out the competition. In the 1990s, when I advised my elderly parents to replace an aging Volkswagen Jetta, I told them there was only one car they should consider: the ultra-safe and reliable Camry. They bought one and my Mom, now widowed, still counts on it to trundle her around town. Were she in the market for a new car today, I’d have two words for her: Ford and Hyundai. It’s a sign of these fast-changing times that a Korean auto maker and a once-floundering American offer a more-attractive vehicle line-up than the Japanese behemoth. The toll on Toyota will be long-lasting. Continue reading…

Paul Vigna and Madeleine Lim discuss the increase in consumer spending, thte higher sales forecast from Intel and the consequences of Japan’s rise in unemployment.

Toyota Motors and GM have lost a lot of money on their joint California car assembly plant since 1984, when New United Motor Manufacturing Inc. was created to defuse anti-Japan sentiment (Toyota’s motive) and learn lean manufacturing (GM’s.) No wonder GM and Toyota are ditching it amid the unprecedented global auto-industry crisis. GM announced its intention to walk away from Nummi earlier this summer, and today Toyota did, too. The Japanese car maker will shift production of Corolla compact cars and small Tacoma trucks to other factories in North America, where there’s idle capacity, WSJ colleague Kate Linebaugh writes. Toyota’s spare capacity is a global problem for the company; indeed earlier this week DJN reported the company will suspend a production line in Japan and may make similar moves in the U.K. next year. As DJN collague Yoshio Takahashi wrote, the company is avoiding shutting factories altogether so it can “quickly return to its current capacity in the event of a recovery in demand in the coming years.” That said, “the current outlook for auto demand remains pessimistic,” Yoshio noted. With the exception of a few hot markets – most notably China, where car sales are growing robustly – most other economies are likely to recover from the downturn slowly, with consumers clinging to old cars as long as they last. Layoffs are rare in Japan, where jobs are for life, according to social norms – so Toyota’s ability to cut costs is rather constrained. Sounds familiar? Labor-related limitations – many of them self-inflicted – damaged the U.S. auto industry, and now could slow Toyota’s own recovery.

A sharp spat erupted about a week ago when it emerged that Japanese pharmaceutical company Eisai Co. might try to kill its big Alzheimer’s drug alliance with Pfizer Inc. Eisai’s position: the alliance’s “change of control” clause allowed it to walk away – with the lucrative drug, Aricept. Pfizer is buying Wyeth, hence the change of control issue. Pfizer, which disclosed Eisai’s challenge in a regulatory filing, vowed to fight back. Today, Eisai, which discovered Aricept and formed a co-promotion pact with Pfizer in the mid-1990s, says it might try to renegotiate the deal with Pfizer rather than ending the relationship altogether. As DJN’s Kaz Shimamura reports from Tokyo, Eisai will be open to negotiate options, including revising the contract rather than cancelation. (Kaz attributes this to Soichi Matsuno, Eisai’s deputy president for global pharmaceuticals. ) For its part, Pfizer would probably prefer to renegotiate and get what it can from Aricept, even at less favorable terms, before its patent expires in late 2010 or thereabouts. Continue reading…

After Beijing nixed Coca-Cola’s takeover bid for Huiyuan Juice on anti-monopoloy grounds that seemed somewhat spurious, all eyes were on whether Mitsubishi Rayon’s bid for Lucite would get knocked down by China’s antitrust czars. The answer is in: Mitsubishi Rayon says it has approval from “all” antitrust authorities – including China – to buy Lucite International of the U.K.  It was in November that the Japanese company agreed to buy Lucite, an acrylics maker, for $1.6 billion. Will we ever know if the outcry following last month’s Coca-Cola/Huiyuan rejection put pressure on Beijing to approve the next deal? Perhaps China Inc. sees bargains abroad and doesn’t want to get into a tit-for-tat session with U.S., U.K. and Japanese lawmakers?

Just out today: machinery orders in Japan came in better than expected in February. These are a key gauge of industrial health in the world’s second-biggest economy, and the monthly data has been very, very bad – until now. Orders broke a record four-month stretch of declines, climbing a seasonally adjusted 1.4% in February from the previous month. Economists had forecast a 7.9% decline, DJN reports. Also today, Japan is unveiling another economic stimulus package, and both the machinery orders and the stimulus have given a nice boost to the Nikkei stock index. Over in Korea, the central bank declined to lower interest rates today, signaling to many that it, too, is seeing green shoots of recovery. Among other things, South Korea had its largest monthly trade surplus ($4.6 billion) in March, and in February industrial output rose for a second straight month (up 6.8%.) Korea’s big government bond was oversubscribed by far and priced overnight, easing concerns about the country’s ability to roll over foreign debts due this year, DJN reports. In Malaysia, industrial output shrank less sharply in February than January and could signal that economy’s manufacturing sector has bottomed out. On the downside, Australian unemployment surged to a five-year high, and as DJN’s James Glynn writes in a “Money Talks” column, the Reserve Bank of Australia may have a bit of room to ease rates – albeit by “tapping” rather than slamming on the breaks as that country’s economy begins solidifying.

Today, Ed Yardeni writes: “Japan is in a depression.” Oh? A look at his newsletter suggests Dr. Ed’s in a hyperbolic mood. “The country seems to be imploding.” “The word ‘horrendous’ comes to mind.” You get the idea. It’s our considered view – we being the editors of Dow Jones Newswires – that Japan isn’t in a depression. Generally speaking, a depression occurs when GDP is down 10% or more over a period of years – which isn’t happening in Japan, yet. If by “depression” Yardeni “means a really bad recession, then yes indeed,” says William Mallard, a Dow Jones Newswires managing editor with many years in Asia including 14 years in Japan. “If you mean a decade worse than the 1990s with output and prices plummeting for years, probably not. Output has been on a gut-wrenching plummet, 4Q GDP was the worst in 35 years and yesterday’s obsessively watched BOJ tankan found a record drop in 1Q confidence among big manufacturers to the lowest level since the central bank began the survey in 1974. And yet there are some signs things won’t stay quite so apocalyptic. Business managers in the tankan, for example, forecast some improvement this quarter. Indeed, Dow Jones CommentaryPlus analyst Mark Cranfield thinks there’s at least a tradable rally in store for Tokyo shares – he recommended long Nikkei 225 today.”