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.
Beijing has been pretty quiet on the declining euro, and with good reason.
There’s been some chatter in markets that central banks, including the big names in Asia, are starting to fret about the euro’s decline, and even offloading some holdings. We may never know for sure. But there’s certainly no great impetus for the People’s Bank of China – our champion of reserve diversification in Asia – to rush euros onto the market.
Not that long ago China was warning the U.S. about a deterioration in the U.S. dollar, reminding the world it had a vested interest in the dollar’s value via its massive holdings of U.S. government debt. The greenback’s recovery courtesy of the euro’s fall has eased those concerns. China is sitting prettier on its U.S. assets.
The bailout package for Greece has not stemmed the bleeding in global markets, but for Asia the declines in currencies and stocks may soon lure investors back in.
What we are seeing is Asia and the U.S. catching a cold from Europe, as violence grows in Greece over the planned austerity measures and as ratings agencies sound warnings on the fiscal health of others in the region, including Spain and Portugal.
Just as an example, Hong Kong’s share market has fallen three days in a row, losing 3.7% over that period, while the Taiwan dollar Wednesday fell to its lowest level against the greenback since April 9. Thursday, the Nikkei is down more than 3.0% and South Korea’s Kospi has shed 2.3%, with the Korean won around six-week lows against the U.S. dollar.
The declines in Asia, which have included a widening in credit default swaps in an otherwise encouraging environment for the region’s companies and debt, come as investors react to the latest woes in the euro-zone.
The contagion though for now is peripheral; it’s just the end result of a fading global mood for risk. Strip that away, and what do you find?
Asian banks have minimal exposure to European debt–certainly that from Greece, Spain and Portugal. It seems prudence continues to win the day. Asian banks and their economies came through the recent U.S.-induced financial crisis in relatively good shape precisely because they had steered clear of subordinated debt products and repackaged debt generally.
Asian governments have also–some more so than others–worked to overcome the frailties in their banking and financial systems that were exposed so violently when the Asian financial crisis hit more than a decade ago. That’s left systems in much stronger shape, and central banks much better armed with foreign exchange reserves.
The region’s economies have also been faster and more convincing in their recovery over the past six to 12 months. Many challenges remain, none the least from how and when to exit the large spending measures put in place during the crisis, and how and when to tighten monetary policy (as inflation starts to rise), but if there’s one place that offers any sort of sanctuary right now, it would be Asia.
The region needs Europe and the U.S. to keep buying its products, but intra-regional trade has taken up some of the slack, particularly from China.
Sounder economic fundamentals and a stronger banking system mean Asian markets may soon appear more attractive to investors in currencies and stocks (and also the better Asian credits), even if the Greek wobbles continue. It would take a lot more than what we’re currently seeing to suggest we’re heading anew for some sort of global banking or debt crisis.
That may mean the declines start to slow over the coming week as value appears.
It’s got to be fun being Jamie Dimon, sitting atop the banking world (along side Goldman Sachs) and spouting off one-liners such as: The U.S. needs a strong dollar. Yes, Mr. Dimon, we need a strong dollar – and how, exactly, do you propose to strengthen the greenback? Would you be happy if Ben Bernanke & Co. started hiking rates – say, tomorrow? Would that be good for an economy on the verge of 10% unemployment? Have you looked at third-quarter corporate earnings reports? Do they really give you confidence that business and consumer demand is robust enough to justify Fed tightening? I’m not saying Dimon doesn’t have a right to his opinions; the annual meeting of the securities industry association is certainly an apt forum. But surely one of the world’s foremost bankers – Dimon runs JPMorgan Chase & Co. – should offer some nuanced elaboration from the podium. Here’s something else Dimon wants: less government regulation of banks. “We are in favor of consumer protection, but we believe we have a chance to simplify regulation rather than add another agency,” he said. Moreover, big banks on whose shoulders the health of the global financial system rests – the government shouldn’t “hamstring those companies,” Dimon said. Yep, simpler regulation will spot, forestall and fix impending banking disasters. I rest my case.
Fed Chairman Ben Bernanke’s latest comments were surely intended to give the U.S. dollar a bit of a boost and placate trading partners which have grown increasingly jittery about the sinking greenback. But now that the dollar has enjoyed a Friday surge, Ben and team should remember that the global economy is still in trouble. Granted, conditions are less-bad than they were earlier in the year, but unemployment in western nations continues to climb and it’s just not clear people will spend with any level of robustness come Christmas.
And so the Fed should resist signaling a resumption of interest rate increases. Even though the central bank must start boosting rates before the economic recovery is well underway – to stave off inflation once conditions have improved convincingly – it’s simply too soon to set a timeline. This will be a very anemic recovery spanning another two or three years – maybe more – before we get back to where we were as the economy began stalling out. Not only do companies continue cutting jobs and generally finding ways to reduce costs – but consumers have also absorbed key lessons from the profligate boom years. One has the strong sense people will hold back spending for many years to come. Living in America, one witnesses a new household fiscal sobriety that won’t be relinquished readily, as long as workers feel even a modicum of insecurity about their earnings potential. Bottom line: today’s dollar bounce amounts to a nice gesture to exporters dependent on U.S. demand but no one should anticipate a Fed rate hike until March 2010 at the very earliest, and only if holiday spending truly surpasses even the most optimistic of expectations..
Think of it as being practical and sending a message around the world.
China announced plans to sell CNY6 billion yuan ($878 million) of bonds in Hong Kong – the first time the Chinese government has sold yuan-denominated bonds outside of mainland China. A successful sale will likely mean more similar bond sales to come from the government.
The Chinese government has raised questions about the dollar’s role as a reserve currency and intimated that the yuan should be used for global trade as an international pricing currency. Selling a yuan-denominated bond outside the mainland is a first step toward seeing what kind of acceptance there is for the yuan.
Paul Vigna and Madeleine Lim discuss trading in the dollar and gold on Tuesday and look a little more deeply at Kraft’s unsolicited bid for Cadbury.
Today’s big news isn’t retailers’ so-so improvement in August sales. We’re still in less-bad territory – eg retail sales weren’t as bad as they were the previous month, or as expected. The big story is: GOLD. It’s nearing $1,000. The December gold contract is up 5.5% since Tuesday. What’s up with gold? It seems people aren’t overly worried about inflation – this normally propels a surge in gold-buying but all signs are that inflation won’t come roaring back any time soon. Frankly, it’s the dollar which is mainly propelling the gold rally. People just aren’t comfortable with the weakening greenback and are spreading their bets by stocking up on gold. DJN colleague Matt Whittaker refers to it as “alternative-currency buying.” Effectively, people are looking for something that’s not the stock market and not the U. S. dollar. They’ve filled up on Treasurys. What’s left that’s safe and reliable? Gold. Matt wonders when buyers will take profits – at nearly $1,000 certain investing sectors will indeed sell. Tomorrow’s U.S. nonfarm payrolls data will be key, Matt notes. If it’s lousy, gold will be supported If it’s good, we may see some selling. I’ll be off tomorrow, but watching my Blackberry …
We’ve woken up to a something new in the U.S. Treasurys market. It now looks more like the market in foreign exchange.
By that I mean a cat-and-mouse game between traders and a government entity constitutes at least one dynamic in determining trading action and prices.
For years, periodic government intervention to support a currency, sometimes concerted among a group of countries to achieve a common aim, has been a consideration for traders in the U.S. dollar, the Euro, the yen and other major currencies.
It was a lousy morning for the U.S. dollar in Asia following Friday’s broad-based rejection of the greenback. The euro climbed to the highest it had been in six weeks and among Asian currencies, the Korean won and the Singapore dollar hit six- and four-month highs, respectively, DJN’s Miho Nakauchi reported. The yen gained relative to the USD and EUR, reflecting selling by Japanese exporters on a post-holiday settlement day. USD bounced a bit as the day stretched on but affection for the dollar remains fairly tepid. Brown Brothers Harriman expects several more weeks of a weak USD followed by something of a rebound, reflecting what BBH describes as an improved U.S. economic outlook. Hmmm. In her “Money Talks” column today, DJN’s Ros Mathieson questions the notion of a revived American economy. She notes that the euphoria over “less bad” U.S. economic data is a tad absurd. “We’re so keen to put things in our ‘green shoots’ baskets that we could overlook the ongoing warning signals being sent by economic data,” she writes. Continue reading…
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