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.

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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 recent Bank for International Settlements FX market survey unvelied a number of trends. One that didn’t get much coverage was some of the reordering of the top ten trading centers around the world. Not huge shifts but interesting nonetheless. For example, Switzerland – home of two of the largest FX trading banks in UBS and Credit Suisse dropped from the third largest trading center in 2007 to the 5th largest in 2010. Moving ahead and up a spot each was Japan (now 3rd) and Singapore (now 4th). The answer for the shift could be connected to the credit crisis of 2008 – Asia was touched but in a way much less then Europe and the U.S. Asian economies suffered through the recession but not as much as elsewhere.  And big banks were particularly hit hard through the crisis.

Another interesting tidbit – when you look at the top four trading centers in each of the three regions, you know that Europe will certainly be the largest, which it is with around 47% of the marketshare. But second place is Asia (20%) and the Americas are third (19.7%). The gap between numbers one and four in Asia is 4.4 percentage points. But it is 17.6 percentage points in the Americas. The U.S. is the second biggest player but it drops significantly after that – Canada comes in number two in the region with a 1.2% market share. Mexico and Brazil each have an 0.3% share.

Nike just reported some pretty strong financial results – net income up 104% to $496 million and revenues up 7%. But the breakdown of the numbers tell a different story, one of how certain markets have begun to recover, others haven’t and yet others are going gangbusters. Shoes are the biggest part of Nike’s business, so, it’s worth looking at those sales in different regions. In the U.S., footwear sales are actually down 1%. And even worse in Japan where they are down 6%. So, where are more kids today looking to become the next Air Jordan (and wear Michael’s brand of basketball shoes)? China (shoe sales up 12%) and in emerging markets (show sales up 53%).

Maybe this is also telling us about how different countries will fare in basketball in the next summer olympics…

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.

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.”

Today’s bad news du jour highlights the Nikkei’s descent toward 7000 and the government’s efforts to keep the stock index above that key level. The conventional wisdom is: Apres 7000, le deluge, meaning no bottom in sight. Tokyo traders tell Dow Jones Newswires the government’s already leaning on employer pension funds to buy to help avert a 7000 breach; this is common past practice - the government enlisting a pliant Japan Inc. to try to stave off the inevitable.

Today in China, the government is pretending that a 1.6% decline in the February consumer price index (from a year ago) doesn’t signal the advent of deflation. Hmmm. Beijing’s reasoning is that the Chinese New Year holiday, which was in February last year, fell in January this year. Translation: people did more shopping last February (’08) than this February (’09.) Even so, at Dow Jones Newswires we’re reporting that directionally, this doesn’t look auspicious; the central bank might choose to cut benchmark interest rates or reduce bank reserve requirements.

Toyota Motor’s financing arm has just admitted it needs a handout from Japan’s government. Now we really know the sky is falling. HAS fallen.  

The auto maker’s not giving details but Japanese media say it wants about Y200 billion in credit to sustain its U.S. business. The handout would come from the official policy bank, Japan Bank for International Cooperation. A U.S. dollar buys nearly 98 yen today, so that’s a bit more than $2 billion.

This latest twist in the sad saga of 1) Japan Inc. and the 2) global automotive industry is largely a reflection of the credit crunch. (Remember that? It hasn’t gone away.) Toyota’s a decent credit risk as is the unit that provides financing for people to buy and lease its cars. But the world’s premier auto maker appears unable to get the types of fund-raising deals done that it could once do - at least it can’t get them done at affordable levels. 

So, mighty Toyota looks poised to become the first Japanese company to make use of an emergency financing facility created by the JBIC. It would feel stunning if one hadn’t become accustomed to the unthinkable happening every day, sometimes every hour.

UPDATE: Check out the Heard on the Street column by James Simms on this very subject.

Japan’s currency is unquestionably on a weakening trajectory. Where it stops, nobody knows, and nobody really cares because it’s good news for the declining Japanese economy. And what’s good for Japan’s economy is good for makers of all the goods Japanese consumers buy.  Only thing is, it’s hard to visualize how a weak yen will translate into concrete economic growth as the currencies of other export-dependent economies likewise decline. Non-yen revenues (such as those generated in the U.S. and Europe) stated in yen terms in corporate earnings statements will look awfully pretty. Prettier balance sheets should give Japanese companies the wherewithal to maintain employment and capital expenditure levels.  But Japan’s companies face a mighty foe: the woeful won. Korea’s weak currency gives that country’s corporate sector, especially its auto, electronics and steel manufacturers, a big advantage. That edge could continue giving Japan Inc., and Japan’s economy, a lot of grief even as the mighty yen falls further.