Over and over, financial news airwaves are filled with noise about since the Bank of Japan–under the supervision of Governor Kuroda–has embarked on a massive dose of Quantitative Easing, there has been no real outflow of YEN around the world. The only problem with this bloviating is that its devoid of fact. The BOJ’s action, or rather, call to action has led to a drop in European bond yields as well as a new pillar of support for U.S. Treasuries. Further proof is last night’s employment data from Australia, which was much weaker than expected (a 36,000 job loss and a 0.2% jump in the unemployment rate to 5.6%), but the AUSSIE DOLLAR rallied after an initial selloff as Japanese investors are seeking higher returns. A favorite place for higher yields for Japanese seekers has been Australia and New Zealand. Many financial institutions offer what are known as Urudashi and Samurai bonds. These are bonds issued in Japan in foreign currency of usually kiwi and Aussie. Those who say that the Japanese don’t invest afar and remain in Japan–what is called HOME BIAS–are badly misinformed.
Posts Tagged ‘Japan’
Today was a very slow news day and thus little news to slow the steady rise of equities and the sell off in other asset classes. There was a story in the Financial Times about the Brazilian government cutting the tax on ethanol producers. The government is going to cut the tax on sugar-based ethanol producers by 80%–from 120 REALS per cubic meter to 25 REALS. It is an effort “… to support ethanol producers, many of whom are facing bankruptcy because of heavy debts and DIFFICULTIES COMPETING WITH SUBSIDISED PETROL PRICES IN BRAZIL.” There has been a global sugar surplus, which has kept pressure on sugar prices, but this move may help lift sugar prices and allow Brazilian growers to grab some of the agricultural profits that have supported the Brazilian economy. The U.S. economy is a corn-based ethanol producer and this has helped put upward pressure on global grain prices which has benefited Brazil’s farmers.
The Japanese LDP and its partner the New Komeito Party have seemingly captured more than the 320 seats needed to override the upper-house on most legislation. The two-thirds majority garnered by the ABE COALITION will give the LDP enough power to put pressure on the BOJ to attempt an effort to end the deflation that has encumbered the Japanese economy. The campaign issues promoted by the victorious coalition should lead to further weakening of the YEN although we may see a bout of profit taking as the rumor has become fact. Mr. Abe had promoted the ending of BOJ independence but it is doubtful that promise will be realized. The overall response to the end of central bank independence may unleash a response bigger than the LDP will want to confront. The global financial world have become very supportive of central banks being independent of government control and it seems more likely that PM Abe can influence policy in other ways.
The IMF took center stage during the last four days as its meeting in Tokyo became the central focus of the global macro world. As usual, the IMF communique promised much via the usual platitudes but as investors and traders we are left in the lurch as much is promised but no real substance is revealed. Probably the most important element in the communique is the line, “WE NEED TO ACT DECISIVELY TO BREAK NEGATIVE FEEDBACK LOOPS AND RESTORE THE GLOBAL ECONOMY TO A PATH OF STRONG,SUSTAINABLE AND BALANCED GROWTH.” Why is this simple statement so critical? In last week’s IMF-produced “World Economic Outlook,” it revealed that the IMF‘s model is probably flawed when measuring the impact of fiscal policy on economic growth.
It seems that we have covered the major themes ad nauseam–European debt, U.S. fiscal cliff, Japanese lethargy in confronting an overvalued currency, Chinese slowdown–and the list goes on and on. Today, the IMF let loose a report that detailed the need for Europe to deleverage its banks to the tune of a possible 4.5 TRILLION EUROS. This is not the aid and comfort that a financially stressed European economy needed. The pains of austerity will be minimal compared to the massive selloff of what ever assets will be dumped on the market. Government retrenchment coupled with private sector rebalancing will undoubtedly lead to a new thrust downward in the adverse feedback loop. The significance of the yield curves will be a critical indicator as the quarter begins to reveal all of the potential hazards with which the global financial system has to contend.
The travails of the financial markets continue even as the EURO ELITE believe that their holiday time is sacrosanct. Greece is in the headlines as financial pundits with time to fill conjecture about how long it is before the lifeline to the Greeks is cut and its economy and society set adrift outside the “safe” harbor of the EUROZONE.
Tonight’s BLOG POSTING WILL BE THE LAST FOR TWO WEEKS AS I HEAD OFF TO THE LAND OF THE RISING SUN. MY SUGGESTION IS TO GET LONG VOL AS MARKET ACTION ALWAYS INCREASES WHEN I TAKE AN EXTENDED LEAVE (just giving you the ultimate economic and trading indicator.)
Two big issues have been the rage of financial news during the weekend. First, the Chinese Central Bank lowered its reserve requirements by 50 BASIS POINTS in what is being termed an effort to engineer a “soft landing” and prevent a drastic fall in GDP. This is my first laugh as the raises in the reserves during the last 18 months did little to slow the economy. Besides, if the Chinese Politburo wants to install pro growth policies it has control of the credit creating mechanism. As the markets are looking for anything that sustains the recent global equity rally, why not the Chinese reserve ratio?