Posts Tagged ‘Kan’

Notes From Underground: Kan shakes off the threat from Ozawa

September 14, 2010

The political turmoil that has roiled the markets has been resolved and Japanese Prime Minister Naoto Kan handily defeated the old warhorse, Ichiro Ozawa. The DOLLAR/YEN was sold off as the markets were attune to the Kan victory. Ozawa was presumed to lead a battle for Japanese intervention to stem the YEN strength. Now it seems that the markets have been resolved and the present regime will allow the markets to set the YEN rate, which is being interpreted as further YEN appreciation.

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Notes From Underground: Weekend news is predominantly positive for the risk-on crowd

September 12, 2010

A quick overview of the weekend: The Chinese growth story is proceeding at a much stronger rate than previously expected and Chinese inflation levels seem well contained. The global equity markets have opened higher as the China’s surging growth has given a boost to the risk-on crowd. We are not big fans of the Chinese data releases. We are and will be suspect of official data from a country that seeks to harness what its populace can read. We also are not surprised by Chinese strength as the copper and energy and grain markets have been telling us for months that the Asian upturn is real. The slack demand in the the developed world has be more then replaced by emerging global boom.

The Turkish elections have added more power to tonight’s risk-on profile. The elections went better than expected for Turkish Prime Minster Recep Tayyip Erdogan and gave him even more latitude for reforming the Turkish polity to further meet European legal standards. Turkey’s equity and bond markets viewed this a positive as the consistency of reforms is what the markets are most desirous of pursuing.

There is also news from Basel that the Basel Committee on Banking Supervision agreed to the provisions of Basel III and though is means higher capital requirements, the new standards will not be phased in until 2013 to 2018, which gives the markets some breathing room. One of the more positive aspects will be based on what Bill White has called leaning into asset prices and acting in a countercyclical manner.  As economies heat up capital ratios will rise for banks, thus acting to curtail out of control asset appreciation. This is a very good regulation and will act to head off future “irrational exuberance.” It will be awhile before its full effect is felt but it is an acknowledgement that BUBBLES need to be deflated in the incipient stages.

We will also be watching the DPJ election that takes place Tuesday in Japan. The intra-party battle between Ozawa and Kan can have a very big outcome for YEN valuation. If the old warhorse OZAWA were to gain the party leadership–and the Prime Minister post–the YEN will weaken in the initial anticipation that Ozawa would move to weaken the YEN. We will certainly report more about this as events unfold, but there were several stories written about the Japanese unhappiness in regards to the Chinese purchases of JGBs putting unwanted bid to the YEN. Some Japanese are even suggesting that China has ulterior motives and wishes to keep the YEN unduly strong to further its own trade advantage. This is merely “speculation,” but it certainly adds to the heat on possible intervention. We don’t know the outcome but pay attention as Ozawa ‘s victory could move him to action.

Notes From Underground: August goes out with a whimper (equities find no solace in the lazy, hazy days of summer)

August 31, 2010

The global equity markets in the northern hemisphere wilted in the hot August sun. The bears were not in hibernation but foraging on the uncertainties of a global recovery. Risk-off trades were the central theme of the month and the rush to safety was en vogue. The yen and Swiss franc were the strongest currencies of the developed world. The YEN is impacting Japanese growth and it is certainly reflected in the NIKKEI, which was down more than 7 percent for the month. Many commentators still believe that the strong YEN is not that severe a problem for Japan, but as our readers know that is not our view, especially in regards to the EURO. Bloomberg ran a story today about Japanese concerns regarding the failed stimulus plans of Prime Minister Kan. Several of the giant Japanese corporations are openly complaining about the strong YEN and its impact on profits. Canon, Nissan and Panasonic said they would be moving production outside of Japan. Toshiyuki Shiga, Nissan’s chief operating officer, said,” The number one priority is to curb the strengthening yen.”

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Notes From Underground: BOJ is emergency meeting tonight–Shirakawa leaves Jackson Hole early

August 29, 2010

The Jackson Hole Symposium is over. The talking heads attempted to spin the Bernanke speech as the mainstay of the discussion. However, we are hard pressed to find anything new in what Bernanke had to say. He basically laid to rest the idea of cutting the interest rate on bank reserves since the FED seems to be very uncertain about the effects it would have on various market participants. Also, Chairman Bernanke seemed to slay the idea that the FED will move toward an inflation target. The markets took solace in the fact that the FED will be there to support the markets if the recovery grinds to a halt, but for now the FED sees no immediate need to undergo a new more robust QE 2.

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Notes From Underground: SAFE secrets no longer in the vault

July 7, 2010

The State Administration of Foreign Exchange (SAFE), which administers the vast CHINESE foreign reserves, said it would not go the “nuclear option” and dump U.S. treasuries in a one-off move to reallocate its holdings, but SAFE called upon Washington and other governments to pursue “responsible” policies. The SAFE official told the world that during the last four months they’ve been accumulating Japanese government bonds at a record rate, which has recently pushed the YEN to new highs. Also, the Chinese officials said they would not be purchasing GOLD as the market was too thin and volatile. Plus, whatever the Chinese purchased would not be enough to truly diversify their portfolio.

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