New Overnight Developments Abroad: Widening Policy Dispute Between Japanese Government and BOJ

November 20, 2009

Overnight currency movements — a firmer yen and dollar — indicate greater aversion to risk.  The dollar lost 0.2% against the yen but strengthened 1.0% against the kiwi, 0.8% against sterling and the Aussie dollar, 0.4% relative to the Canadian dollar and Swiss franc and 0.3% against the euro.

Pacific Basin stocks were mostly lower, with losses of 1.3% in Australia,1.0% in Taiwan, 0.9% in Sri Lanka and New Zealand, 0.7% in Thailand, 0.5% in The Philippines, 0.5% in Japan, and 0.3% in China but advances of 1.4% in India, 0.8% in Indonesia, and 0.6% in Pakistan.  The British Ftse is up 0.3%, and the German Dax and Paris Cac are 0.2% higher.

Gilt, bund and Treasury yields are indicated slightly lower, but the ten-year JGB is steady at 1.31%.

Commodities have not moved much.  Oil is off 0.3% at $77.19 per barrel, while gold edged 0.1% higher to $1142.80 per troy ounce.

With the BOJ Policy Board deliberating, the Japanese finance minister and deputy prime minister made remarks warning about deflation and urging monetary officials to act appropriately.  In fact, there had been no risk of an increase in the 0.1% target overnight rate, which has not been changed since December and is unlikely to move all next year.  However, central bank officials took the provocative step, under these circumstances, of upgrading their economic assessment to “the economy is picking up mainly due to various policy measures…”  Their meeting lasted six hours and 27 minutes over two days.  The next meeting is set for December 17-18.

German producer prices were flat last month and posted an on-year decline of 7.6%, same as in September.  The results were a tenth percentage point less than expected.  Non-energy PPI inflation held at minus 3.3%.  Energy producer prices firmed 0.3% from September but dropped 16.6% from October 2008.

Dutch consumer confidence improved to minus 14 in November from minus 19 the month before.  Belgium releases the same indicator later today.

Italian industrial orders and sales rebounded 5.2% and 2.3% in September but still posted very large on-year drops of 20.4% and 17.3%.

Many official comments are on the news wires.  China’s central bank governor made remarks that suggested no inclination to compromise on the U.S. request for the yuan to move higher against the dollar.  Treasury Secretary Geithner express confidence the Chinese will come around. Plosser of the Fed implied a rate hike should not even be considered before mid-2010 and that officials meanwhile need to wait and see how the recovery develops.  German Chancellor Merkel said governments will need to coordinate their exit strategies.  ECB President Trichet indicated that some emergency measures are no longer needed but that the exiting process will be gradual.  Swiss National Bank President Roth had no comment regarding interest rates but applauded the usefulness of unconventional steps since March for helping to contain upward pressure on the Swissy, maintain domestic currency liquidity, and curbing the damage of rising credit spreads.  Obama returned to America.

Russian direct investment inflows in January-September were 48.1% lower than a year earlier.  Asian governments are said to be considering capital controls to limit speculative inflows.

Britain’s Nationwide Building Society projected a further decline in house prices in 2010.  U.S. housing starts data earlier this week generated similar worries about the U.S. market and overall economic recovery.

Consumer prices in Hong Kong accelerated to a 2.2% 12-month pace in October from an on-year gain of 0.5% in September, but the outlook is for mild inflation.

No significant North American economic data releases are scheduled today.  Colombia’s central bank is unlikely to move its benchmark rate.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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