More Japanese Intervention Threatened But Not Done

September 16, 2010

Yesterday’s intervention by Japan of almost $22 billion equivalent was a single-day record, but nothing further has been reported so far today.  Prime Minister Kan nonetheless said the operations will continue.  The Bank of Japan is reportedly resisting political pressures to call an emergency Policy Board meeting and enact further quantitative easing.  Governor Shirakawa simply said the BOJ will take timely actions as needed.  U.S. officials expressed disappointment with Japan’s actions. 

The Chinese yuan appreciated another 0.3% against the dollar and yen, which has remained flat against the greenback.  The yuan is now 1.5% stronger than on June 18, the day before a more “flexible” exchange rate policy was announced by Beijing officials.  That works out to a roughly 6% annualized rate of yuan rise.

The euro gained 0.6% against the dollar and yen and is 3.4% stronger than last Friday’s low of $1.2644.  The dollar is up 0.2% against sterling but down 0.2% against the Canadian dollar and Swiss franc.  The buck edged up 0.1% against the Australian dollar.

The U.S. dollar advanced 0.9% against the New Zealand dollar, which was depressed by the Reserve Bank of New Zealand’s decision to leave its Official Cash Rate unchanged at 3.0%.  Analysts had been split over whether a third rate increase would be engineered this month.

Ten-year German bund and British gilt yields rose by seven and five basis points, respectively.  The 10-year JGB yield of 1.05% was unchanged.

Oil slipped 1.0% to $75.23 per barrel.  Gold firmed 0.4% to $1273.80 per ounce, just a dollar from Tuesday’s all-time peak.

Japan’s tertiary index of service-sector activity rebounded by a sharp 1.6% in July, twice as much as expected.  Such had dipped 0.1% in the second quarter, including a 0.2% June uptick after a 0.9% drop in May.  The tertiary index was 1.7% higher than in July 2009.

Reuters released monthly Japanese business sentiment indices, a series designed to approximate and fill in the path of the Bank of Japan’s widely watched quarterly Tankan diffusion indices.  The September manufacturing index had a reading of +17, the first decline since October 2009, after a score of 22 in August and +9 in June.  The non-manufacturing index improved six points to minus four from minus ten in August.

Investors await a central bank rate decision from the Swiss National Bank, which meets only quarterly.  The franc got a lift this week from a UBS forecast that the 3-month Swiss Libor target will be increased by 25 basis points to 0.5%.  Most other analysts do not expect a rate change.  A target of 0.25% within a range of 0-0.75% has been in place since March 2009, having been slashed from a prior peak of 2.75% (within a 2.25-3.25% range) maintained from September 2007 until October 2008.  Swiss industrial production bounced back 5.7% last quarter from a 7.8% drop in 1Q.  Output exceeded the level in 2Q09 by 7.8%.

The Reserve Bank of India raised its repo rate for lending by an as-expected 25 basis points to 6.0% but surprised analysts with a greater-than-forecast 50-bp increase to 5.0%.  Reserve requirements did not change.  A statement from RBI officials minced no words in declaring inflation the “dominant concern.”

Central bank decisions are also awaited today from Chile, where a 50-bp increase is expected, and Turkey.

The New Zealand purchasing managers index continued to weaken, falling to 49.3 in August from 49.9 in July and 56.2 in June.

Hong Kong’s jobless rate edged down to a 19-month low of 4.2% in June-August from 4.3% in May-July and 4.6% in 2Q10.

British retail sales volume fell 0.5% during August in the first decline of any sort since January.  Analysts had predicted a 0.3% increase.  Sales were only 0.4% greater than a year earlier but up 1.9% excluding autos.  In spite of the setback, the latest three months saw sales advance 1.4% after a gain of 0.5% in the three months to May and a drop of 1.7% in the three months to February from the three months to November 2009.

Euroland’s seasonally adjusted trade balance was in deficit for a third straight month in July, albeit by just EUR 0.2 billion.  Exports and imports posted monthly declines of 0.6% and 1.5%.  The unadjusted surplus was EUR 1.9 billion in January-July, down from EUR 8.9 billion a year earlier.  Imports grew 19.0% on year in January-July but by 24.4% in July alone from July 2009.  On-year export growth in July of 17.6%, by comparison, was virtually identical to that in January-June.

The Bank of England released a quarterly survey of inflation expectations, which indicated no improvement.  The perceived present rate of CPI inflation is 3.6%, and respondents expect a rise of 3.4% in the coming twelve months, which compares to a predicted 3.3% gain expressed in the prior May survey.

Several important U.S. indicators are scheduled today: the quarterly current account, Treasury capital flow data, the Philly Fed index, weekly jobless claims, and monthly producer prices.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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