Verbal Support for Weaker Yen, Soft Dollar, and Firm Euro

February 12, 2013

G7 finance ministers and central bankers released a standard statement on FX policy that failed to criticize Japan:

“We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.”

In perhaps the strangest miscommunication since the G7 became a vehicle for coordinating currency policy, an unnamed G7 spokesman subsequent to this update’s posting denied that this seemingly innocuous couple of sentences say what at face value they appear to say.  According to this source, the statement was issued to show mounting concern that Japan is intentionally depreciating its currency to gain advantage at the expense of its trading partners.  The source of this clarification seemed to be the United States.

Prior to the above clarification, however, U.S. Treasury Undersecretary for International Monetary Affairs Brainard said on the record that Japanese macroeconomic policies to end deflation and promote faster growth are appropriate.  The yen touched a 33-month low of 94.42 per dollar.

Japanese Finance Minister Aso said his G7 colleagues understand Japan’s currency policy stance and did not object to such.  His remarks seems to have triggered the clarification of the statement’s meaning.

German Bundesbank President Weidmann argued that the euro is not currently overvalued. 

Fed Vice-Chairperson Yellen said the dollar’s gradual decline has helped trim the U.S. trade deficit.  She also defended a policy that promotes jobs growth.

Several markets in Asia remained closed for the Chinese New Year holiday.  But Japan reopened after a 3-day weekend.  The Nikkei jumped another 1.9%.  Stocks were unchanged in Australia and dipped 0.1% in New Zealand.

North Korea tested a nuclear weapon today.  This was the first such test conducted since Kim Jong Un assumed power and the third one since 2006.

Sterling touched a 6-month low of $1.5572 overnight and is 0.3% lower against the U.S. currency on balance.  British CPI inflation remained stuck at an above-target 2.7% for the fourth straight month in January.  Core CPI inflation edged a tenth percentage point lower to 2.3%, but RPI and RPIX inflation accelerated to 3.3% last month.  U.K. producer output prices rose by an as-forecast 0.2% sequentially and 2.0% on year in January.  The PPI-I index jumped 1.3% on month and accelerated to 1.8% on year from 0.5% in the twelve months to December.  The ONS British house price index, formerly compiled by the Department of Communities and Local Government, increased 0.9% on month and accelerated to a 12-month increase of 3.3% in January from 2.2% in December. 

The house price index compiled by the Royal Institute of British Chartered Surveyors deteriorated unexpectedly to a balance of -4% in January from zero in December.

According to the Conference Board, Britain’s index of leading economic indicators edged 0.1% higher in December but was unchanged from September.  The index of coincident economic indicators rose 0.2% in December following 0.1% upticks in both October and November.

The dollar has fallen 0.3% against the euro, 0.2% versus the Swiss franc, and 0.1% relative to the yen.  The buck is up 0.2% against the loonie and unchanged against the yuan, kiwi and Australian dollar. 

In European bourses, equities have climbed by 1.0% in Spain, 0.6% in France, 0.4% in Britain, 0.3% in Germany, and 0.2% in Italy.

The ten-year British gilt and Japanese JGB yields are down a basis point, while the 10-year German bund yield firmed a basis point.

The WTI crude oil price has risen 0.4% to $97.40 per barrel.  Gold has dipped 0.2% to $1646.40 per troy ounce.

Three central banks — those in Russia, Sri Lanka, and Indonesia — left their policy interest rates unchanged at 8.25%, 7.5%, and 5.75%, respectively.

Japan’s government upgraded its monthly economic assessment to “while the Japanese economy shows weakness recently, signs of bottoming out can be seen in some areas.”  One of those is personal consumption, which “holds firm recently.”  The previous assessment said consumption is “almost flat.”

Japanese M2 money grew 2.7% in the year to January versus an on-year advance of 2.3% in 4Q12 and 2.5% in calendar 2012.  M1 growth accelerated to 3.5% in January from 3.3% in December, and broad liquidity picked up to a 12-month gain of 1.4% from 1.1% in December and 0.7% in 4Q12.

Consumer confidence in Japan leaped 4.1 points to a reading of 43.3 in January, best since July 2010.

Business conditions in Australia improved three points to minus 2 in January, while business confidence went up a point to a 5-month high of +3.  New Zealand house prices fell 1.0% last month.  Filipino exports jumped 11.8% on month and by 16.5% on year in January.

Industrial production and factory output in India were respectively 0.6% and 0.7% lower than a year earlier in December, and November changes were revised downward.  The report was worse than analysts were anticipating.  Indian CPI inflation accelerated further to 10.79% last month from 10.56% in December.  The culprit was food price pressures caused by foul weather.  Weather-related inflation was also cited in the Indonesian, Sri Lankan and Russian central bank statements.

France recorded a EUR 3.6 billion current account deficit in December versus a EUR 2.8 billion shortfall the month before.  The Czech current account gap in December was CZK 24.3 billion, twice as big as anticipated.

Swiss consumer prices fell by 0.3% both on month and on year in January.  Portuguese consumer prices plunged 1.2% on month and to a 0.2% 12-month rate of rise. 

Barack Obama presents the U.S. State of the Union address tonight.  Scheduled U.S. data today include the NFIB small business sentiment index, consumer confidence, the Labor Department’s JOLTS index of layoffs and new hires, the monthly federal budget, and weekly chain store sales.  ECB President Draghi speaks publicly.  Bank of Canada Governor Carney, who will be assuming that role at the Bank of England in July, will be testifying.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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