Bank of Japan Unveils New Policy Guidelines

December 18, 2009

The yen fell 0.5% against the dollar and by more against other currencies overnight.  The greenback otherwise lost 0.7% against the Canadian dollar, 0.4% against the Aussie dollar and Swiss franc, 0.3% against the euro and sterling and 0.1% against the kiwi.

Stocks mostly fell in Asia but show gains in Europe.  In sympathy with yesterday’s drop in U.S. stock prices, equities lost 2.5% in China, 1.0% in India, 0.5% in Indonesia, 0.8% in Hong Kong and 0.4% in Australia.  In Europe, the Ftse is trading 1.0% higher, and the German Dax and Paris Cac are up 0.6%.

Ten-year gilt and JGB yields fell by six and two basis points.  Bunds are steady.

Oil firmed another 1.1% to $73.48 per barrel, as nothing huge seems to be resulting at the Copenhagen summit on global warming.

Gold slid 0.1% after yesterday’s sharp loss, reaching $1106.80 per troy ounce.

The Bank of Japan retained a 0.1% target on overnight money rates as expected but made big news by

  • Declaring that deflation will not be tolerated,
  • Asserting that policy must be guided by other information and not just CPI trends,
  • Indicating it was a mistake before the financial crisis to guide policy just by price trends and to begin raising interest rates as soon as on-year core inflation became positive,
  • Adding that it was also a mistake to pre-commit future monetary policy to the single condition of a return to above-zero core inflation,
  • Redefining long-term price stability, which had previously been zero to 2.0%, as no lower than 1.0%.

The Euroland current account registered a seasonally adjusted deficit of EUR 4.6 billion in October after a shortfall of EUR 5.0 billion in September.  The deficit in the twelve months to October was EUR 82.9 billion, 30.2% narrower than a year earlier.

The Euroland seasonally adjusted trade balance was in surplus by EUR 6.3 billion in October.  Exports (off 0.2%) and imports (down 2.2%) each recorded monthly declines after strong increases in September.  Compared to October 2008, exports fell 16.8%, and imports dropped 23.6%.

The IFO Institute business climate index  for Germany improved for a ninth straight month to 94.7, a shade better than expected, from 93.9 in November.  The current situation and expectations components both went up.  By sector, manufacturing, construction, wholesaling and retailing all were better in December than in November.  The index bottomed last March at 82.6 and is now at a 17-month high.  IFO’s other survey, covering services, improved even more sharply than the business index, climbing to 5.5 in December from 1.9 in November and -14.5 in December 2008.

German producer prices firmed 0.1% in November, trimming the 12-month decline to 5.9% from 7.6% in both September and October and a low point of minus 7.8% in the year to July.  Non-energy producer prices were steady last month and 2.3% lower than a year earlier.

Several British indicators were released.  Mortgage approvals rose to 63K in November from 60K the month before.  Total business investment growth in 3Q09  got revised sharply upward to minus 0.6% from minus 3.0% reported earlier.  Britain reports final GDP estimates for the quarter next Tuesday.  M4 was unchanged in November and up by just 9.2% on year compared to a 10.8% increase in the year to October.  Quantitative easing has so far failed to quicken money growth, which economists proverbially call pushing on a string.  The CML reported drops in gross mortgage lending in November of 9.8% from Octobere and 14% from a year earlier.  Finally public financial figures for November were released showing the a public-sector net requirement of Gbp 14.7 billion versus Gbp 10.7 billion in November 2008, public-sector net borrowing of Gbp 20.3 billion versus Gbp 15.5 billion a year earlier, and a current budget deficit for the month of Gbp 16.2 billion compared to Gbp 13.2 billion in November 2008.  Net debt equals 60.2% of GDP versus 49.6% a year earlier.

Dutch consumer confidence improved three points to minus 11 in December.

Italian industrial orders rose 0.3% in October, slightly less than forecast, and fell 17% on year after a drop of 20.4% in the year to September.  Industrial sales slumped 1.6% and 18.4% on year.

Botswana’s central bank cut its key interest rate by 100 basis points to 10.0%, the first drop in four months.  Colombia’s central bank meeting today is thought unlikely to alter its 3.5% key interest rate.

No U.S. economic data releases are scheduled today.  Belgium reports consumer confidence, and Canada releases wholesale turnover figures.

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



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