A Soft Yen Policy From the New Japanese Finance Minister

January 7, 2010

In his first press conference, Japanese Finance Minister Kan talked about coordinating with the Bank of Japan to achieve a softer and “more appropriate” yen level.  This stance contrasts with the strong yen aspirations of Kan’s predecessor.  Stock and bond transactions generated a Y 199 billion inflow last week after a Y 93 billion outflow in the week to December 26.

Equity market conditions today reflect more risk aversion following the sober assessment of the December 15 FOMC minutes.  Stocks fell 2.0% in China, 1.3% in South Korea, 1.1% in Taiwan, 0.6% in Singapore and Indonesia, 0.5% in Japan, Australia and India, and 0.7% in Hong Kong.  The German Dax, Paris Cac and British Ftse have traded 0.9%, 0.6% and 0.4% lower.

The dollar has climbed 0.7% against the kiwi and yen, 0.6% versus sterling, 0.5% against the Swiss franc, 0.4% relative to the euro, and 0.3% against the Australian dollar, but the greenback is unchanged against the Canadian loonie.

The ten-year JGB yield firmed a basis point to 1.36%, while its gilt counterpart edged a basis point lower to 4.04%.

Oil and gold prices are 0.7% and 0.3% softer at $82.61 per barrel and $1132.80 per troy ounce.

Germany released some disappointing data, underscoring the limited potential for accelerating growth.

  • Real retail sales volume sank 1.1% in November after holding flat in October.  Sales were 2.8% weaker than a year earlier and combined October-November sales were 0.7% below their 3Q mean level.  Analysts had expected sales to post a 0.3% monthly advance.
  • Because of weak foreign demand, industrial orders in November only recovered 0.2%, not 1.5% as forecast, from a 1.9% drop in October.

Retail sales volume for the whole euro area slumped 1.2% in November.  The street consensus had called for a 0.1% uptick.  Aside from Germany’s 1.1% drop, sales fell by 1.0% in Spain and 0.1% in France.  Non-food retail sales were 1.6% lower, while food slid 0.4%.  Euroland retail sales were 4.0% below their year-earlier level, a deterioration from a 1.3% drop in the year to October.

Not all released Euroland figures were poor, however.  Economic sentiment improved more than expected to a reading of 91.3 in December from 88.8 in November, 82.8 in September and a low of 64.6 last March.  Industrial sentiment rose 3 points to minus 16.  The sentiment indices rose a point to minus 16 for consumers, minus 3 for services and minus 10 for retailers but fell two more points to minus 28 for construction, which is merely 4 points better than its level last March.   The Euroland business climate index improved to minus 1.22 in December from minus 1.53 in November.  Analysts expected a reading of minus 1.43.

The Bank of England left its policy settings of a 0.5% interest rate and an asset purchase ceiling of Gbp 200 billion on hold as expected.  Earlier, the British Halifax house price index was reported to have posted a monthly rise of 1.0% in December, twice what had been forecast, and the first on-year increase (1.1%) since March 2008.  British car sales in December were 38.9% greater than a year earlier, but such dropped 6.4% in 2009.

Dutch consumer prices fell 0.6% in December and posted a benign on-year rise of 1.1%.  Austrian wholesale prices fell 1.1% in the year to December.

Swiss consumer prices unexpectedly dipped 0.2% in December, leaving the 12-month increase at just 0.3% instead of 0.5% as forecast.  Central bank authorities in December adopted a less rigid commitment to halting all further gains in the franc against the euro, and it proceeded to advance past the 1.50 level.  Lower-than-assumed inflation ought to constrain any tendency for additional franc appreciation.

The German construction PMI of 46.8 in December was still below 50 but represents an 18-month high.  Danish unemployment ticked up to 4.4% in November from 4.2% in October and 3.7% in August.

The Czech trade surplus narrowed 16.8% in November to CZK 14.54 billion but compared favorably with a CZK 1.10 billion deficit a year earlier.

Australia reported a much bigger 1.4% jump in retail sales in November (7.0% from a year earlier) than the 0.3% uptick that had been expected.  The Australian trade deficit narrowed 18.3% in November to AUD 1.70 billion as imports fell 3.1%, but the gap was still larger than September’s of AUD 1.485 billion.

New Zealand’s trade deficit in November of NZ$ 269 million was 44.8% smaller than the deficit in October.

Business sentiment in South Africa softened to 83.5 in December from 84.1 in November.

French President Sarkozy warned against a hasty removal of economic stimulus, and Finance Minister Lagarde said global current account deficit have not been addressed.

China’s commerce minister reiterated opposition to ending yuan stability.

The United States reports December chain store sales today as well as jobless insurance claims.  The December job numbers are due tomorrow.  Hoenig of the Fed will be speaking today about the economic prognosis.

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

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