Yen Falters After Japanese Prime Minister Resigns

June 2, 2010

The dollar rose 1.0% overnight against the yen but otherwise is unchanged against the loonie, Aussie dollar, and sterling, up 0.1% relative to the euro and Swiss franc, and 0.2% firmer against the kiwi.

The Democratic Party cabinet of Prime Minister Hatoyama took responsibility for breaking a promise to move a U.S. base off Okinawa and resigned.  Hatoyama had held power just 8-1/2 months, the same as the only other non-LDP government led by former Prime Minister Hosekawa in the mid-1990s.  Four of the past five prime ministers have held power for 12 months or less, and ten of the last twelve prime ministers didn’t last beyond two years.  Finance Minister Kan, and advocate of a softer yen and looser monetary policy, is the leading candidate for the next Japanese government’s leader.  Kan is also a member of the Democratic Party.  Upper house parliamentary elections in Japan are set for July 11.

Stocks have lost more ground for the most part, with declines of 1.3% in Taiwan, 1.1% in Japan, 1.2% in New Zealand, 0.7% in South Korea, 0.7% in Australia and 0.5% in Malaysia.  Stocks gained 1.1% in Thailand and India and by 0.5% in China, but such have traded down 1.6% in Spain, 1.0% in France and Britain, and 0.5% in Germany.  The ECB yesterday predicted that European banks may have to write off as many as EUR 195 billion of bad loans by end-2011.  An additional investor concern is the Gulf oil spill, which has hammered energy stocks.

The 10-year bund yield eased another 3 basis points and is close to a 21-year low.  Bund spreads remain uncomfortably wide with Greece, Spain, and Italy.  The 10-year JGB yield rose four basis points, in contrast, reflecting Hatoyama’s resignation.

Gold and oil prices eased 0.3% and 0.5% to $1223.70 per ounce and $72.22 per barrel.

Thailand’s central bank was deterred from raising its 1.25% key interest rates by recent domestic political violence.  The decision not to lift the interest rate in spite of faster growth and higher inflation was expected.

An advisor to China’s central bank warned of large price pressures in the future.

Prime Minister Key of New Zealand predicted the kiwi may lose ground against the Australian dollar.  New Zealand’s commodity price index firmed 2.5% in May, only half as much as in April.  Australian Treasurer Swan made some upbeat comments about his economy’s prospects.

South African motor vehicle sales recorded on-year growth of 35.3% in May.

Growth in Japan’s monetary base accelerated to a 12-month rise of 3.7% in May from 2.9% in April and 3.1% in 1Q10.  The Bank of Japan’s assets climbed from 114.2 trillion yen at end-April to JPY 121.0 trillion at end-May.

Australian GDP rose 0.5% last quarter (near expectations) and 2.7% from a year earlier.  GDP had advanced 1.1% in the final quarter of 2009.  Consumption had risen 0.6% in the latest quarter.  Investment was less resilient than in 4Q09.  The terms of trade jumped by 4.2%.  Monetary policy is on pause in Australia.

Britain’s construction=sector purchasing managers index firmed further to a robust 58.5 reading in May from 58.2 in April.  That was the best result since September 2007.

Euro area producer prices jumped 0.9% in April and by 2.8% from a year earlier.  Note the contrast of 12-month PPI changes between Germany (just 0.5%) and Belgium (5.8%), Spain (3.7%), Italy (3.2%), France (3.9%), the Netherlands (4.6%) or Portugal (3.9%).  German competitiveness is running away from the rest of the euro pack.  Non-energy producer prices in Euroland as a whole rose 0.5% in April and 1.0% from a year earlier.

British M4, according to final data, was flat in April and up just 3.3% on year, the smallest 12-month gain since September 1999.  However, core M4, stripped of irrelevant influences, rose 6.6% on year, the most in this data series that was introduced last year.  U.K. mortgage approvals of 48.871K in April were smaller than forecast and below March’s 49.008K.  Net consumer credit slid Gbp 136 million.  Net mortgage loans picked up to Gbp 499 million.

Swiss real retail sales posted a 12-month gain of 1.3% in April after 4.0% in March.

Spanish consumer confidence not surprisingly worsened to 65.1% in May from 78.2% in April.

Scheduled U.S. data include pending home sales, auto sales, and oil inventories.  Note that the ADP estimate of private-sector jobs arrives tomorrow, delayed a day by Monday’s Memorial Day holiday.

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



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