Emergency Bank of Japan Meeting Has Louder Bark Than Bite

August 30, 2010

The dollar fell overnight by 0.9% against the Canadian dollar, 0.6% versus sterling, 0.4% against the yen, and 0.1% relative to the Swiss franc.  The dollar firmed 0.4% against the kiwi, 0.2% against the euro and 0.1% relative to the Australian dollar and Chinese yuan.

Japan’s Nikkei-225 equity index closed 1.8% higher but had climbed more substantially than that earlier in the session.  Stocks also rose 2.0% in China, 1.9% in Australian, 1.4% in South Africa, 1.0% in Thailand, 1.8% in South Korea, 1.0% in New Zealand, 0.8% in Malaysia and 0.7% in Hong Kong. In Europe, British markets are closed for the late-summer bank holiday.  The Paris Cac is 0.2% softer, while the German Dax edged 0.1% higher on balance.

The ten-year German bund yield softened four basis points, while its Japanese counterpoint rose by two basis points.

Oil prices fell 0.3% to $74.94 per barrel. Gold prices are steady at $1238.30 per ounce.

The decisions of the Bank of Japan after a three-hour unscheduled policy meeting were disappointedly mild and vague.  The emergency meeting had followed talks between Prime Minister Kan and BOJ Governor Shirakawa.  The government will detail a new stimulus package on September 10th and wants the central bank to do more to stimulate growth, fight deflation, and stop the rising trend of the yen and decline of stock prices.  The Bank of Japan

  • Left its key interest rate at 0.1%.
  • Left its monthly JGB purchase quota unchanged at 1.8 trillion yen.
  • Expanded its bank loan program by 50% to JPY 30 trillion.  The additional JPY 10 trillion will carry a six-month term, unlike the 3-month term associated with the other JPY 20 trillion in the program.  These are fixed-rate funds-supplying operations against pooled collateral.  The program was previously raised from JPY 10 trillion to JPY 20 trillion in March.
  • The vote on the bank loan program was not unanimous.  Miyako Suda dissented from the 8-1 decision.
  • A brief statement insisted that Japan is still on a moderate recovery track and that deflation will recede but said today’s action represents a decision “to pay more attention to the downside risks” of the baseline forecast.
  • At a subsequent press conference, Governor Shirakawa stressed that policy easing would impose some costs that must be considered and that policy continues to be guided mostly by a medium-term view of growth and inflation, not current conditions surrounding stocks and the yen.

Britain’s Hometrack house price index dropped 0.3% in August and posted only a 1.5% on-year increase.  Those were the weakest on-month and on-year readings since April 2009 and March 2010, respectively.  Like the United States, housing has softened lately in Britain.

The euro area statistical agency, Eurostat, released its August measures of confidence, and they were slightly better than expected.  Overall sentiment rose to 101.8, best since March 2008, from 101.1 in July, 98.9 in June, and a cyclical low of 70.6 in March 2009.  As reported earlier this month, consumer confidence rose three points to minus 11.  The services index showed a one-point rise in confidence to +7.  Industrial confidence was steady at minus 4.  Likewise, the retail and construction indices also were unchanged on month.  The business climate index slid to 0.61 from 0.63 in July.  Such had bottomed at minus 3.67 in March 2009.

Belgian consumer prices firmed 0.1% on month and by 2.3% on year in August.  The 12-month change was down from 2.6% in July.  Spanish harmonized CPI inflation of 1.9% in August represents a two-year high and a 1.0 percentage point increase from the pace in February.

Swedish labor cost inflation edged up to 1.7% in June form 1.5% in May.  Norway released two indicators: retail sales rose 1.8% in the year to July, and the credit expansion indicator showed an on-year advance of 4.7% in July, same as in June.  Danish GDP growth in the second quarter of 1.0% from 1Q and 2.8% from a year earlier was better than forecast.  On-year growth turned positive for the first time in two years.  Benefiting from the boost of strong German demand, Polish GDP growth accelerated in the second quarter, rising 1.1% from 1Q and 3.8% from a year before.

Gross operating profits in Australia were 18.9% higher in 2Q10 than a year earlier.  That was the best quarter in nine years and three times more than forecast. 

Business sentiment in New Zealand worsened sharply in August to 16% from 28% in July.  New Zealand’s trade swung to a deficit of NZD 186 million in July from NZD 276 million surplus in June.  Exports fell 5.9%, while imports rose 4.9%.  These releases weighed on the kiwi overnight.

Canada’s 2Q current account report, where a big deficit is expected, arrives today.  So does U.S. personal income and spending the Dallas Fed manufacturing index.

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

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