Bank of Japan Takes Many Actions to Support Economy and Markets

March 14, 2011

Across-the-board strength has seen the dollar rise 0.7% against the Australian dollar, 0.5% relative to the euro, 0.4% versus the Swiss franc, 0.3% against sterling, 0.2% versus the yen, kiwi and yuan and 0.1% against the Canadian dollar.

Japan’s Nikkei plunged 6.2% and well below 10K and to its lowest level since early November.  Stocks also fell2.0% in Sri Lanka, 0.6% in New Zealand, 0.6% in Taiwan, and 0.4% in Singapore and Australia, but gains were made of 1.5% in India, 0.8% in Indonesia, 1.6% in Thailand, 1.4% in South Korea, and 0.5% in China.  In Europe, the German Dax is down 0.6%, the Paris Cac is off 0.1%, and the British Ftse is unchanged.

Ten-year sovereign bond yields fell four basis points in Japan but rose significantly in Germany and Britain.

Oil prices fell another 1.9% to $99.22 per barrel, while gold is hardly changed at $1425.70 per troy ounce.

The Bank of Japan shortened the monthly two-day policy meeting to a single-day’s session lasting four hours and 44 minutes after which the following steps were taken:

  • 15 trillion yen ($183 billion) of liquidity (80% of which were same-day delivery) were injected to “maintain financial intermediation function and secure smooth fund settlements.”  Excess balances above the reserve requirements jumped to JPY 25.6 trillion today from JPY 17.66 tln last Friday.
  • The asset purchase program was enlarged by JPY 5.0 trillion ($60 trillion) to 40 trillion yen, and the time horizon for completing such operations was pushed out to June 2012 from the end of thus year.  The allocation of the program’s incremental growth is to consist of JPY 0.5 trillion of JGBs, JPY 1.0 trillion of treasury discount bills, JPY 1.5 trillion of commercial paper, JPY 1.5 trillion of corporate bonds, JPY 0.45 trillion of ETFs and JPY 0.05 tln of T-REITS.  The last two components require permission from the finance minister.
  • Pledged more support if needed.
  • Left the overnight call money target range at zero to 0.1%.
  • Said the economy had been emerging from a deceleration phase when the earthquake struck but that such would exert a widespread geographical effect and that the impacts on industrial output, business sentiment, and consumer confidence were particular concerns.

Over 10K people are feared dead in Japan, and many, many more now face a lack of food, electricity, and water.  Reports regarding the leakage of radiation from a nuclear plant have been confusing.

The Bank of Japan’s balance sheet on March 10, a day before the earthquake, was JPY 133.3 trillion compared to end-month levels of JPY 130.1 trillion in February, JPY 128.0 trillion in January, and JPY 128.7 trillion in December.  Such will be higher by the next report showing the level on March 20.

Japanese industrial production in January — prior to the quake — was meanwhile revised sharply lower to a gain of 1.3% from 2.4% reported initially.  The inventory ratio’s movement was revised to a dip of 0.2% from plus 0.7%.  Capacity usage rose 3.6% and by 4.2% on year.  Capacity advanced 1.8% on year.

Japanese consumer confidence printed in February at 40.6, down from 41.1 in January and 40.5 on average in the fourth quarter of 2010.

The other big story of the day comes from China, which reported slower than forecast growth in bank lending and M2 money, thus providing further evidence of an economic slowdown there.  M2 expanded 15.7% on year in February, down from 17.2% in January and 19.7% in December.  Analysts had projected a likely 17% increase.  Loans rose by 535.6 billion yuan, 17.5% less than forecast and only about half as much as the 1.04 trillion yuan surge recorded in January.

Industrial production in the euro area increased 0.3% in January, slightly faster than expected, and was 6.6% greater than in January 2010.  January monthly changes in the latest reported month ranged widely from minus 4.2% in Portugal to minus 1.5% in Italy, 0.1% in Germany, and 1.1% in France.  German output was 11.1% higher than a year earlier, whereas Portuguese production recorded a 1.4% on-year drop.  Euroland output in January was 1.0% greater than the 4Q mean.

Indian wholesale prices advanced 8.3% on year in February, down from 8.2% in January and 9.4% in December.

New Zealand house prices rose 2.3% last month, reversing January’s 2.6% decline.

Greek import prices were 6.1% higher in January than a year earlier.  The Dutch trade surplus contracted 9% on month to EUR 3.1 billion in January as exports fell by 2.5%. Finnish CPI inflation accelerated to 3.5% in February from 3.1% the month before.

No U.S. data releases are scheduled this Monday. Canada reports quarterly capacity usage.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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