Concerted Intervention by G7 Lifts Yen

March 18, 2011

G7 finance ministers and central bankers released a joint statement announcing that Japanese authorities had requested and been granted the help of concerted intervention by the United States, Canada, U.K., and ECB to join Japan in providing intervention support today.  The statement expresses confidence in the “resilience of the Japanese financial sector and economy” and reiterates the long-standing G7 view that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.”  Intervention sales of yen against own currencies were confirmed by the Bank of England, Bank of Italy, German Bundesbank, Bank of France, and ECB.  This was the first concerted intervention since support for the euro in September 2000.

From a low yesterday of JPY 76.25, the dollar snapped back as high as 82.01 per dollar and is currently 3.2% stronger than Thursday’s New York closing level.  Against other currencies, the dollar has firmed 0.2% versus sterling and 0.5% relative to the Swiss franc but dropped by 1.4% against the kiwi, 1.1% against the Australian dollar, 0.4% relative to the euro, 0.2% vis-a-vis the Canadian dollar and 0.1% against the yuan.

New reports regarding Japan’s nuclear power facility leak remain murky.  A level 5 incident was declared at plant number four.

The UN Security Council belatedly passed a resolution to impose a no-fly zone over Libya to safeguard protesting civilians in that country, but the action may have come too late.

Equities were buoyed initially by the G7 decision, advancing 2.7% in Japan, 1.6% in Australia, 1.4% in Taiwan, 1.0% in South Korea, and 0.3% in Indonesia and New Zealand.  Share prices more recently have faded, and the Paris Cac, German Dax and British Ftse are just 0.5%, 0.3% and 0.2% higher on balance.

Yields on 10-year German bunds and British gilts are four basis points lower.  The 10-year JGB is down a single basis point.

Oil and gold prices advanced by 1.3% and 0.8% to $102.75 per barrel and $1415.90 per ounce.

China’s central bank raised its reserve requirement by another 50 basis points to 20.0%.  This was the seventh such increase since October 11 and ninth overall.  The ratio at the start of last October was at 16.5%.  The central bank has thus far hiked key interest rates three times as well.

The Bank of Chile hiked its overnight rate target to 4.0% from 3.5%.  The increase was twice as large as expected.

Canadian consumer prices were unchanged in seasonally adjusted terms last month.  Their 12-month increase eased to 2.2% from 2.3% in January.  Energy prices were 10.6% higher than a year earlier, while all other consumer prices collectively rose 1.4%.  Core CPI dipped 0.1% on month and rose just 0.9% on year.

German producer prices advanced 0.7% in February, lifting on-year PPI inflation to 6.4% from 5.7% in January.  Over the three latest reported months, the PPI climbed 10.8% at an annualized rate.  In February, energy prices increased 0.9%, but other prices were also frothy with a 0.6% monthly rise.

Euroland’s current account posted a EUR 0.7 billion seasonally adjusted deficit in January.  The unadjusted current account deficit in the 12 months to January cumulated to EUR 63.2 billion versus EUR 41.1 billion in the previous twelve months.  The unadjusted “basis balance,” which adds long-term capital movements to the current account showed a surplus in the last twelve months of EUR 6.1 billion, down from EUR 236.2 billion in the 12 months to January 2010.

Euroland posted trade deficits in January of EUR 14.8 billion unadjusted and EUR 3.3 billion seasonally adjusted.  On the latter basis, exports and imports rose 3.6% and 5.3% on month.  In 2010, exports and imports had risen by 20.2% and 21.7%.  The trade surplus in 2010 was EUR 0.7 billion, down from EUR 16.9 billion as the energy trade deficit widened by EUR 49.4 billion to EUR 255.5 billion.

British consumer confidence weakened ten points according to the Nationwide index to at least a seven-year low of 38.  U.K. mortgage approvals of 43K last month were 4K less than forecast, and January’s total was revised down by 4K to 41K.

The French index of leading economic indicators rose 0.9% in January, matching December’s advance.

Italy’s trade deficit widened to EUR 6.6 billion in January from EUR 2.8 billion in December and was also greater than the year-earlier deficit of EUR 4.0 billion.  Italian industrial orders dipped 0.3% in January, about a third as much as anticipated.  Industrial sales rose 1.0% on month and 8.0% on year.

The Swiss PPI/import price index rose 0.2% last month but exceeded its year-earlier level by just 0.5%.  The Swiss National Bank’s quarterly monetary policy review released yesterday continued to see subdued inflation throughout this year and part of 2012.

Revised Greek national income accounts continued to show a 1.4% drop in GDP last quarter and a 6.6% on-year plunge.

Japan’s index of leading economic indicators printed at a nine-month high of 101.5 in January after 100.2 in December.  The coincident index had its best value since at least 1980.

No U.S. data are getting released today.

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

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