Japan Intervenes Heavily and Increases Quantitative Easing

August 4, 2011

There has been massive intervention by Japan’s Ministry of Finance applied constantly.  The dollar leaped 3.8% against the yen, getting as high as 80.25 versus a low of 76.76 yesterday.  A 2-day scheduled Bank of Japan Policy Board meeting was compressed to a single day, so that the announcement of extra quantitative easing could be synchronized with the massive intervention.  A unanimous decision to expand asset purchases by JPY 5 trillion was taken.  The JGB portion was doubled to JPY 4 trillion.  A separate credit facility was increased to JPY 35 trillion from JPY 30 trillion.  The overnight money target was left at zero to 0.1%.  Today’s was the first intervention admitted by Japanese authorities since March.

Wednesday’s Swiss National Bank easing has not produced a dramatic change in the franc’s status.  Swissy is trading at 0.7765 per dollar, down 0.8% from yesterday’s close and 2.0% below this week’s high of 0.7608.

Symptomatic of renewed risk aversion, the U.S. dollar shows gains of 0.6% against sterling and the euro, 1.5% against the Australian dollar, 1.6% versus the kiwi, and 1.2% against the Canadian dollar.

Stocks fell 2.3% in South Korea, 1.7% in Taiwan, 1.4% in India, 1.3% in Australia, and 0.8% in Pakistan, Thailand, and Singapore.  The Nikkei closed 0.2% higher but very weak nonetheless at 9,659.  The British Ftse, Paris Cac, and German Dax have traded down 0.9%, 0.5%, and 0.4%.

Oil prices tumbled another 1.2% on recession fever to $90.80 per barrel and is 20% below its closing level in April.  Gold edged up a tenth to $1668.20 per ounce.

News surrounding Euroland’s debt crisis has been mixed.  One think tank is predicting an Italian default, but speculation has arisen that the ECB will adopt a more dovish stance.  Options include delaying the third rate hike and resuming the purchase of member sovereign bonds.  Trichet’s press conference begins at 12:30 GMT.  Peripheral bond spreads are somewhat narrower than yesterday.

The ten-year German bund yield firmed a basis point to 2.41%, while the 10-year British gilt slid a basis point to 2.73%.  The JGB yield is steady at 1.02%.

The Bank of England as expected made no policy changes.  The Bank Rate stays at 0.5%, and the limit on asset purchases continues to be GBP 200 billion.  Minutes will be published August 17, but before that will be the publication of the central bank’s quarterly Inflation Report on August 10.

The Central Bank of the Republic of Turkey eased monetary policy in response to a weakening global economic outlook and to reduce the risk of a domestic recession.  The one-week repo rate was cut by 50 basis points to 5.75%, and the band between the overnight lending and borrowing rates was narrowed sharply.

Bank Rossii left the Russian refinancing rate unchanged at 8.25% as expected.

Today is President Obama’s 50th birthday.

German June industrial orders produced mixed results that on balance were much better than projected.  Domestic orders sank 10.8% on month, whole foreign orders shot up 13.7%.  Overall orders advanced 1.8% on top of May’s 1.5% increase and were 9.4% greater than a year earlier.  Orders climbed 3.2% in the second quarter and were 1.7% higher in June than the 2Q average level.  Capital goods orders went up 5.4% in the second quarter.

Germany’s construction purchasing managers survey index softened further to 50.6 in July from 50.9 in June, 53.7 in May, 55.8 in April and 61.8 in March.

The Irish service-sector PMI printed lower in July at 51.7 versus 52.4 in June.  Orders contracted last month.

Euroland productivity growth nearly stalled last month.  The productivity PMI printed 1.3 points lower at 50.5.

Japanese stock and bond transactions generated a JPY 548 billion capital inflow in the week of July 30th, up from JPY 19 billion in the previous week.

Malaysia’s trade surplus narrowed 10.4% on month to MYR 7.6 billion in June.

British new car registrations were 3.5% lower in July than a year earlier.  Norway’s jobless rate held steady in May at 3.3%.  Dutch CPI inflation accelerated to 2.6% in July from 2.3% in June despite being unchanged on month. 

Investors await the ECB decision and press conference.  Czech monetary authorities will also announce their latest interest rate decision.  U.S. jobless claims and tomorrow’s scheduled release of the July labor force survey hang over financial markets.

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

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