Bank of Japan Easing Catches Some Analysts By Surprise

February 14, 2012

The yen weakened 0.6% against the dollar, and the Nikkei index of Japanese share prices went up 0.6% in response to BOJ actions.

Japan’s central bank designated 1.0% as a medium-term operational core CPI target and vowed not to end its virtual zero interest rate policy until that goal is in sight and significant deflationary risks are no longer present.  The central bank also increased its asset purchase program by another JPY 10 trillion to JPY 65 trillion.  All of the incremental purchases will consist of government bonds.  To complete the program this calendar year will entail JPY 22 trillion of buying.

Other overnight changes in the dollar have been marginal.  EUR/USD is unchanged despite rating downgrades by Moody’s involving Italy, Portugal, Spain, Slovakia, Slovenia, and Malta.  The top rating for the EFSF was not changed.  Moody’s, however, indicated that the ratings for France and Britain might be lowered in the future.  Chinese Premier Wen applauded Europe’s efforts to fix its debt problems and suggested that China will lend some support to the effort.

Share prices fell 1.0% in Australia and Thailand and 0.4% in China and Taiwan, but stocks advanced 0.5% in India and 0.4% in Singapore.  The German Dax and Paris Cac have climbed 0.3%, while the British Ftse is 0.1% firmer.

The 10-year German bund yield edged up a basis point, while the 10-year JGB edged down a similar amount.  Gilts are steady.

Oil prices rose 0.6% to $101.55 per barrel.  Gold prices slid 0.2% to $1721.50 per ounce.

Investor confidence in the euro area rose strongly in February according to the latest ZEW measures.  The ZEW Institute reported that the expectations gauge for Germany improved to 5.4, best since last April, from a reading of minus 21.6 in January, minus 53.8 in December and minus 55.2 in November.  The expectations index for the whole euro area jumped to minus 8.1 from minus 32.5 in January, minus 54.1 in December, and minus 59.1 in November.  The indices for current conditions improved by 11.9 points for Germany but only 2.7 points for Euroland.

Industrial production in Euroland failed to rise in any of the final four months of 2011, declining 1.1% in December after a drop of 2.1% in September, a dip of 0.3% in October and no change in November.  In December, production slumped by 2.7% in Germany, 2.4% in Greece, 1.6% in Portugal, and 1.3% in France and The Netherlands.  Greek production fell by 12.4% between December 2010 and December 2011, while German output posted an on-year drop of just 0.7%.  Overall euro area production was 2.0% softer than in December 2010.

Revised Japanese industrial output rose 3.8% in December but still posted a drop of 0.4% last quarter.  Capacity use went up 3.1% in the final month of the year, while capacity dropped 1.6%.

British CPI inflation continued to recede sharply last month, falling 0.5% on month and to a 12-month 3.6% in crease from 4.2% in December, 4.8% in November and 5.2% in September.  Core CPI inflation slowed to 2.6% from 3.0% in December.  Retail price inflation of 3.9% was the lowest since February 2010.  These sharp declines in part reflect a 2.5 percentage point value added tax imposed in January 2011 that is no longer embodied in on-year price comparisons.

The Department of Communities and Local Government reported that British house prices were 0.1% higher than a year earlier in December, the first positive on-year change since last March.  The index rose 0.4% from November.  The Royal Institute of Chartered Surveyors housing price index was unchanged at minus 16% in January.  Analysts were looking for marginal deterioration.  Britain’s index of leading economic indicators fell 0.5% in December after a 0.6% drop in November.  The index of coincident indicators ticked 0.1 points higher.

Greek and Portuguese national income accounts for last quarter were released.

  • Greek GDP plunged 7.9% from 3Q and by 7.0% from the final quarter of 2010.  Growth can only get worse as the country implements significantly deeper austerity.
  • GDP in Portugal fell for a fifth consecutive quarter and at an accelerating pace, dropping 1.3% from 3Q and by 2.7% from a year earlier.

Ireland’s construction purchasing managers index weakened 3.5 points to 46.4, a three-month low, in January.  Finnish retail sales volume posted on-year gains of 2.3% in 2011 and 2.1% in December.  Hungarian industrial production dropped 7.4% in December, trimming the 12-month increase to 2.1%.

Australian business confidence got a lift from monetary easing and rose a point to +4, a 7-month high, in January, and business conditions improved two points to a reading of +2, according to indices compiled by National Australian Bank.  Food prices in New Zealand were unchanged last month and posted a smaller 1.0% on-year increase.

Wholesale price inflation in India slowed last month to an as-expected 6.55%. 

Brazilian retail sales climbed 0.3% in December and recorded a 6.7% on-year gain.

Scheduled North American data today include weekly U.S. chain store sales, U.S. retail sales, import prices and business inventories, and the small business sentiment index from NFIB.  Canada reports auto sales.  U.S. Treasury Secretary Geithner testifies before the Senate Finance Committee.  Chile’s central bank announces a decision on interest rates.  Analysts see a risk there of a rate cut.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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