Spotlight on Japan
September 19, 2012
The Bank of Japan expanded quantitative stimulus but did not exceed market expectations. The actions taken by the Policy Board of the BOJ depressed the yen to as low as 79.23 per dollar, but its net overnight drop was just 0.3% against the dollar. The greenback also rose 0.3% against the euro, 0.2% relative to sterling, and 0.1% versus the Australian dollar. The U.S. currency is unchanged against the loonie and Swiss franc and down 0.1% against the yuan and kiwi.
An initial positive response in European stocks to the BOJ easing has been pared. The Dax is unchanged. Stocks in France and Spain are down 0.3% on net, and Italy’s bourse has suffered a 0.3% setback. The Ftse has edged 0.1% higher. In the Pacific Rim, Japan’s Nikkei jumped 1.2%, and the Hang Seng index rallied 1.2%. But smaller changes were posted elsewhere: gains of 0.6% in Taiwan, 0.5% in China, Indonesia and Australia but looses of 0.3% in India and the Philippines.
The yields on 10-year German bunds and British gilts fell by three basis points. Even though lower long-term interest rates is one goal of the Bank of Japan’s extra stimulus announced today, the 10-year JGB, which already was extremely low, remains steady at 0.82%.
Gold firmed 0.2% to $1775.40 per ounce, while the price of WTI crude oil slid 0.3% to $95.02 per barrel.
The latest U.S. presidential campaign poll by the AP/GFK indicates a virtual dead heat in likely voters (47% to 46%) even though Obama’s job approval rating is above 50% for the first time in four months and a comparison of all voters (regardless of whether they go to the polls) shows a 52% to 37% lead for Obama.
Japan’s index of leading economic indicators for July was revised upward by 1.2 points to 93.0. The index of coincident indicators was revised up 1.0 points to 93.8. These scores were nonetheless still below those in June of 94.1 and 94.9. Officials assessed the trend in the coincident index as “weakening.” Likewise, BOJ Governor Shirakawa in his post-meeting press conference said Japan’s recovery will probably be delayed about six months due to weaker-than-assumed global demand conditions.
The BOJ raised its asset purchase plan total size by 10 trillion yen to JPY 80 trillion. Officials were unanimous in the decision and left their interest rate target unchanged. Their economic assessment was downgraded, and the removal of a minimum bidding yield of 0.1% for outright JGB purchases is an additional step that could alleviate upward pressure on the yen.
Minutes from the Bank of England’s September 5-6 Monetary Policy Committee meeting also revealed a 9-0 decision. The Bank’s asset purchase plan had been increased in July, and most policymakers saw no reason to make a change now while implementation of July’s action is still happening. While the group now thinks that there is less near-term scope for U.K. inflation to ease rapidly, a majority thinks that a further future expansion of quantitative easing is probable. One committee member was leaning toward easing now but sided with the majority in the formal vote.
Foreign direct investment into China was 1.4% lower in August than a year earlier, which was a smaller decline than seen in the first seven months of 2012. Anti-Japanese protests in China continue over an island ownership dispute.
New Zealand recorded a NZD 1.8 billion current account deficit in the second quarter of 2012, which is a bit larger than forecast. The NZD 10.09 billion deficit over the past four reported quarters equaled roughly 4.9% of GDP. Prime Minister Key said that kiwi strength is a fact of life that cannot be changed by policy modifications.
Construction output in the euro area fell 0.3% in July, the third drop in four months, and was 4.7% lower than a year earlier. On-year changes in construction output ranged from +2.2% in Germany to declines of 0.2% in France, 14.2% in Italy, 16.1% in Spain, and 18.2% in Portugal.
Switzerland’s ZEW expectations index, a gauge of investor sentiment, printed at negative 34.9 in September, a much smaller-than-anticipated improvement from readings of negative 33.3 in August, minus 42.5 in July and minus 43.4 in June.
France’s index of leading economic indicators in July reversed a 0.3% drop in June. The index of coincident indicators ticked up 0.1% after no change in June.
South African CPI inflation edged up 0.1 percentage point to 5.0% in August but remained below June’s 5.5% on-year pace. Retail sales in South Africa grew just 0.1% in July, halving the 12-month increase to 4.2%. Malaysian CPI inflation held steady at 1.4% in August.
Australia’s index of leading economic indicators rose 2.2% in July, which was an improvement from May and June but still implying sub-trend economic growth just ahead.
U.S. mortgage applications edged down 0.2% last week after a sharp rise in the week of September 7. The 30-year fixed rate mortgage rate slid another 3 basis points to a record low of 3.72%. The latest round of Fed quantitative stimulus seeks in part to promote recovery in housing. U.S. housing starts and building permits data are due today at 12:30 GMT. Remarks last night by K.C. Fed President Esther George indicated reservations against the latest round of quantitative easing. She’s not a voting member of the FOMC this year but will be one in 2013.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England minutes, euro area construction, Japanese monetary policy
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