Yen Reacts Adversely after BoJ Decisions

January 22, 2013

The yen lost 1.1% on balance against the dollar overnight.  The U.S. currency is otherwise down 0.6% against the kiwi, 0.5% versus the Australian dollar, 0.4% relative to the Swissie, 0.3% against sterling, and 0.1% against the euro.  The yuan and loonie are unchanged against the greenback.

Share prices fell by 1.1% in the Philippines, 0.6% in India, 0.5% in China, Indonesia and South Korea, and 0.4% in Japan and Malaysia.  The German Dax has also lost 0.4%, and the Spanish Ibex is off 0.3%.   The British Ftse is unchanged, while the Paris Cac has dipped 0.2%.

10-year sovereign debt yields are down a basis point in the U.K. and Japan but up a basis point in Germany.

In commodities, oil is steady at $95.52 per barrel.  Gold has edged up 0.2% to $1697 per barrel.

The Bank of Japan did not spring any surprises, and its decisions to stimulate were not all taken unanimously. 

  • The overnight interest rate target remains at zero to 0.1% where such has been since October 2010.
  • An open-ended asset purchase method was introduced but not to be used before January 2014.
  • The parameters for asset buying in 2013 were left unchanged.  The total at end-2013 will be JPY 101 trillion.
  • Price stability was redefined at a higher 2% and assigned “target” status from “goal” status.  But the BOJ retains considerable latitude in deciding how 2% should be achieved without undue collateral damage.
  • A proposal to enforce the 2% target more mechanistically was rejected by a vote of 8-1, and two of the nine policy makers dissented from the decision to introduce asset buying without a termination date in 2014.
  • A joint statement released by the Abe Cabinet and the Bank of Japan enumerated obligations of the government (e.g. structural reforms) as well as of the central bank in the quest to end deflation.
  • New price and inflation forecasts were released, which the BOJ routinely does on a quarterly basis.  GDP is projected to rise 1.0% in the current fiscal year, 2.3% in fiscal 2013, and 0.8% in fiscal 2014.  Core CPI is forecast to drop 0.2% this fiscal year, then rise 0.4% in fiscal 2013 and 2.9% in fiscal 2014.  Excluding the impact of planned consumption tax increases, core CPI is expected to rise by 0.9% in the year to March 2015 (FY14).

Japanese supermarket sales recorded a 1.5% drop between December 2011 and December 2012.

Japan’s all-industry index slid 0.3% in November, as a 3.8% increase in construction was mitigated by drops of 1.4% in industrial output, 0.3% in service-sector production, and 0.2% in public administration.  The all industry index in October-November was 0.3% lower than its 3Q12 level. 

Japan’s index of leading economic indicators was revised upward 0.2 percentage points to 92.1 in November.  Such printed at 92.8 in October.

The ZEW Institute released January observations for investor sentiment toward Germany and the Ezone.  The German ZEW expectations index rose to 31.5, best since May 2010, from 6.9 in December and minus 15.7 in November.  The current conditions index was 7.1 in January, up from 5.7 in December and 5.4 in November.  Euroland’s ZEW expectations index of 31.7 followed scores of +7.6 last month and minus 2.6 in November, while the index for current conditions in the euro area was at minus 75.3, 4.6 points better than in December.

British public financial figures showed a December public sector net borrowing requirement of GBP 13.208 billion in December, near expectations.

The Confederation of British Industries monthly index of industrial trends deteriorated 8 points to a reading of minus 20 in January.  Danish retail sales were 3.5% lower than a year earlier in December.

Spain’s government held another successful bill auction.  Spanish house prices last quarter dropped by 2.2% from 3Q and by 9.8% on year.  Spain’s trade deficit narrowed marginally to EUR 1.41 billion in December.  Portugal’s current account deficit was unchanged in November at EUR 290 million.

The French index of leading economic indicators rose 0.5% in November, reversing a 0.4% decline in October.  The coincident index was unchanged in the latest month. 

Ezone finance ministers in Brussels named Dutch Finance Minister Dijsselbluem as the new head of the group, succeeding Juncker.  A deal on a bailout package for Cyprus is expected to be finalized in March.

Canadian retail sales rose by 0.2% on month and 1.4% on year in November.  Excluding autos, such fell 0.3% on month but rose 0.6% on year.

Turkey’s central bank left its 5.5% repo rate unchanged as expected but cut the overnight rates by 25 bps.

In the U.S. House Republicans agreed to move the debt ceiling deadline back to May 19. 

The Chicago Fed National Activity Index slid 0.25 points to a reading of 0.02 last month.  U.S. existing home sales and the Richmond Fed manufacturing index are due at 15:00 GMT.

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

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