Significant Monetary Policy Changes in Japan and Russia

October 31, 2014

Quantitative and qualitative monetary stimulus was expanded sharply in Japan by a 5-4 vote, with the central bank governor and two deputy governors siding with the majority.  The impact of the decision to boost annual JGB buying from 50 trillion yen to 80 trillion yen, triple holdings of ETFs and J-REITS, and lengthen the average maturity of the central bank JGB portfolio by up to 3 years to 10 years was augmented by a separate action from Japan’s pension fund to double the weight of Japanese equities in its asset portfolio.

The Bank of Japan released new macroeconomic projections, cutting projected fiscal 2014 growth in half to 0.5% and reducing forecasts on core CPI inflation for both this fiscal year (FY14) and FY15.  Excluding fresh food and the direct effect of consumption tax hikes, inflation is put at 1.2% in FY14 and 1.7% in FY15, which also is less than the 2.0% objective.

Japan’s Nikkei shot up 4.8% to a 7-year high of 16,414 at the close.  Dollar/yen also climbed to a 7-year high of 111.9, 2.2% above Thursday’s close.

To defend the beleaguered ruble, Russia’s central bank increased its benchmark interest rate by 150 basis points to 9.5%.  The rate is now 400 basis points higher than prior to a March 3rd hike of 150 bps.  There were also increases of 50 bps each in April and July. 

Russia’s PMI for manufacturing eased 0.1 to 50.3 in October.  That was the fourth straight reading between 50.3 and 51.0, signaling near stagnation.

The dollar is unchanged against the yuan and stelring, up 0.3% versus the Swiss franc and 0.2% relative to the euro but down 0.4% relative to the kiwi and 0.1% each versus the loonie and Aussie dollar.

Share prices in the Pacific Rim, besides the aforementioned 4.8% leap in Japan, closed up 1.9% in India, 1.6% in China, 1.3% in Hong Kong, 1.2% in Singapore, and 0.9% in Australia.  In Europe, stocks have gained 2.4% in Paris, 2.2% in Frankfurt, 2.0% in Italy and Spain and 1.4% in London.

Gold plunged 2.1% to $1,123.90 per ounce.  Oil fell 0.8% to $80.50 per dollar.

A bunch of Japanese economic statistics were reported.

  • CPI inflation slowed to 3.2% (including the tax effect) in September from 3.3% in August and a post-tax high of 3.7% in May.  Core inflation declined to a 6-month low.  In Tokyo CPI inflation eased to 2.5% in October from 2.8% in September.
  • The unemployment rate ticked up to 3.6% in September from 3.5% in August.  There were 0.7% more jobs than in September 2013.
  • Real household spending dropped 5.6% in the year to September, and real disposable income was 5.9% lower than a year earlier.
  • Housing starts and construction orders recorded on-year drops of 14.3% and 40.3% last month. 

CPI inflation in the euro area edged back to 0.4% in October from 0.3% in September, but core inflation eased to 0.7% from 0.8% the month before and 0.9% in August. 

Euro area joblessness stayed at 11.5% in September, which was also the average for the whole third quarter.

German retail sales volume sank 3.2% on month in September after a 1.5% revival in August.  The September level was 1.7% below the 3Q mean but 2.3% above a year earlier.

French producer prices climbed 0.5% last month but posted the same 1.4% 12-month decline as in August.  French consumer spending fell 0.8% on month and rose just 0.2% on year in September.

Italian producer prices fell 1.7% in the year to September, while consumer prices in October were just 0.1% higher than a year before.  Italian joblessness of 12.6% exceeded expectations.

Australian PPI inflation of 1.2% in the third quarter was the lowest since 2Q13 and down from 2.3% in the first half of 2014.  M3 money and private credit respectively grew 8.3% and 5.4% (best in 3 months) in the year to September. 

A 0.7% rise in the U.S. employment cost index in 3Q slightly surpassed expectations.  But the latest personal consumption price deflators put inflation unchanged at 1.4% overall and 1.5% in core terms. 

Canada didn’t share in the U.S. better than expected third quarter growth.  Canadian real GDP slid 0.1% in August after no change in July.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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