Uchida to the Rescue
August 7, 2024
One of the most effective policy tools to combat disorderly financial market conditions can be simple yet convincing rhetorical commitment by a monetary official not to allow runaway speculative frenzy that may jeopardize basic policy objectives. The singular example of such an act happened on July 26, 2012 when the European Central Bank President Mario Draghi in the midst of a spiraling European fiscal debt crisis pledged to do “whatever it takes” to preserve the European Monetary Union that bands many regional economies under one central bank and a single currency.
In a wide-ranging speech today, Bank of Japan Deputy Governor Shinichi Uchida delivered the following reassurances to a scared Japanese and global financial community:
Since market developments are naturally more rapid than real economic developments, attention is warranted on the risk of current developments in financial and capital markets feeding into the real economy.
Movements in stock prices affect corporate investment and private consumption, through factors such the wealth effect, and ultimately the outlook for economic activity and prices, and they are therefore a key factor in determining the conduct of monetary policy.
The correction of the yen’s depreciation affects the conduct of monetary policy.
If the outlook, the upside and downside risks to the outlook, or the likelihood of realizing the outlook change as a result of these market developments, the path of the policy interest rate will certainly change.
Since recent developments in financial and capital markets at home and abroad have been extremely volatile, the Bank is monitoring developments in these markets and their impact on economic activity and prices with utmost vigilance, and it will conduct monetary policy as appropriate. Let me reiterate my view that the Bank needs to maintain monetary easing with the current policy interest rate for the time being.
More than any data news, Uchida’s timely promise not to reignite the disorder that engulfed world financial markets this past Monday by tightening Japanese credit policy further helped to extend yesterday’s healing session. Stock markets in Asia closed up 1.2% in Japan, 2.8% in South Korea, 1.4% in Hong Kong, 1.1% in India, 1.6% in Singapore, 1.2% in Indonesia and 3.9% in Taiwan. European share prices show gains exceeding 1%, and so do the U.S. SPX and Nasdaq futures.
The dollar overnight rose another 2.0% against the yen overnight and gained 1.3% versus the Swiss Franc, while falling back 1.6% against the Mexican peso and 1.1% and 0.7% relative to the New Zealand and Australian dollars.
Ten-year sovereign debt yields have climbed back up by nine basis points in Germany, eight basis points in France, Italy and Spain, and four basis points in the U.K. and United States.
The price of Bitcoin rebounded by a further 1.7%, and West Texas Intermediate oil is 1.9% higher.
Japanese international reserves dropped $12.4 billion dollars in July, and intervention support for the yen by the Ministry of Finance during the month appears to have exceeded $30 billion. Japan’s index of leading economic indicators dropped to a 14-month low in June, while the index of coincident economic indicators slid back to a 4-month low.
China’s trade surplus unexpectedly declined from $99.1 billion in June to $84.65 billion last month, reflecting an acceleration of import growth juxtaposed against lessening export growth. The year-to-date surplus of $518 billion, however, remains 5.7% larger than a year earlier.
South Korea’s current account surplus in June of $12.26 billion was its largest in 81 months.
The French current account deficit of EUR 8.4 billion in the first half of 2024 was considerably smaller than a gap of EUR 17.9 billion in the first half of 2023.
A EUR 20.4 billion seasonally adjusted German trade surplus in June was its narrowest in eight months, but the surpluses in the first and second quarters were still similar in size. A separate German data report this Wednesday for industrial production revealed a 1.4% bounce-back in June following a 3.1% tumble in May. Compared to a year earlier, production fell by 3.9%.
Labor costs in New Zealand experienced a slightly higher-than-forecast 0.9% increase above the prior quarter’s level, but the 3.6% year-on-year increase was the smallest in two years. The jobless rate declined from 4.9% in the first quarter to 4.6% last quarter.
Last week’s 30-year U.S. fixed mortgage rate of 6.55% was down from 6.82% in the prior two weeks and its lowest weekly level since the week of May 5, 2023. Cheaper mortgage financing goosed mortgage applications by 6.9% last week.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: BOJ Deputy Governor Ushida's speech excepts, Chinese trade balance, German industrial production and trade balance, New Zealand unemployment and labor costs
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