JAPAN

[rffrydr]

Core rate up .5%; 3 in a row:

"Mitsubishi UFJ Securities senior strategist Naomi Hasegawa said remarks this morning by Prime Minister Junichi Koizumi fueled conjecture that the central bank will soon end its present policy.

'[Changes in] consumer prices are coming in above zero and we are seeing signs of getting out of deflation,' Koizumi told a parliamentary committee.

His comments were his most positive yet on recent indications that the economy is winning its battle with falling consumer prices. Previously, Koizumi had insisted that it was too soon to say that the economy was coming out of deflation."


Bonds and stocks were short going in. End-of-day showed resiliency, (complaceny?)

Hey Henry, Devil's advocate: with Japanese debt at a Godzilla-sized 160% GDP on the worlds fastest aging population (and most afraid of foreign workers) do they have any choice BUT to reflate their way out? And politicians want a decade for "reforms."

An end to quantiative easing may be announced at the end of Japanese Fiscal Year--but this could take a long, long time to play out. Markets 1st "verdict."
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Today is the Tomorrow you worried about Yesterday!

[dash]

In as much as the Yen carry trade is an important gauge of whether 'risk contagion' is spreading, it's interesting to see that Dollar/Yen hasn't tested the March low. In fact the series of higher highs, and higher lows still seems to be intact:

http://tinyurl.com/364nnb

[HenryTo]

Yes, you're right. Japan has been relocating its manfactuaring to China in a big way since early 2003:

Here is an article discussing Japanese corporate governance and why Japan still isn't a good buy despite its stock market being the most undervalued in the developed world:

http://www.bloomberg.com/apps/news?pid=20601084&sid=ay.myHJUEl3Y&refer=stocks

[rffrydr]

Japan has been loosing market share because that's what happens when you dismantle the Keiretsu and reinvent them... in China!

http://en.wikipedia.org/wiki/Keiretsu

Long before China became the world's factory they became Japan's.

The reason they're loosing the '05 US investors is that 1. Yen weakness 2. Their market just isn't any fun.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bank Credit Analyst on the Yen:

http://www.bankcreditanalyst.com/public/story.asp?pre=PRE-20070717.GIF

[rffrydr]

When is a stock market not a stockmarket?

[rffrydr]

This shift to japan may have no longer be the "alternative investment" these managers thought it would after last night:

http://www.marketwatch.com/news/story/fund-managers-say-credit-risk/story.aspx?guid=%7B15245102%2D2255%2D4A38%2D9706%2D0CB959EA5E65%7D
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

An older article. Myron Scholes has already opened an office in Japan and is going to try to take advantage of the boom in alternative investing in Japan:

http://www.bloomberg.com/apps/news?pid=20601101&sid=aMqG1zdWd6f8&refer=japan

There is a great chapter on Myron Scholes and Platinum Grove Asset Management in Peter Bernstein's new book "Capital Ideas Evolving."

[HenryTo]

Hi Geoffrey,

I would give it another week or so. Once liquidity comes back next week, you never know what it's going to do. My inclination is to only sell the Euro-Yen on a gap up, primarily because of the huge carry disadvantage that you get when you sell the Euro vs. the Yen. If you don't get the gap up, then you don't short.

Just like any other "financial dislocation" strategy, however, this should only be done as a hedge or in moderation...

Take care,

Henry

[Geoffrey]

" The BOJ is now expected to hike rates by 0.25% to 0.75% during its August meeting"

Thanks Henry. How does selling EURJPY look to you from here?

[HenryTo]

Deputy Governor of the Bank of Japan commenting that Japanese interest rates should not remain low for long. The BOJ is now expected to hike rates by 0.25% to 0.75% during its August meeting:

http://www.bloomberg.com/apps/news?pid=20601101&sid=ayq3rov59ldM&refer=japan

[HenryTo]

Normally should be a bullish event for both the currency and the bonds but the Moody's upgrade is coming in a little late, given that S&P has already upgraded Japan's sovereign debt on April 23:

Japanese govt bond ratings under review for possible upgrade - Moody's

http://www.forbes.com/markets/feeds/afx/2007/07/04/afx3883483.html

[rffrydr]

It doesn't look like japanese repatriation had much to do with it:

http://www.futuresource.com/charts/charts.jsp?s=SJBAU07
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

BOJ on hold again. They may hike in July's meeting, but most likely not until August. Whether they hike in July will depend on the quarterly Tankan survey to be released on July 2nd:

http://www.bloomberg.com/apps/news?pid=20601087&sid=avokkP1g3ODk&refer=home

[HenryTo]

Geoffrey, thanks for the links.

Japan surprises on wholesale prices. My guess is that a rate hike in August is now inevitable:
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Japan May wholesale prices up, rises spreading
Tue Jun 12, 2007 2:17 AM ET

By Yoko Nishikawa

TOKYO, June 12 (Reuters) - Japanese wholesale prices rose slightly more than expected in May from a year earlier, with increases spreading across more products, reaffirming expectations of an interest rate hike as early as August.

The corporate goods price index (CGPI), which tracks trends in wholesale prices, rose 2.2 percent in May from a year earlier, just above economists' median forecast of a 2.1 percent rise, data from the Bank of Japan showed on Tuesday.

It was the 39th straight month of annual gains and the May index hit 102.8, the highest level since January 2000 when the current calculation method began.

"The data is fairly strong when you look at the details," said Seiji Adachi, senior economist at Deutsche Securities.

He noted a 1.1 percent rise in prices of final goods -- a sign that companies are gradually passing higher wholesale prices on to consumers.

"The data itself may not directly affect the Bank of Japan's monetary policy, but it is considerably positive for them," Adachi said. "It is increasingly likely that the next interest rate hike will come in August-September."

The BOJ is widely expected to keep the key overnight call rate target unchanged at 0.5 percent at a two-day policy board meeting that ends on Friday.

Worries about a BOJ rate hike in the coming months, as well as a rapid rise in overseas yields, have prompted a sharp sell-off in Japanese government bonds over the past three weeks.

Yields on two-year notes, the most sensitive to changes in the monetary policy outlook, struck a decade high as nervous investors shunned bonds with shorter maturities.

Many market participants expect a rate hike to 0.75 percent as early as August. By then, they say, the BOJ could confirm that prices are on the rise, risks from external factors are waning and Japan's upper house election in July is out of the way.

A separate government consumer confidence survey showed that 53.5 percent of over 3,800 households polled expected prices to rise over the next year, up sharply from 45.6 percent in April, as prices of energy products rose.

BROADER GAINS

Compared with the previous month, the CGPI rose 0.5 percent in May, matching the market's consensus forecast.

Higher international commodity prices as well as rises in prices of chemicals, steel and nonferrous metals were behind the advance in wholesale prices in May. The weakness in the yen also continued to pushed up import prices.

After hitting a peak of 3.6 percent year-on-year growth in August and September last year on high energy costs, the pace of rises in the wholesale price index slowed as oil prices stabilised somewhat.

But a Bank of Japan official told reporters that prices of more than half of 905 products surveyed for the index rose in May for the first time under the current calculation method.

"The pace has slowed to 2.2 percent, but now rises are spreading to more products," he said.

Japan's consumer confidence index remained steady at 47.3 in May on an unadjusted basis, largely unchanged from 47.4 in April. A reading above 50 suggests consumer optimism, the government survey showed.

Despite continued falls in consumer prices and wages, recent data showed the jobless rate fell to a nine-year low and household spending grew stronger-than-expected in April, setting the stage for a rate hike later in the year.

BOJ officials say consumer prices will pick up in the long run on the back of a sustained recovery in the world's second-largest economy, which grew an annualised 3.3 percent in the first three months of this year.

[Geoffrey]

I think these are good.

http://www.forexfactory.com/calendar.php

http://fxtrade.oanda.com/resources/economic_calendar/ec.pdf