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!

[rffrydr]

Industrial production up .7 vs. expectations of .2:

http://www.iht.com/articles/ap/2007/01/30/business/AS-FIN-ECO-Japan-Industrial-Production.php

This is the key long-term indicator when it comes to Japan at a key time. Lower household spending was dismissed as weather artifact.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

December retail sales for Japan were disappointing but the rubber band is now getting very overstretched:

http://www.softwarenorth.net/cot/current/charts/JY.png

As I also discussed before, having a long position in Yen may also be a good hedge for stocks or anything that takes advantage of the Yen carry trade.

[rffrydr]

EUR/NZD divergence is confirming this trend.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

It's bouncing:

http://www.futuresource.com/charts/charts.jsp?s=EUJYY&o=&a=V%3A60&z=610x300&d=medium&b=bar&st=

Aussie negative inflatiion reading in combo with NZ (premiere carry) slowdown and British "pause"--all jumped on by their respective authorities started the ball rolling. The long slow churn in Japan has caught the trade looking right when the surprise, as it always does, came out of left field.

Now the G7 and BOJ meeting the week after have complemented this. Fixed period of "uncertainty" so close to the end of last year's leverage up--this could be a big blink if nerves go soft.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Thanks rffrydr.

That timeframe sounds about right. I have been looking for some kind of short-term reversal in early February. For now, however, the equity rally should continue for the rest of next week and probably into the first week of February.

[rffrydr]

Feb 8th 9th G7 meeting: coordinated rate rises, esp. in emerging markets got us started last April. Eyes open.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=38b06eb5-1a7a-4ead-a305-99379d24a04d
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Well, today we see a pause in the decline of the Yen - which all began when lower-than-expected inflation data was released last night in Australia.

The structrual decline of the Yen is still on, however - spurred on by the three following factors:

1) Continued disappointment over consumer spending and GDP growth in Japan

2) Carry trade

3) Japanese pension funds and private investors have - in recent months - have begun to allocate their equity investments in a global manner. And it looks like this trend is a structural one - thus weakening the Yen further going forward.

4) Demographics: Japan is projected to start running a current account deficit in five years time because of the lack of growth in its labor force and productivity, as well as higher consumption as folks retire.

What the technical analysts are looking at right now:

http://www.traderdaily.com/column/4/4064.html

The Yen will also continue to remain weak as long as global financial assets do well - which will thus make the Yen a good hedge for a decline in the price of global equities and other securities.

[HenryTo]

Another day, another decline in the Yen.

That being said, the Yen is now extremely oversold and the odds of a significant bounce is starting to rise.

[rffrydr]

Fukui is worried to death of DEflation. And the sooner he can put a cost on money the sooner he can say things have "normalized."--preserving the weak yen, of course.

It's bad enough here but with elections in the summer you don't expect any action then.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

http://www.economist.com/finance/displaystory.cfm?story_id=8459480

Amazing folks at the BoJ are worried to death about inflation when the economy has been mired by deflation over the last 15 years - with the evidence still suggesting so over the last few months!

Also, quoting the Economist:

The Cabinet Office gives warning that the once-lauded savings rate, which peaked at 23% of household income in 1973, is now down to a Western-like 2.7%. With retirement beckoning for so many, there is a limit to how far Japan's ageing people are prepared to raid their piggy banks today. And since consumer spending accounts for 57% of Japan's GDP, growth will remain puny until companies spread more of their profits around.

Unlike the US - where statistics don't take into account entrepreneurs who invest their time into their own businesses and so forth - Japan's entreprenur sector is miniscule compared to the US's. This suggests that Japan's official savings rate is more reflective of how much Japanese individuals are physically saving as opposed to how much Americans are saving.

[rffrydr]

The stream of disappointing indicators may have been been discounted for a time with last weeks downward adjustment to GDP. Already JGB's have spiked up and unless you attribute this to backwards causation from the Treasury market it may be something else is going on.

Economic statistics in Japan are a perpetual experiement and may mask a more general confidence seen the amazine pick-up in some realesate prices for example.

Tanken survey has room to surprise this week.

And remember BOJ feels money is far too loose on a strategic basis. If they don't raise on the 18th the may still feel compelled to reassert their DIRECTION.

Stay tuned.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Japanese retail sales doing squat:

http://www.marketwatch.com/news/story/japan-oct-retail-sales-rise/story.aspx?guid=%7B3172DFC9-2E07-48C2-9C5F-1CFDC71EA4ED%7D

Tight labor market vs. stagnant wages. JGBs showing no worries of Dec. rate hike. Liquidity pours on....

[HenryTo]

Latest comments on the Fukuma speech. The BoJ would be crazy to hike here - given the weakness of bank stocks (and the Nikkei) as well as another downgrade of economic growth. And what's wrong with a little bit of real estate price increases - given that the Japanese real estate industry had been in a slump for over 15 years prior to this year??

Moreover, the weakness in Japanese demographics should ensure that rates will continue to stay relatively low at least for the rest of this decade.
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No preset idea for future rate hike-BOJ's Fukuma
Fri Nov 24, 2006 12:55 AM ET

(Adds comments, background)

TOKYO, Nov 24 (Reuters) - Bank of Japan Policy Board member Toshikatsu Fukuma said on Friday the central bank would act cautiously without any preset ideas on the timing of future rate hikes.

Fukuma pointed to both upward and downward risks in the economy, citing risks of a slowdown in economic expansion and rises in prices as well as risks of excessive rises in asset prices.

"As for future monetary policy management ... we will make a cautious judgment without any preset ideas, based on economic and price conditions, while communicating with the market," Fukuma said in a speech to local business leaders in Mito city in Ibaragi prefecture, north of Tokyo.

Financial markets showed little reaction to his comments.

Traders expect the BOJ to lift the overnight call rate target to 0.5 percent from the current 0.25 percent by March, with most seeing a move in January. But speculation that the central bank could move in December has been bubbling in the past week or so.

The BOJ ended an era of zero rates and raised the rate for the first time in six years in July.

Fukuma, a former adviser to trading house Mitsui & Co. Ltd with a background in corporate finance, repeated the BOJ's mantra that it was highly possible for the Japanese economy to achieve sustainable growth under price stability. "One thing to note as the economy achieves sustainable growth is that if the economy expands further, even at the current growth rate of around 2 percent, it could affect prices as well as asset prices," Fukuma added,

He also noted there have been some speculative movements in the real estate market.

"While we don't need to be vigilant immediately, we need to carefully watch asset price movements," Fukuma said.

The economy grew an annualised 2.0 percent in July-September, double the pace the market had expected, but the breakdown showed sluggish consumption and tame growth in wages.

Citing weak consumption, the government downgraded its view of the economy in a monthly report for the first time in almost two years on Wednesday.

Against such a background, Fukuma said the positive impact from brisk corporate activity has not filtered through to the household sector as much as he had hoped, blaming bad weather in the summer for dampening personal consumption.

"We also need to be aware of risks that economic expansion and rises in prices could stall," Fukuma said.

[rffrydr]

The pressure on the carry is being confirmed in the Swiss Franc, the "other" carry currency.

http://www.futuresource.com/charts/charts.jsp?s=EUSFY

Also the underperformance of the Aussie and NZK/JPY. BOJ has instructed exporters to increase their hedge ratios--if these relationships hold into next week could be interesting in the junk spreads--and dare I say....

But volumes are thin today and normal time before thanksgiving to unwind positions. Next week will tell.

[rffrydr]

Commercials have been accum. Yen--good spike today.

May just be thin holiday but looks like pointing in the right direction--on the euro spread as well.
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Today is the Tomorrow you worried about Yesterday!