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Pro-Inflation Policies Show Signs of Helping the Japanese Economy

May 10, 2013 by Leave a Comment

But in the last few months, the nation’s new prime minister, Shinzo Abe, has pushed policy makers and other officials to take bold steps to revive one of the world’s largest economies. Their handiwork was evident on Thursday when the Japanese yen hit 100 to the dollar for the first time in four years.

Normally a weakening exchange rate might be taken as a sign of decline. The yen has fallen nearly 14 percent against the dollar this year, and no currency has fallen more except the Venezuelan bolívar. But in Japan’s case, it is a sign that the policies put in place by Mr. Abe and Haruhiko Kuroda, chairman of the Bank of Japan, are starting to work. A weaker yen makes Japanese exports more competitive around the world.

The most immediate impact of the weaker yen has been the boost in profits of the major exporters. This week, the Toyota Motor Corporation reported net income in the last 12 months jumped threefold, and Sony produced an annual profit for the first time in five years. Both companies forecast further profit increases largely because of the weaker yen.

Perhaps more important, particularly for the citizens of Japan who have suffered from a long period of falling wages and prices, the yen’s move is expected to kindle inflation in the once moribund economy.

Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero — which seemed to be having little effect in reviving growth — the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent.

“This is new territory for the Bank of Japan, and the market is responding to that,” said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. “The Bank of Japan announced very strong monetary policy easing at the start of April.”

However, he said the more immediate trigger for the rate to cross Thursday’s threshold was signs of strength in the United States economy.

Amari Akira, Japan’s economic revitalization minister, quickly focused attention away from Japan’s role in weakening its own currency, in a bid to stave off accusations that Japan was manipulating the yen to bolster its exports. Rather, he said the dollar’s strength reflected investors’ hopes for an economic comeback in the United States.

“It’s the dollar that’s in demand because economic recovery in America is gathering steam,” Mr. Amari said at a morning news conference.

The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years.

By mid-morning in Tokyo on Friday, the dollar was trading at 101.09 yen.

Japanese officials say the policy does not overtly pursue a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways.

The depreciation of the yen may be a step in the right direction as the authorities try to stimulate some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient.

As Mr. Abe has tried to put a new focus on reviving the economy, he has also fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Mr. Kuroda, who shares Mr. Abe’s economic philosophy.

Hiroko Tabuchi reported from Tokyo and Graham Bowley from New York.

Article source: http://www.nytimes.com/2013/05/10/business/dollar-breaches-100-yen.html?partner=rss&emc=rss

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Faltering Budget Talks Hit Markets

December 20, 2012 by Leave a Comment

Asian shares and United States stock index futures fell sharply in early trading on Friday after a Republican proposal to fend off a fiscal crunch failed to get enough support, deepening uncertainty over prospects for negotiations to avert automatic spending cuts and tax increases set to start in January.

“Markets dislike signs of further delay in talks, with the risk that a deal may not be reached by the end-of-the-year deadline,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo. “It clearly hit risk sentiment.”

Assets that carried a risk of devaluation were sold off, from stock shares to oil to currencies like the Australian dollar and the euro, which fell while the Japanese yen rose slightly.

Futures on the Standard Poor’s 500-stock index fell 1.5 percent on worries over the breakdown.

On Thursday, global shares rose as lawmakers in Washington continued in their budget negotiations, but gold prices tumbled to their lowest level since August on a burst of year-end selling.

Wall Street rebounded from early losses, after the House speaker, John Boehner, said he would keep working on a solution to the budget negotiations. Republicans in the House pushed ahead with their own plan to avoid a series of tax increases and spending cuts expected next month, complicating negotiations with the White House. President Obama has vowed to veto the plan, which would raise taxes only on the wealthiest Americans.

“Speaker Boehner went on the air and basically told us he doesn’t like what the president’s doing or not doing, and the markets rallied on that, which was kind of weird,” said Stephen Guilfoyle, a trader at Meridian Equity Partners in New York.

When that plan fell apart, well after the close of market trading, stock index futures, and Asian shares went into a swoon.

Investors have hoped for an agreement soon, but progress has been slow.

The lack of progress in Washington kept most markets in a virtual holding pattern. Currencies held to tight ranges in thin preholiday trade, and the euro seesawed against the dollar. In commodities markets, crude oil futures edged higher while Brent futures slid in choppy trade.

The Dow Jones industrial average was up 59.75 points, or 0.45 percent, at 13,311.72 on Thursday. The Standard Poor’s 500-stock index was up 7.88 points, or 0.55 percent, at 1,443.69. The Nasdaq composite index was up 6.02 points, or 0.20 percent, at 3,050.39.

NYSE Euronext, the operator of the New York Stock Exchange, had the biggest gains on Thursday, surging 34.1 percent to $32.25, after the IntercontinentalExchange said it would buy the company for $8.2 billion. Intercontinental rose 1.4 percent to $130.10.

The MSCI world equity index, which has risen steadily over the last five weeks on optimism that a budget deal would clear the way for stronger growth in 2013, was up 0.2 percent to near 343 points on Thursday. It remains near levels last seen in July 2011.

In Europe, shares stuttered as indexes approached levels considered overbought. The FTSEurofirst 300 closed virtually unchanged at 1,142.80 points.

In currency markets, investors struggled to gauge developments on the American budget talks against a backdrop of generally positive economic data in the United States.

The euro recouped earlier losses to gain 0.1 percent at $1.3226. On Wednesday, the euro hit an eight-and-a-half-month high of $1.3308.

In the oil market, crude in the United States settled 0.17 percent higher at $90.13 a barrel, after trading $89.26 to $90.54 a barrel in a thin market.

Interest rates were lower. The Treasury’s benchmark 10-year note rose 2/32, to 98 14/32, and the yield fell to 1.80 percent from 1.81 percent late Wednesday.

Article source: http://www.nytimes.com/2012/12/21/business/daily-stock-market-activity.html?partner=rss&emc=rss

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High & Low Finance: Hungary Blames the Banks

September 30, 2011 by Leave a Comment

So it was in the United States. To allow people to buy homes they really could not afford, banks offered mortgages with artificially low monthly payments in the early years. When home prices fell, the mortgages blew up.

So, too, it was in Hungary, where home mortgages were relatively rare until the banks made it possible for buyers to avoid high interest rates, but with a big risk.

Mortgages denominated in foreign currencies became wildly popular, because that way borrowers could get low interest rates, and thus afford to buy homes that would otherwise be out of reach. But then the local currency, the Hungarian forint, plunged in value, and homeowners faced rapidly rising monthly payments. They owed more forints than they had borrowed.

In the United States, the sanctity of contracts has generally prevailed. The banks have been forced to pay multibillion-dollar penalties for bad behavior, but that does little for the anguished homeowners.

In Hungary, the populist government has decided it is the banks — mostly foreign-owned — that should suffer. Under a new law, signed by Hungary’s president this week, persons with loans denominated in Swiss francs can pay them off using an exchange rate of 180 Hungarian forints to the franc — about a 25 percent discount to the current market rate of almost 240 forints. There are similar bargains offered on loans denominated in euros and Japanese yen.

It is not clear how much this will really help homeowners. Few of them have the money on hand to pay back their loans, and to get the money they presumably would have to borrow from banks. Andras Simor, the governor of Hungary’s central bank, estimates that only one-fifth of borrowers will be able to take part.

The move has outraged the financial establishment of Europe. It represents a serious breach to the patterns followed in much of the world since the financial crisis burst open three years ago. Banks have lost a lot of money, and been bailed out, but bank executives have done quite well. Those who lent money to banks have generally gotten all their money back. Customers by and large have been forced to bear the brunt of their behavior, whether or not there was evidence the banks had misled them.

In Hungary, the lure of foreign currency loans back in 2005 was clear. Interest rates on mortgages denominated in Swiss francs were around 4 percent, while rates on forint loans could be in the double digits. Thanks to the lower monthly payments, a buyer could qualify for a Swiss franc loan who could not hope to get a loan in local currency. Soon a vast majority of mortgage loans were made in Swiss francs.

The risk was obvious. All the borrowers had income in forints, not francs. If the forint lost value, their loan payments could multiply.

Now the government claims that banks misled borrowers. The extent to which that is true is hard to gauge. But there is no doubt that a widely voiced theory was that because Hungary was a growing economy, its currency should appreciate against the staid old currencies of Western Europe. And that is exactly what happened in the years running up to the credit crisis. Those who failed to take out mortgages in Swiss francs or euros looked foolish.

When the forint began to lose value, banks did try to ameliorate the situation. In 2009, they offered to extend loan periods, so that homeowners could make lower monthly payments that would last for more years.

Earlier this year, with the forint around 220 to the franc, the banks came up with a plan that was reminiscent of the pay-option loans that helped to create the American financial mess. Borrowers could choose to make payments as if the forint were at 180 to the franc, and continue to do that through 2014. That would leave many with manageable payments, since most of the loans were taken out at exchange rates from 140 to 180 forints to the franc.

The savings from those lower payments would, however, simply be added to the principal of the loan. It was negative amortization, likely to postpone the pain but not alleviate it.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=07f15f0b61854df126ddd0c33eae026b

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Stocks Barely Rise After Long Losing Streak

August 22, 2011 by Leave a Comment

Coming off four straight weeks of brutal losses, stocks ended barely higher on Monday, as investors’ attention turned to the Federal Reserve’s annual symposium later this week in Jackson Hole, Wyo.

After rising earlier in the session, stocks gave up most of their gains in the afternoon. Some analysts said that they expected the Fed chairman, Ben S. Bernanke, to react to recent signs of weakness in the economy by announcing further if limited economic stimulus when he speaks on Friday at the symposium.

Measures of global financial stress which have been rising recently, like the Japanese yen, Swiss franc and United States Treasury bond prices, eased. But in a sign that deep worries about global growth and Europe’s debt crisis still remain, gold kept up its rapid ascent of recent weeks, approaching $1,900 an ounce. .

“Gold continues to earn its place among investors who want to be protected against growth risk and Europe risk,” said Mark d. Luschini, chief investment strategist at Janney Montgomery Scott.

Oil, however, was buffeted by events in Libya as investors anticipated a return to international markets of one of the world’s biggest oil producers.

Brent crude oil prices, the European benchmark price for oil, initially dropped more than 3 percent, but ended New York trading basically flat at $108.42. The American benchmark crude, which is less driven by events in the Middle East, rose $1.86 to $84.12.

On Monday, the Dow Jones industrial average began the day higher after optimism on Libya. But by the end of the day, it finished ahead only 37 points, or 0.34 percent, at 10,854.65.

The Standard Poor’s 500-stock index, which opened higher but flirted with losses midday, close up 0.29 points, or 0.03 percent, at 1,123.82. The Nasdaq composite index was 3.54, or 0.15 percent higher, at 2,345.38.

Shares in Goldman Sachs ended down at 4.7 percent. They fell sharply before the close after Reuters reported that its chief executive, Lloyd Blankfein, had . Shares of Hewlett-Packard, which had suffered in recent sessions, ended up 3.6 percent.

Last week, stocks in general fell more than 4 percent last week as Wall Street experienced more wild swings, including a 419-point drop for the Dow on Thursday.

Some analysts said that the recent sell-offs now presented a buying opportunity for investors.

“We suspect that the recent market downdraft will eventually be viewed as a buying opportunity for those who are willing to look beyond the most recent data point,” Barclays Capital analysts said in a research note.

Traders are now focusing their attention on weekly jobless claims data due Thursday. But the main event will be Mr. Bernanke’s assessment of the United States recovery on Friday.

Some Wall Street analysts expect the Fed to take some action — perhaps the lengthening in maturity of the bonds it holds, in order to depress longer-term interest rates.

“We do not expect Bernanke in his Aug. 26 address to unilaterally announce the start of a bold new easing initiative,” Neal Soss, an economist at Credit Suisse, wrote in a report. “But we are looking for the chairman to hint strongly that further monetary policy accommodation is on its way.”

It was in Jackson Hole last year that, faced with similar signs of an economic slowdown, Mr. Bernanke signaled a second round of large-scale bond purchases, or quantitative easing, called QE2 for short. After the program was announced, stocks rose about 28 percent between August and February this year.

Still, many investors remain nervous about Europe and its debt problems. Even after Monday’s slight rise, the S. P. 500 was down 17.6 percent from its recent peak on April 29, close to bear market territory, which is officially defined as a drop of 20 percent.

In Europe, where losses in recent sessions have been as severe as in the United States, stocks were mixed. In Britain, the FTSE 100 closed up 1.1 percent. In Germany, the DAX was down 0.1 percent.

Some analysts warned it would not take much to push the markets back into negative territory.

“We’re just seeing a natural reaction after the sharp falls at the end of last week,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities in London. “But the situation is still very uncertain and fragile.”

Clifford Krauss, Julia Werdigier and Bettina Wassener contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=a17246fadf9874b528ad85d4f6291b52

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