Asian News

[Ichiro]

Dollar higher on rate hike expectations


By Wanfeng Zhou, MarketWatch

Last Update: 1:40 PM ET Feb 15, 2006

NEW YORK (MarketWatch) -- The dollar moved higher, but remained in narrow ranges Wednesday after new Federal Reserve Chairman Ben Bernanke signalled further interest rate hikes, but suggested they will become "increasingly dependent" on economic data

Speaking to the House Financial Services panel, Bernanke, in his first congressional appearance in his new role, said more rate hikes may be needed because of the threat of higher inflation from a strong economy and higher energy prices.

"In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur," Bernanke said.

"The speech is as expected. He opens the door basically for further interest rate hikes," said Ashraf Laidi, chief currency analyst at MG Financial Group. "It shows he totally agrees with the last FOMC statement that said short-term interest rates hikes "may" be needed."

Bernanke said economic growth remained on track despite the weak fourth-quarter GDP data. Even with high energy prices, core inflation "remained moderate, and longer-term inflation expectations appear to have been contained," he said.

The dollar fell immediately after Bernanke started speaking as some investors were disappointed he was not even more hawkish. It later recovered and was last trading up 0.3% at 117.98 yen. The euro was down 0.3% at $1.1877.
The Fed has lifted its benchmark overnight lending rates at each of its policy meetings since June 2004 to 4.5%. Financial markets have priced in two more Fed policy tightenings, to a 5.0% rate.

The rate increases have fueled the dollar's 15% bull run last year, but markets had begun to worry the dollar's yield advantage will shrink soon.

Bernanke said the Fed has come a long way in hiking rates and removing accommodation and that further monetary tightening will become much more dependent on the relative performance of the labor and housing markets.
Joel Ward, manager of the Joel Nathan ForexFund, said while Bernanke's testimony is positive in describing the general economic landscape, he didn't delve very much into the areas, namely, the current account deficit and trade balance, that are really going to drive the dollar in coming months.
With the markets focused on Bernanke's testimony, the dollar showed little reaction to a disappointing Treasury report which showed capital flows into the United States fell to $56.6 billion after hitting a revised $91.6 billion in November.

Elsewhere, the New York Federal Reserve said its Empire State Manufacturing index rose to 20.3 in February from 20.1 in January. The increase was unexpected. Economists were expecting the index to slip to 18.1.

U.S. industrial output fell 0.2% in January. The decrease in output in January was the opposite of the 0.2% gain expected by Wall Street economists surveyed by MarketWatch. End of Story

Wanfeng Zhou is a markets reporter in New York.

 

[Ichiro]

BOJ won't quickly raise rates-BOJ official quoted

Wed Feb 15, 2006 10:32 PM ET10



TOKYO, Feb 16 (Reuters) - The Bank of Japan will not immediately raise interest rates after ending its super-loose "quantitative easing" policy, a lawmaker from the ruling Liberal Democratic Party quoted a senior BOJ official as saying on Thursday.

"We do not believe that it will lead immediately to an interest rate rise," Kozo Yamamoto, head of an LDP panel on monetary policy, quoted the central bank official as telling the panel. Markets expect the central bank to end its quantitative easing policy of flooding the market with excess funds around April, and are looking for clues to future policy when the BOJ reverts to a traditional method centred on interest rates.

 

[Ichiro]

Bloomberg News

U.S. Considers Branding China as Currency Manipulator (Update1)

Feb. 15 (Bloomberg) -- U.S. Treasury officials are sounding out investors about the potential impact of naming China as a currency manipulator, people familiar with the situation said.

Treasury Undersecretary Tim Adams, in meetings in New York and Washington this month, has asked strategists, investors and academics to assess the likely reaction of financial markets in the event the department cites China in its semiannual report on exchange rates, the people said.

By talking to Wall Street firms before the report is completed, the Treasury is trying to minimize any disruption in currency, equity and bond markets, the people said. President George W. Bush's administration is under mounting pressure from Congress to act against China, which some legislators say is keeping the yuan artificially weak to spur demand for its exports.

``If the market saw the report as an end-game move toward a trade war with China, stocks and the dollar would fall a lot,'' said David Gilmore, a partner in consultants Foreign Exchange Analytics in Essex, Connecticut.

A spokeswoman from China's central bank declined to comment. Chinese policy makers have repeated that investors are now setting the yuan's level. People's Bank of China Assistant Governor Ma Delun said in an interview last month that the market is determining the rate.

Exports helped China's economy double in size in the past decade, vaulting it ahead of the U.K. last quarter to become the world's fourth largest. Exports also swelled the U.S. trade deficit with China to a record $201.6 billion, spurring calls among legislators for sanctions.

Snow

Treasury Secretary John Snow ``should call it like it is,'' Senate Banking Committee Chairman Richard Shelby, an Alabama Republican, said in an interview in Washington on Feb. 8. ``If the Chinese are manipulating the currency, as I believe they are, and he's got evidence of that, then he should say so.''

U.S. Trade Representative Rob Portman said yesterday in a review of trade policy toward China that the country must drop all barriers to American exports.

`Outreach'

Treasury spokeswoman Brookly McLaughlin declined to comment on the Treasury's conversations with market participants. ``Officials engage in frequent and ongoing outreach with various industry representatives, market experts and academics on a wide variety of topics,'' she said in an e-mail response to questions.

In its last currency report in November, Treasury didn't designate China as a currency manipulator, pointing to the country's July 21 announcement that it was revaluing, and severing the yuan's peg to the dollar.

The yuan has appreciated less than 0.8 percent since China revalued the currency 2.1 percent in July and began managing it against a basket of currencies, including the euro and yen. The biggest daily fluctuation has been less than 0.1 percent.

China's currency today rose 0.02 percent to 8.0469 per dollar in Shanghai, according to data compiled by Bloomberg. It will strengthen to 7.8 versus the dollar by year-end, according to a Bloomberg survey between Dec. 28 and Feb. 1.

Treasury hasn't determined whether China is manipulating its currency, the people said. The administration may still balk at the description, said Morris Goldstein, a senior fellow at the Institute for International Economics in Washington.

``What they do is to make a judgment, all things considered, whether it is in the U.S. interests to name,'' Goldstein said. Other considerations may include the need to secure China's help in persuading Iran to abandon its nuclear program, he said.

China's economy grew 9.9 percent last year, the fastest among the world's major economies. Exports surged 28 percent, accounting for about 40 percent of the $2.3 trillion economy, the government said on Jan. 25 in Beijing.

`Sizzling' Economy

``That economy is sizzling, and we take that into consideration in our negotiations with them,'' Adams said in an interview in Davos, Switzerland, on Jan. 24. ``It does make it more complicated for them to say whatever we've asked them to do is detrimental to growth.''

The trade shortfall with China has more than doubled since 2000. Lawmakers including Senator Charles Schumer, a Democrat from New York, and Lindsey Graham, a Republican from South Carolina, are backing legislation that would punish China with tariffs if it doesn't make the yuan more flexible.

Graham and Senator Byron Dorgan, a North Dakota Democrat, have introduced a bill that would force an annual vote over maintaining normal trade relations with China.

More Compelling

The record annual deficit with China makes ``legislation all the more compelling,'' Dorgan said in a statement on Feb. 10. He called the shortfall with China ``disturbing.''

China was last singled out in a report by the Treasury in 1994. The department has also previously cited Taiwan and South Korea.

Under a 1988 law, Treasury is required to consider twice a year whether countries are pursuing exchange-rate policies ``for the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.''

The law requires that, if the administration does determine countries are breaching U.S. rules, it must hold talks with those governments on adjusting exchange rates ``to eliminate the unfair advantage.''

To contact the reporter on this story:
Rich Miller in Washington rmiller28@bloomberg.net

Last Updated: February 15, 2006 04:29 EST

 

[Ichiro]

Mainichi Daily Newspaper--16 Feb 06

Japanese stocks gain ahead of fourth quarter GDP report

Japanese stocks rose Thursday morning, recovering from early losses, with investors awaiting Friday's fourth quarter economic growth figures for further signs that a long-awaiting economic recovery is on track.

The Nikkei 225 index gained 111.28 points, or 0.7 percent, to 16,044.11 at the end of morning trading on the Tokyo Stock Exchange shortly. The index fell 252.04 points, or 1.56 percent, the day before.

With most company's earnings reports done, investors have been focusing on October-December gross domestic product figures to be released Friday morning. Analysts polled by Dow Jones Newswires project quarterly growth to rise 4.8 percent at an annual pace.

The market fell at the opening but later moved into positive territory as investors snapped up blue-chip exporters such as autos, some technology stocks and pharmaceutical issues. Banking issues also rose.

Gainers so far included Toyota Motor Corp., Canon Inc., as well as Takeda Pharmaceutical Co. and Mitsubishi UFJ Financial Group Inc.

Overnight in New York, stocks rose modestly after new Federal Reserve Chairman Ben Bernanke's testimony before Congress. He said inflation is contained, but warned it coJuld tick higher. He left the door open to future interest rate increases. But he was upbeat about the U.S. economy, saying the latest employment and consumer spending data "suggests that the economic expansion remains on track."

The Dow Jones industrial average rose 30.58, or 0.28 percent, to 11,058.97 while the Nasdaq composite index rose 14.26, or 0.63 percent, to 2,276.43.

The broader TOPIX, which includes all issues on the TSE's first section, rose 5.18 points, or 0.32 percent, to 1,629.46.

In currency trading, the U.S. dollar was trading at 117.85 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Thursday, down 0.01 yen from late Wednesday in New York.

The euro slipped to US$1.1883 from US$1.1888 late Wednesday in New York.

The yield on the 10-year Japanese government bond fell to 1.5450 percent, from Wednesday's close of 1.5650 percent. Its price rose 0.17 point to 100.46.

February 16, 2006

 

[Ichiro]

MOneynews---16 Feb 06

Expert: China to Dominate 21st-Century Investing

China will be the place to go for portfolio growth over the next few years, according to a report in The Royal Gazette, Bermuda's only daily newspaper.

Jim Rogers, who co-founded the Quantum Fund with George Soros, was visiting the British territory, where he gave a speech at the Society of Bermuda's Fifth Annual Forecast Dinner last week.

He noted that "China is going to be the next great country whether we like it or not, and the 21st century is going to be the century of China. They call themselves communists in China, but they are among the world's best capitalists," the newspaper reports.

Rogers, who lived in China from 1999 to 2002, says that the country is huge, with a booming middle class that sets the tone for the nation's economic growth.

"In China they save and invest over 35% of their income and they are willing to work as hard as necessary to live the way we do, and the single best advice I can give you is to teach your children and grandchildren Chinese."

So where should one invest in China? Roger says that raw materials and natural resources are a good bet.

"Commodities have been the best place to be for quite a few years now, and if you are going to diversify, the best thing to have is some commodities," he told the Bermudan audience.

"In most parts of the world in 2006, you don't drink the water, so investment lesson No. 1 is that anybody who can come up with a solution to the world's water problems is going to be unbelievably rich."

 

[Ichiro]

apan And China: Two Trade Deficit Culprits

Carl Delfeld, Chartwell Advisor, 02.16.06, 11:00 AM ET





COLORADO SPRINGS, COLO. - According to the Commerce Department, the trade deficit with China was $201 billion in 2005, or 28% of America’s total deficit of $726 billion. Our 2005 trade deficit in petroleum products was an even larger $210 billion, but the China number will certainly get the most political attention and this eye-popping figure is sure to get the China trade hawks riled up. But if you look behind the numbers, the trade imbalance with Japan is likely larger than China.

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Here's why. China customs data indicate that about 60% of China’s exports come from foreign companies manufacturing and assembling in China. Even if we knock this number down to 50%, this is still equal to $100 billion worth of China’s exports last year. According to research from my think tank, ChartwellAmerica, the vast majority of these so-called Chinese exports are controlled by Taiwanese, South Korean, American and Japanese firms.

For example, about 75% of manufacturing output by Taiwanese companies takes place in China. Samsung has 23 factories in China and closed down its last notebook plant in South Korea last year. Japan’s Panasonic has 70,000 employees working in China.

This is why I have been recommending clients have allocations to the Taiwan, South Korea and Japan iShares in order to capture this growth in their global portfolios.

A major reason for Japan’s economic recovery can be attributed to its booming exports to China, of which a major slice goes on to America. China has now replaced America as Japan’s largest trading partner.

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If we conservatively assume that 25% of $100 billion of foreign-controlled Chinese exports are from Japanese companies in China and add that to Japan’s 2005 trade surplus with America of $82.7 billion, this brings the number to $107.7 billion. That's higher than China’s number stripped of its foreign company exports.

The Japan imbalance is often explained by its weak economy and consumer demand, but it is amazing that the deficit has stubbornly persisted and that American firms have still been unable to penetrate the second largest economy in the world. Because of the huge imbalance in wages between China and the U.S., a bilateral trade imbalance seems logical. But why one with Japan where wage levels are roughly comparable to those in the U.S.?

Japan’s weak yen policy is certainly a key issue. Japanese manufacturers are loath to see the yen get stronger as it will put pressure on their pricing advantage.


Even if you are skeptical of the trade data, it is hard to argue that more American exports, particularly of manufactured goods, will not raise American growth rates, lessen our dependence on foreign capital (China’s and Japan’s central banks financed 40% of our 2005 deficit) as well as raise wages. Let’s work relentlessly to open new markets and not be shy about using our leverage as the largest consumer market in the world. Rather than bilateral trade pacts with smaller countries that will have only a small impact on our economy, let’s tackle China and Japan head on.

Meanwhile, back on the home front, the enactment of a flat tax has to be the top priority. It will work wonders to spur economic growth, innovation, higher levels of savings and investment, less dependence on foreign capital and, yes, higher levels of exports.

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor. He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor. Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor.

 

[roguewave]

Ichiro, my apologies for not getting back to you about how I might perceive the future in terms of these markets. I post the article below to provide some backdrop for my comments.

I'm from the school of thought which suggests that there are two economies in our country that do not regress or correlate very much, if, at all. The PHYSICAL economy and the FINANCIAL economy represent these economies. I think the article below is very indicative of what is really transpiring in the "Real" economy. Productivity in this country has been going down for a very long time despite all the myths and jobs are continuing to be exported as a solution for cutting costs and being "competitive". This does not represent positive economic growth as suggested by the parrots on bubblevision. I believe you are wanting me to comment on the FINANCIAL economy which is represented by currency and derivatives of currency as reflected in our debt and equity markets and markets throughout the world that have become very dependent on each other.

I think we're entering a period of extreme volatility in all markets reflecting the fact that globalization is coming to an end where countries begin to focus inward more then abroad. As this process begins to gain more momentum, you will begin to see all markets abroad and here become very roiled to the point where it will be difficult to look at a chart and try to guess the direction. Real value players will be acquiring commodities while the rest will be chasing dreams of the not to distant past and will be very disappointed as this process corrects itself back to an economic model built on savings and real capital investment as opposed to debt and financial investment. Two very different economic models.

I've been in commodities for the past six years and see no reason to change my investment philosophy going forward. For the DOW to reflect real value to date compared to commodities over the last five plus years the DOW would have to be trading in the low to mid 20,000+ range so it has a ways to go and if it should approach these levels I'm betting commodities will more then surpass it in terms of overall return. Here's an interesting correlation or prediction that I will make, if the DOW should approach these levels, unemployment in this country will be at about 12% to 15% reflecting a tale of two very different economies. Good luck with your investment choices.



Forget Iran, Americans Should be Hysterical About This


http://counterpunch.com/roberts02112006.html

By PAUL CRAIG ROBERTS

Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of MBG Information Services, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you don’t know what worry is.

Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That’s one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.

Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.

US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers have written to me that they cannot even get Wal-Mart jobs because their education makes them over-qualified.

 

[Ichiro]

AP
Japan Stocks Rebound After 2 Days' Losses

Monday February 20, 10:11 pm ET

Japanese Stocks Rebound After Two Days of Losses on Rekindled Foreign Interest

TOKYO (AP) -- Japanese stocks rebounded Tuesday on rekindled demand among foreign investors and on news that real estate companies are planning to hike office rents, another sign the economy is emerging from deflation.


The Nikkei 225 index jumped 281.05 points, or 1.82 percent, to 15,718.98 points on the Tokyo Stock Exchange at the close of morning trade Tuesday. The index shed 275.52 points, or 1.75 percent, to 15,437.93 the previous day.

Pre-market buying via foreign brokerages before the market opened Tuesday outweighed selling for the first time in 10 sessions, helping to boost investor sentiment after two straight sessions of losses.

A report in Japan's leading business newspaper the Nihon Keizai that the government is likely to upgrade its economic assessment and that real estate firms are planning office building rent hikes is also rekindling hopes that the economy may be coming out of deflation.

The news helped lift banks and real estate stocks. Winners included real estate developer Mitsui Fudosan Co., up 5.25 percent to 2,305 yen (US$19.45), and Sumitomo Mitsui Financial Group Inc., up 2.45 percent to 1.25 million yen (US$10,550).

The broader TOPIX, which includes all issues on the exchange's first section, was up 26.71 points, or 1.70 percent, to 1,598.82 midday Tuesday. Gainers outnumbered losers 1,267 to 353. On Monday, the TOPIX lost 33.22 points, or 2.10 percent, to 1,572.11.

In currencies, the U.S. dollar was trading at 118.53 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Tuesday, up 0.34 yen from late Monday in London.

The euro fell to US$1.1929 from US$1.1945 late Monday in London.

The yield on the 10-year Japanese government bond rose to 1.5400 percent, up from Monday's close of 1.5150. Its price fell 0.25 to 100.51.

 

[Ichiro]

TOKYO, Feb 21 (Reuters) - The dollar hugged well-worn ranges on Tuesday as the market awaited direction from the minutes of the Federal Reserve's latest policy meeting and from U.S. consumer price data.

For clues about the central bank's thinking, the market will scrutinise minutes of the Jan. 31 Federal Open Market Committee meeting, due at 1900 GMT.

"The question is how far the Fed will go with its rate hikes," said a trader at a Japanese bank. "In that sense, consumer price data will be really important."

A strong reading for the U.S. consumer price index in January -- due on Wednesday -- could cement expectations for more rate rises, dealers said.

As of 0100 GMT, the dollar was trading at 118.45 yen <JPY=>, up from around 118.25 yen in late European trade on Monday, but within its 117-119 yen range of the past month.

U.S. financial markets were closed on Monday for a national holiday.

The euro was little changed at $1.1935 <EUR=> and 141.25 yen <EURJPY=R>.

Expectations that the Fed will raise rates at least twice by the middle of the year helped to push the U.S. currency to a six-week high against the euro last week.

Although the latest Fed meeting was chaired by former Chairman Alan Greenspan rather than the current chief, Ben Bernanke, the market is very interested in the views expressed at the gathering, traders said.

 

[Fivetears]

Job's! New Jobs!

Forget Iran, Americans Should be Hysterical About This
http://counterpunch.com/roberts02112006.html

I figured out where all the new jobs are! They're here in San Antonio! Homes are going up like wildfire! Tens of thousands! The jobs are CONSTRUCTION! We're building track houses... for the people who build track houses... for the people building track houses! Did I mention Highway Construction? We're building track houses for the people who build roads and highways, for the people building track houses; to get to the new track houses! It's... PERPETUAL KINETIC growth.

On a serious note... the article was a good read too; and I agree.

 

[Gilligan]

I figured out where all the new jobs are! They're here in San Antonio! Homes are going up like wildfire! Tens of thousands! The jobs are CONSTRUCTION! We're building track houses... for the people who build track houses... for the people building track houses! Did I mention Highway Construction? We're building track houses for the people who build roads and highways, for the people building track houses; to get to the new track houses! It's... PERPETUAL KINETIC growth.

On a serious note... the article was a good read too; and I agree.

Don't forget about the track houses for the construction workers building the new Toyota Plant to supply the trucks to commute the track house workers to build the track houses for the track house builders moving in.

 

[Fivetears]

You Nailed It!

Don't forget about the track houses for the construction workers building the new Toyota Plant to supply the trucks to commute the track house workers to build the track houses for the track house builders moving in.

You Nailed It! Pardon the pun.
Toyota in NASCAR; Toyota in San Antonio.
Next... Toyota in the Presidential Motorcade in Crawford.

 

[Ichiro]

Yen Gains as BOJ's Fukui Gives Positive Signals on Policy Shift

Feb. 23 (Bloomberg) -- The yen rose the most in two weeks after Bank of Japan Governor Toshihiko Fukui said a seven-year bout of deflation has almost ended and the central bank will ``gradually'' raise interest rates from zero percent.

The central bank will ``immediately'' reduce the amount of cash pumped into the financial system, a precursor to raising rates, when it is convinced of sustained inflation, Fukui told lawmakers today in Tokyo. The yen climbed against all of the 16 most-traded currencies that Bloomberg tracks.

``Fukui's comments are positive on a shift in policy, and we may even get rate hikes later this year,'' said Marios Maratheftis, a currency strategist at Standard Chartered Plc in London. ``That is positive for the yen.''

The BOJ, which has kept key rates near zero since 2001, is preparing to end its deflation-fighting policy after fourth quarter growth in the world's second-largest economy outpaced that of the U.S. and the dozen nations that share the euro. The Federal Reserve's key rate is 4.5 percent and the European Central Bank's benchmark borrowing cost is 2.25 percent.

The yen strengthened to 139.92 per euro at 8:30 a.m. in London from 141.23 late in New York. It traded at 117.57 against the dollar versus 118.54.

`Moment of Truth'

``The yen got its boost because Fukui's comments signaled the moment of truth is approaching,'' said Kenichiro Ikezawa, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd., a unit of Japan's second-largest brokerage. ``An end to the super-easy policy in April could be a done deal, and the bank may raise rates in the last six months of 2006.''

The central bank holds its next policy meeting on March 7-8. The yen may strengthen as much as 116.70 against the dollar today, Ikezawa said.

``Core consumer prices achieving stable gains are close at hand,'' Fukui told a parliamentary committee in Tokyo. The prices, which exclude fresh food and rose 0.1 percent in November and December, will show ``relatively clear gains'' in January, he said.

Three-month euro-yen futures indicate traders are betting the central bank will raise interest rates a quarter-percentage point in the last quarter of this year.

Contracts for December 2006 delivery yielded 0.505 percent, up from 0.415 percent three weeks ago.

The futures settle to a three-month Tokyo interbank lending rate that averaged about 0.51 percent when the BOJ kept its target for lending at 0.25 percent from Aug. 11, 2000, to Feb. 27, 2001, according to data compiled by Bloomberg.

Consumer Prices

Core consumer prices rose 0.1 percent from a year before both in November and December, the first back-to-back gains since April 1998. The government will release January's price index on March 3.

Higher interest rates in Japan may bolster the yen as local investors bring cash home to benefit from higher returns. The yen fell 13 percent versus the dollar last year as Japanese investors bought 16.6 trillion yen ($140.5 billion) of assets abroad.

The economy expanded at an annual 5.5 percent pace in the fourth quarter, up from a revised 1.4 percent in the third, a government report on Feb. 17 showed. The U.S. economy, the world's largest, grew at a 1.1 percent annual rate last quarter. The euro region expanded 0.3 percent in the fourth quarter from the third.

The yen also gained after the dollar failed to break through 119 versus the Japanese currency this week, after touching a high of 118.99. The currency last traded at 119 on Feb. 7.

'Sell the Dollar'

``People are looking for any reason to sell the dollar and buy the yen at a moment,'' said Michiyoshi Kato, vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``The upside of the dollar looks heavy after it failed to break through to 119 in the past couple of days.''

Japanese government bonds also fell after Fukui said the central bank will gradually raise rates to a ``neutral level.''

The yield on the benchmark 1.6 percent bond due December 2015 rose 3 basis points, or 0.03 percentage point, to 1.545 percent, according to Japan Bond Trading Co. Yields move inversely to price.

Investors reversed so-called ``yen carry trades,'' a strategy of borrowing in yen at low Japanese interest rates to invest in higher-yielding assets such as New Zealand bonds, said Keizo Tanaka, senior currency dealer in Tokyo at Resona Bank Ltd. Those trades had helped to depress the value of the Japanese currency.

`Reversal of Bets'

``The yen is benefiting from a reversal of bets on yen-carry trades on concern the New Zealand dollar will fall,'' Resona's Tanaka said. ``The unwinding of that trade also is going on amid speculation the central bank is getting closer to raising rates.''

Traders may buy the euro in anticipation a measure of German business confidence today will hold near a five-year high, bolstering speculation the ECB will keep raising interest rates after an expected increase on March 2.

The euro traded at $1.1908, from $1.1914 yesterday.

The Ifo confidence index, based on a monthly survey of 7,000 executives in Europe's largest economy, was probably 101.5 in February from 102 in January, a level last reached in May 2000, according to a survey of 20 economists by Bloomberg News. The survey reading has averaged 94 in the past five years.

French executives' confidence rose in February to the highest in more than a year and Italian consumers grew more optimistic, suggesting Europe's growth is quickening, reports showed yesterday.

``Should the Ifo figures have a strong showing, it may help push up the euro,'' said Kikuko Takeda, a currency manager at Bank of Tokyo-Mitsubishi UFJ, a unit of the world's largest lender by assets. ``Given ECB officials' recent comments, a rate increase next week is on the horizon.''

To contact the reporter on this story:
Kabir Chibber in London at kchibber@bloomberg.net;
Chris Young in Sydney at cyoung12@bloomberg.net.

Last Updated: February 23, 2006 03:42 EST

 

[Ichiro]

Very, very important info.... In summary it states: As the BOJ starts to increase the interest rate in the near future (starting in March 06), it would start with speculators suddently closing positions that are becoming more expensive: dumping Treasuries, gold, Shanghai real estate or whatever else they used yen borrowings to bet on. This already happened back in 1998 on what carry-traders can do. But, i dont think it will happen till the interest rate is raised beyond 3% by BOJ.


Japan's Boom May Explode Yen-Carry Trade: William Pesek Jr.

Feb. 22 (Bloomberg) -- Surprisingly strong growth in Japan is raising many eyebrows, not least those at the central bank anxious to scrap its zero-interest policy.

There can be little doubt 5.5 percent growth between October and December pushed the Bank of Japan further in that direction. Oddly, there are few if any signs global markets are bracing for higher debt yields in Japan.

Why? Japanese rates have been negligible for so long that investors take them for granted. This, after all, is the economy that's cried wolf too many times. The reason investors from New York to Singapore aren't ecstatic about Japan's recovery is the sense we've been here before -- many times.

Yet Japan's latest growth figures should make believers of some of the biggest skeptics. Not only did exports boost the economy in the fourth quarter, so did personal spending -- a sign optimism is spreading to households around the nation.

Rest assured the BOJ is noticing and will soon begin pulling liquidity out of Asia's biggest economy. Once that process begins, there's no telling how aggressive the BOJ will be and what effect it will have on bond yields.

Where Liquidity Begins

There are two reasons Japan's rate outlook is a huge story for global markets. One, yields in the biggest government debt market will head steadily higher for the first time in more than a decade. Two, it may mean the end of the so-called yen-carry trade.

``All liquidity starts in Japan, the world's largest creditor country,'' said Jesper Koll, chief economist for Japan at Merrill Lynch & Co. ``When rates go up here, rates go up everywhere.''

What makes the carry trade so worrisome is that nobody really knows how big it is. For example, the BOJ has no credible intelligence on how many hedge funds, investors and companies have borrowed cheaply in ultra-low-interest-rate yen and re-invested the funds in higher-yielding assets elsewhere.

Nor are the Bank for International Settlements, Federal Reserve Bank of New York or the International Monetary Fund likely to know how much leverage this most popular of trades has enabled banks to build up. Ditto for regulators overseeing the dealings of portfolio mangers around the globe.

Carry-Trade Craze

During the past decade, the yen-carry trade has become a staple for many punters. A popular form of the strategy exploits the gap between U.S. and Japanese yields. Anyone borrowing for next to nothing in yen and parking the funds in U.S. Treasuries received a twofold payoff: the 3-plus percentage-point yield difference and the dollar's rise versus the yen. The latter dynamic boosts profits by the time they're converted back to yen.

Yet as the BOJ raises rates and more investors buy into Japan's revival, the yen is sure to rise, much to the chagrin of carry-trade aficionados. Realization the trade is moving against investors may send shockwaves through global markets.

It would start slowly with speculators suddenly closing positions that are becoming more expensive: dumping Treasuries, gold, Shanghai real estate, shares in Google Inc. or whatever else they used yen borrowings to bet on. The chain reaction would accelerate once the mainstream media jumped on the story.

If all this sounds far-fetched, think back to late 1998, which offers an example of the damage a panic among carry-traders can do.

Remember 1998

In October of that year, Russia's debt default and the implosion of Long-Term Capital Management LP shoulder-checked global markets. The disorienting period culminated in the yen, which had been weakening for years, surging 20 percent in less than two months.

Suddenly, just about anyone who'd borrowed cheaply in yen rushed for the exits. It prompted frantic conference calls among officials in Washington, Tokyo and Frankfurt. Just how big was the yen-carry trade? How much leverage was involved? What could policy makers do, if anything, to regain control?

Since then, the wild days of 1998 have been largely forgotten. And as Japan slid back into recession and deflation, the yen-carry trade was back in favor. Trouble is, just as then, officials have little data to go on to understand the enormity of the risks all this poses.

Clearly, the global financial system is in better shape than it was in 1998. For the first time in a decade, economies in the U.S., Europe and Japan are growing in synch. There's the added benefit of strong growth in China and most of the rest of East Asia. India is also growing rapidly.

A boom in the number of hedge funds globally hasn't destabilized the international financial system as critics expected -- at least not yet. The world economy's resilience in the face of rising terrorist threats and record oil prices also provides some measure of comfort.

Even so, it's not clear investors are taking the risk of rising Japanese bond yields seriously enough. Once the process begins, world markets may be surprised by how quickly Japanese rates shoot higher, taking the yen -- and all those who borrowed in it -- along for the ride.


To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net

Last Updated: February 21, 2006 20:22 EST

 

[Ichiro]

Why the Bank of Japan Should Just Shut Up: William Pesek Jr.

Feb. 13 (Bloomberg) -- Transparency, Alan Greenspan liked to say while heading the U.S. Federal Reserve, is a cornerstone of successful central banking.

Efforts to demystify the Fed in the 1990s encouraged central banks around the globe to institute their own versions of monetary glasnost. Yet can the process go too far? Can central banks be too, well, talkative? Yes, and the Bank of Japan is a case in point.

The BOJ is itching to end its policy of holding interest rates near zero. And who can blame it? No central bank should ever become such an obvious pawn of politicians that it eliminates short-term borrowing costs. Japan's is now in a unique bind, one it understandably wants to get out of.

And so, BOJ officials can't seem to stop talking about their desire to take yen out of the system. There's just one problem: Japan is still experiencing deflationary pressures. What the BOJ really should do is just shut up.

Governor Toshihiko Fukui and his BOJ colleagues think they're doing the prudent thing, telegraphing plans to tighten credit. Yet until the consumer price index and other inflation measures turn positive and stay there for six months or even longer, BOJ staffers should keep their heads down and their mouths closed.

Too Much Talk

The BOJ doesn't have a monopoly on the too-much-talk front. Take Greenspan, who, off the payroll for barely a week, began arming hedge fund managers with insights into the Fed's thinking on rates. It would be better if he kept mum for a couple of months out of respect for his successor. Ever the capitalist, Greenspan is choosing fat speaking fees, according to press reports.

Few monetary decisions will be as important this year as ones made in Tokyo. After 15 years of walking in place, Japan probably grew at an annual rate of almost 5 percent in the final three months of 2005. Steady growth and rising-price trends in key sectors like property are fueling concern at the BOJ that inflation will suddenly accelerate out of control.

Prematurely declaring an end to Japan's seven-year-plus bout with falling prices may prolong it. For one thing, it will undermine investors' efforts to assess inflation expectations. For another, it will damage the economy's revival.

Clear Hints

Last week, Fukui said consumer prices, excluding fresh food items, ``are going to show clear gains in January and afterwards. Our judgment of core consumer prices will become increasingly important from our next policy meeting,'' which is on March 8-9.

That's about as clear as language gets in the central banking world of winks, nods and secret handshakes: The BOJ plans to begin pumping fewer yen into the economy sooner rather than later.

Fukui was toasted as the world's best central banker by the Economist magazine in 2004 and by AsiaMoney last year. You would think he'd know monetary policy is as much about influencing perceptions as the money supply. It's a mistake to worry too much about a problem Japan doesn't have (inflation) and not enough about one it does (falling prices) -- and to relay that impression to markets.

Inflation expectations must be based on data and anecdotal evidence, not on what the central bank says. If Fukui's confidence that inflation is on the way proves wrong, a central bank that already has little credibility will have even less.

BOJ Risks

Core consumer prices rose 0.1 percent in both November and December from a year earlier. Yet this recovery hasn't even come close to proving it can sustain price increases through Asia's biggest economy. And even with high oil prices, deflationary pressures unleashed by China and India may slow the process.

The bigger risk is that the BOJ moves too soon, before inflation firmly takes hold. Is the BOJ about to make a mistake similar to one in August 2000, when it raised rates prematurely? It reversed course 10 months later, returning rates to zero. Another mistake like that may boost bond yields and undermine the economy.

This is one of the very few cases in modern history where politicians are right to jawbone a central bank, as Prime Minister Junichiro Koizumi has been doing. He wants the BOJ to wait until deflation is clearly in the rearview mirror before altering its policies. And Koizumi is right.

For a more objective take on things, consider recent comments by Asian Development Bank President Haruhiko Kuroda. A respected economist, Kuroda's past as chief currency official at Japan's Ministry of Finance gives him considerable authority on the issue.

Walk the Walk

``The main objective is price stability,'' Kuroda said in Tokyo last week. ``That hasn't been attained. Deflation is not yet over.''

Kuroda has no ax to grind; he's merely concerned that a mistake may not only crimp Japanese growth, but Asia's. ``I think the recovery is good for Asia,'' he said. ``The Japanese economy was a growth engine for many years, and it may become one again.''

To get there, Japanese policy makers need to walk the walk of smart, forward-looking central banking. At the moment, they're only talking the talk -- and doing so a bit too much for comfort.


To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net

 

[Ichiro]

Emerging market currencies slide on contagion fear

Wednesday February 22, 7:11 am ET

By Steve Johnson


Emerging market and high-yielding currencies fell sharply in European morning trade on Wednesday as Tuesday's sharp slide in the Icelandic krona unnerved investors.

The krona suffered its biggest one-day fall against the US dollar for most five years on Tuesday, tumbling 4.6 per cent, as Fitch lowered the outlook on Iceland's country rating from "stable" to "negative", citing an "unsustainable" current account deficit and soaring net external indebtedness.


The krona continued to slide on Wednesday, falling a further 3.4 per cent to a 15-month low of IKr68.26 to the dollar.

And the sell-off appeared to spook carry trade investors who have piled into a range of generally high-yielding emerging market currencies in the hunt for superior returns.

"Markets appear to be reacting to heightened risk by selling off emerging market currencies in the wake of the Icelandic krona's move yesterday," said Tim Fox at Dresdner Kleinwort Wasserstein."

The South African rand fell 1.3 per cent to R6.105 against the dollar, the Turkish lira 1.3 per cent to TL1.3325 to the dollar, the Indonesian rupiah 1 per cent to Rp9,350 to the dollar, the Polish zloty 0.5 per cent to 3.8094 zlotys against the euro and the Slovak koruna 0.3 per cent to SK37.418 to the euro.

The Brazilian real, backed by interest rates of 17.25 per cent, also fell 1.9 per cent to R$2.165 to the dollar, although at least there was fundamental news here, with Brazil reporting a current account deficit of $452m in January, compared to a surplus of $802m in the same month last year. Despite this, Goldman Sachs saw the deterioration as likely to be temporary.

Elizabeth Gruie, emerging markets currency strategist at BNP Paribas, argued that the wider sell-off was being driven by declining global liquidity, as major trading blocs raise interest rates, but she believed the move was likely to be contained.

"Emerging market currencies universally suffered, reflecting fears of global tightening following the hawkish [ECB president Jean-Claude] Trichet into the Federal Open Market Committee minutes and oil nervousness, but the correction is so far muted and the sell off is likely be contained," she said.

The New Zealand dollar, the highest yielding developed world currency, also continued its recent slide, falling a further 0.7 per cent to a fresh 17-month low of $0.6576 against the greenback. Not for the first time, the sell-off was blamed on Japanese retail investors, who have hitherto been big buyers of kiwi-denominated uridashi bonds.

"New Zealand dollar sentiment has deteriorated markedly in recent days with the economic data continuing to point to the possibility that the New Zealand economy is falling into recession, which will force some aggressive monetary easing by the Reserve Bank later this year," said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ.

"One key driver of New Zealand dollar appreciation was Japanese investor demand seeking higher yields. With high yields now in doubt this demand is ebbing away."

In contrast, the behaviour of the major currencies was more predictable. The US dollar was little moved by Tuesday's release of the FOMC minutes, which surprised no one by saying that "some further policy firming might be needed to keep inflation pressures contained".

However the dollar firmed 0.3c to $1.1881 against the euro and 0.6c to $1.7393 against sterling ahead of US inflation data due later on Wednesday. The greenback was little changed at Y118.75 against the yen, with the latter seen gaining some strength from the repatriation of funds by Japanese retail investors.

Sterling was little changed at £0.6830 to the euro as minutes revealed the Bank of England voted 8-1 to leave rates on hold earlier this month, as most observers had expected.

 

[Ichiro]

Another great info on Yen carry Trade....


YEN CARRY TRADE TO UNWIND
Market Crash Alert
by Christopher Laird
PrudentSquirrel.com
February 22, 2006


There is a very important development regarding the YEN carry trade. I deem this important enough to post a market crash alert.

The Japanese economy is strengthening enough to cause an unwinding of the massive YEN carry trade. The last time this happened, there was the LTCM collapse.

Japan has had enough economic growth these last quarters, in production growth and consumer spending, that the BOJ may well end the policy of zero interest rates in Japan.

That zero rate interest policy has lasted about ten years, and is the first source of the liquidity bubbles world wide, and is very much a part of the liquidity bubbles here in the US. Once the BOJ starts to raise interest rates in Japan, the Yen carry trade will start to unwind.

The Yen carry mechanism is to borrow Yen at virtually zero rates, and then to purchase US treasuries at about a 3% interest rate gain net. There are literally trillions USD of yen carry trade positions scattered amongst hedge funds, insurance companies, and mutual funds. The phenomena is so widespread and has gone on so long, that the BOJ and even the BIS does not have data on the known net amount of YEN carry trade floating out there in the world. The result is that the effects of an unwinding of the Yen carry trade are unknown, but are sure to be very negative.

Here are the kinds of things that will happen when the Yen carry trade is unwound:

*

US treasuries will become less desirable, much of the purchases of UST’s last year were from foreign private entities who bought the UST’s to benefit from the interest differential of about 3% net over Japan.
*

UST’s were not the only beneficiaries of the Yen carry trade. Markets world wide are given massive amounts of liquidity, as Yen borrowed for virtually nothing are then invested eventually in foreign stock markets everywhere. Real estate markets also benefit greatly, as the Yen carry trade finds its way into real estate markets from Shanghai to the US to everywhere. The BOJ literally acts like a central bank of the world through the Yen carry trade, supplying liquidity that finds its way into markets everywhere.

The phenomena is a decade old now for the latest manifestation. The last time this level of penetration of the Yen carry trade was reached was just prior to the LTCM collapse. Back then, when the Yen unexpectedly strengthened 20% it caused a massive move out of Borrowed Yen on the Cheap, and caused massive market sell offs world wide, and was a direct cause of the LTCM collapse, where the US FED had to act immediately to bail out banks and illiquid brokerages and financial entities with blank checks to forestall that crisis.

We are again facing a very similar dilemma now, with the present significant strengthening of the Japanese economy, and the prospect of a rising Yen and a rising Japanese interest rate environment. Both of these trends hit the Yen carry trade on two sides.

This could cause a massive move out of the Yen carry trade, as those positions are unwound quickly to get out in advance of as many others as possible. This is because that Yen carry trade has gone on for about ten years and the accumulated positions are just astronomical.

It is for this reason that I am issuing my third market crash alert for 2006. I don’t like issuing these, but when I see such event pending, I just have to give the alert. This is not something I like doing. An alert does not mean there must be a crash, only that there is a serious new risk of one.

Here is a link to a superb article at Bloomberg about this issue. I have paraphrased some of it above.

Bloomberg: Remember 1998

"In October of that year, Russia's debt default and the implosion of Long-Term Capital Management LP shoulder-checked global markets. The disorienting period culminated in the yen, which had been weakening for years, surging 20 percent in less than two months.

Suddenly, just about anyone who'd borrowed cheaply in yen rushed for the exits. It prompted frantic conference calls among officials in Washington, Tokyo and Frankfurt. Just how big was the yen-carry trade? How much leverage was involved? What could policy makers do, if anything, to regain control?

Since then, the wild days of 1998 have been largely forgotten. And as Japan slid back into recession and deflation, the yen-carry trade was back in favor. Trouble is, just as then, officials have little data to go on to understand the enormity of the risks all this poses. “ Article Link

© 2006 Christopher Laird

 

[Ichiro]

Nikkei rises helped by economic data; Sony shines
Thu Feb 23, 2006 2:41 AM ET


By Eriko Amaha

TOKYO, Feb 23 (Reuters) - The Nikkei average <.N225> rose 1.99 percent to end above 16,000 for the first time in a week on Thursday, as investors encouraged by strong economic data bought Mitsubishi UFJ Financial Group Inc. (8306.T: Quote, Profile, Research) and other companies that rely on domestic demand.

Sony Corp. (6758.T: Quote, Profile, Research) led the gains after it unveiled a plan to scrap adviser positions as part of its restructuring, while Matsushita Electric Industrial Co. (6752.T: Quote, Profile, Research) ended up 2.7 percent at 2,495 yen.

After the market closed Matsushita, the maker of Panasonic goods, said senior managing director Fumio Ohtsubo will become president in June and current president Kunio Nakamura will become the company's chairman.

"There has been no change in the outlook for economic fundamentals, and that was proved in the latest corporate earnings (report season)," said Susumu Abe, a manager in the information and investment department at Mito Securities Co.

The Nikkei ended up 314.32 points at 16,096.10, closing above 16,000 for the first time since Feb. 16. The broader TOPIX index <.TOPX> finished up 1.93 percent at 1,640.47, after climbing more than 2 percent at one point.

Still, Takashi Kamiya, chief economist at T & D Asset Management, said the stock market may stay in the current range for a while, until it gets confirmation on further economic expansion.

"The market is already at a fair value and the economy has to growth further for the market to rise," he said. "What fund managers are doing right now is shuffling their portfolios -- switchings sectors, selling outperforming ones and scooping up laggards."

Banks gained after data showed the tertiary sector activity index, which gauges conditions in the services sector, rose 0.2 percent in December from the previous month. That compared with a forecast of a 0.3 percent rise.

Leading lender Mitsubishi UFJ Financial Group rose 2.5 percent to 1.63 million yen while its peer Mizuho Financial Group Inc. (8411.T: Quote, Profile, Research) rose 1.7 percent to 910,000 yen.

Property stocks also rose on the optimism about the economic recovery with leading property developer Mitsui Fudosan Co. Ltd. (8801.T: Quote, Profile, Research) up 4.8 percent to 2,400 yen and No.2 Mitsubishi Estate Co. Ltd. (8802.T: Quote, Profile, Research) rising 4.6 percent to 2,495 yen.

Japan's No.1 brokerage, Nomura Holdings Inc. (8604.T: Quote, Profile, Research), rose 2.8 percent to 2,170 yen after a report in business daily Nihon Keizai saying Japan's "Big Three" brokerages are planning to issue record dividend payouts for the 2005/06 financial year.

Second-ranked Daiwa Securities Group Inc. (8601.T: Quote, Profile, Research) climbed 2.8 percent to 1,357 yen and Nikko Cordial Corp. (8603.T: Quote, Profile, Research) rose 2.4 percent to 1,763 yen.

In the technology sector, Sony rose 2.9 percent to 5,630 yen after the electronics and entertainment conglomerate said on Wednesday it is scrapping 45 adviser positions as part of restructuring, leading to the departure of well-known names in its old guard.

Factory automation equipment maker Keyence Corp (6861.T: Quote, Profile, Research) ended up 4.8 percent to 31,800 yen. An executive told Reuters it is on track to hit its sales and operating profit targets for the year to March 20. [ID:nT206458]

After the close, Citizen Watch Co. Ltd. (7762.T: Quote, Profile, Research) said it would cancel 19.23 million of its own shares, or 4.81 percent of its outstanding stock, on March 3. Prior to the announcement, the stock ended up 3.3 percent at 1,073 yen.

INTEREST RATES

The Tokyo market is also keeping a close eye on monetary policy at home and in the United States.

Takahiko Murai, general manager of equities at Nozomi Securities, said the market has become sensitive to changes in the Bank of Japan's monetary policy and investors are becoming more selective.

"Investors have begun to look for companies whose profit growth is not high but steady and whose share valuations are cheap," he said. "So financially sound companies such as Toyota Motor Corp. (7203.T: Quote, Profile, Research), Honda Motor Co. (7267.T: Quote, Profile, Research) and Canon Inc. (7751.T: Quote, Profile, Research) may be targeted."

The yen rose against the dollar and bonds fell on Thursday after BOJ Governor Toshihiko Fukui reiterated the central bank would eventually raise interest rates.

Abe of Mito Securities said the pace at which the BOJ raises interest rates is key. "As long as the BOJ raises interest rates in tandem with the economic recovery, there should be no negative impact on the stock market," he said.

Market participants expect the BOJ to start dismantling its five-year-old hyper-loose monetary policy around April to reflect the end of deflation, and some have been buying Japanese shares in anticipation of this change.

Merrill Lynch said in a report on Thursday its survey of 45 global investors on the BOJ's monetary policy showed that 38 percent of respondents thought the Nikkei would rise after the BOJ exits its so-called "quantitative easing" policy, and 53 percent expect a rise in the Nikkei when the BOJ raises short-term interest rates from zero.

Volume hit its lowest level since Friday, with 1.996 billion shares changing hands on the Tokyo exchange's first section.

Advancers beat decliners by a ratio of almost 10 to 1.
© Reuters 2006. All Rights Reserved.

 

[Ichiro]

Ferguson's Exit May Ease Bernanke's Path to Fed Inflation Goal

Feb. 23 (Bloomberg) -- Federal Reserve Vice Chairman Roger Ferguson's resignation may help new Fed chief Ben Bernanke win support at the central bank for a numerical inflation goal.

Ferguson, who quit yesterday effective April 28 after eight years on the Fed's Board of Governors, opposes an inflation target, partly because it may limit the central bank's flexibility. Bernanke's support for such a move has been a hallmark of his work as an economist.

The absence of Ferguson and former Chairman Alan Greenspan removes the two biggest obstacles to a Fed inflation goal, leaving Governor Donald Kohn as the only board member known to disagree with the approach. At least 21 central banks, including those in Canada, the U.K. and Australia, have an inflation aim, and Bernanke told Congress in November that such a strategy would make the Fed more open.

Ferguson was ``one voice that would have been against that change in the Fed's way of doing business,'' Princeton University economist Alan Blinder, who was Fed vice chairman from 1994 to 1996, said in an interview.

Ferguson, 54, who was close to Greenspan, leaves the Fed at a time of transition. Greenspan retired last month after more than 18 years atop the central bank, and two new governors, Randall Kroszner and Kevin Warsh, are waiting to be sworn in. A majority of the board's seven slots will have turned over in less than a year. Ferguson was the last governor to have been originally appointed before President George W. Bush took office.

Possible Candidates

The White House has yet to nominate a new vice chairman, who would need Senate approval even if the person is already on the board. Kohn, 63, who has been in the Federal Reserve system since 1970, is a ``logical replacement,'' said Bear Stearns & Co. economist Conrad DeQuadros. Other previously reported candidates for Fed vacancies include former Treasury economist Richard Clarida and Todd Buchholz, founder of the Enso Capital Management hedge fund.

Ferguson said in October 2004 that an inflation goal may limit the Fed's flexibility to respond to economic shocks, and two months ago said any progress toward such a change ``would be very slow.'' Edward Gramlich, who resigned as a Fed governor last year, has said the disagreement between Ferguson and Bernanke ``never got acrimonious.''

`Clear Advantages'

Bernanke co-authored a 2001 book, ``Inflation Targeting: Lessons from the International Experience,'' which examines the results in other countries that adopted the practice. The conclusion: Inflation targeting has ``clear advantages over traditional policies,'' according to the book's description on the Princeton University Press Web site.

Besides Bernanke, six members of the Fed's Open Market Committee, which sets interest rates, have expressed support for inflation targeting. The FOMC consists of the Fed's seven board members and the 12 regional Fed bank presidents. At least two presidents have registered concerns about such a move. One supporter, Philadelphia Fed President Anthony Santomero, will leave his job effective March 31.

Kroszner and Warsh, whose nominations were approved by the Senate last week, told the Banking Committee on Feb. 14 they're open to an inflation goal. Warsh said it might ``provide some incremental benefit'' to investors and Kroszner called it ``one possible way to increase transparency.''

Supporters, Opponents

Other Fed bank presidents who support a numerical goal are Janet Yellen of San Francisco, William Poole of St. Louis, Sandra Pianalto of Cleveland, Jeffrey Lacker of Richmond and Gary Stern of Minneapolis. They vary on how the Fed should pursue the goal, since the central bank has a dual mandate from Congress to achieve stable prices as well as low unemployment.

Bernanke said last year an inflation goal would require ``extensive discussion and consultation.'' He and Yellen have said they want price changes, as measured by the Commerce Department's personal consumption expenditures index excluding food and energy, to remain in the 1 percent to 2 percent range.

Those with doubts about an inflation goal include Michael Moskow of the Chicago Fed and Richard Fisher of Dallas.

Ferguson, in a speech four months ago said ``supply shocks'' that stoke inflation and slow economic growth, such as big increases in the price of oil, ``can be problematic for inflation-targeting regimes.''

The third black person to serve on the Fed's board, Ferguson joined the bank in 1997 and became vice chairman in 1999. He could have served as vice chairman until October 2007 and as a governor until 2014. Ferguson had already outlasted the eight previous vice chairmen since 1973.

Sept. 11, 2001

A former finance-industry consultant and attorney who holds a doctorate in economics, Ferguson was the only Fed board member in Washington during the terrorist attacks of Sept. 11, 2001, and won respect from colleagues for steering the Fed through the crisis.

``He's done an extremely good job, and eight years is longer than most people stay at the Fed,'' said Alice Rivlin, Ferguson's predecessor as vice chairman. ``I suspect he thought, `Well, it's in good hands now with Bernanke, and maybe I should get into the private sector and do something different.'''

Even with the turnover on the board, Bernanke will have plenty of experience to draw from, whether from Kohn, Greenspan's top adviser before joining the board, or some of the regional bank presidents, said former Fed governor Lyle Gramley, who is now senior economic adviser at Stanford Washington Research Group in Washington.

Ferguson won't attend the Fed's next interest-rate meeting on March 27-28, the central bank said in a statement. The Fed has raised its benchmark rate at 14 straight meetings.

 

[Ichiro]

Now its India looking for alternative to fossil fuels...

India spreads its net for gas, any gas
By Siddharth Srivastava

NEW DELHI - While efforts are under way to seal nuclear deals with the US and France to generate electricity, India's efforts to tie up gas resources as another alternative to fossil fuels have gathered momentum.

Following the decision by Myanmar to supply gas to China, India is now making swift maneuvers to ensure that the US$1 billion Myanmar-Bangladesh-India (MBI) gas pipeline materializes. And significantly, India has virtually decided to join the US-backed

China Business Big Picture


Turkmenistan-Afghanistan-Pakistan (TAP) pipeline, in part because of the geopolitical difficulties involved in the $7 billion Iran-Pakistan-India (IPI) pipeline that Washington opposes.

Paradoxically, New Delhi has found an uncommon ally in Islamabad, which is pushing for India's involvement in the TAP as well as the IPI.

Gas on TAP
This month, Delhi for the first time took part as an observer in a meeting of the steering committee of th


e TAP project. Now it appears ready to sign on as a participant in the Washington-backed $3.5 billion gas pipeline as an alternative to the IPI.

Prime Minister Manmohan Singh had discussed the IPI proposal with Petroleum Minister Murli Deora and his Pakistani counterpart, Amanullah Khan Jadoon. Jadoon reiterated Islamabad's commitment to the IPI, despite US misgivings, and at the same time extended support for India's bid to join the TAP.

While India, Pakistan and Iran go through the motions of pursuing the IPI project, apparently unaffected by the International Atomic Energy Agency's referral of Tehran to the UN Security Council, most observers claim that the prospects of the pipeline materializing are now remote. Despite domestic political pressures, India has so far sided with Western powers against Tehran pursuing an independent nuclear program.

In this context, India was an observer at the recent TAP meeting in the Turkmen capital Ashgabat. Dinsha Patel, minister of state for petroleum and natural gas, led the Indian delegation and expressed willingness to join the TAP. A memorandum of understanding (MoU) was signed at the conclusion of the two-day meeting, under which Turkmenistan will supply 3.2 billion cubic feet gas per day to Pakistan for a period of 30 years.

India is closely studying the project's geopolitical, financial and technical aspects. Afghanistan and Pakistan have been seeking India's participation as vital for the TAP's viability.

"We have 90 days to get necessary official approvals to join the project. Once approved by the cabinet, the project will be renamed TAPI," for Turkmenistan-Afghanistan-Pakistan-India pipeline, Deora said in a statement. According to reports, the Oil Ministry will now seek government approval for joining the project within the next three months.

New Delhi, it seems, is satisfied with the availability of gas resources as well as the viability of the project, which has the backing of the Asian Development Bank. The TAP would stretch from the Turkmenistan-Afghanistan border in southeastern Turkmenistan to Multan, Pakistan (1,270 kilometers), with a 640km extension to India.

Importantly, TAP does not involve Iran or the US, which means none of the geopolitical problems involving the IPI. The TAP not only provides a southern exit route for land-locked Central Asian gas that will not have to cross Iran or Russia, it is also an important cog in Washington's Afghan rehabilitation plan as it will earn substantial transit fees.

Turkmen Oil, Gas and Natural Resource Minister Gurbanmyrat Ataev said that Ashkhabad considered TAP to be a priority gas export route. "This market is attractive first of all because of its closeness and rapid growth in consumption and secondly because Turkmenistan, as a neutral state, can in fact help strengthen regional cooperation and increase the economic prosperity of the people in the region."

With potential hydrocarbon reserves of over 45.44 billion tonnes of oil equivalent, Turkmenistan can significantly increase supplies to the international market.

Mired in Myanmar
Irked by the delays in implementing the Myanmar-Bangladesh-India pipeline, Myanmar recently inked an MoU with PetroChina to supply 6.5 trillion cubic feet (tcf) of gas from Block A of the Shwe gasfields in the Bay of Bengal for over 30 years.

The decision came as a major blow to India's bid to tap gas from its eastern front. It also marked one more victory for Beijing energy giants, which have consistently been beating Indian energy firms in the acquisition of oil and gas reserves around the world. India's state-owned oil giant Oil and Natural Gas Corp (ONGC) has lost to Chinese companies, in Kazakhstan, Ecuador and Angola.

Now, with Block A-1 gas going to China, the cost of the MBI will increase as the available block close to Bangladesh is A-2, which will require an additional 150km of pipeline for the gas to reach India.

This has provoked India to appoint Brussels-based Suz Tractebel as technical consultants to study a different route for the pipeline through the northeast, bypassing Bangladesh. The European infrastructure consultants appointed by the Gas Authority of India (GAIL) have been briefed to "carry out a study for preparing a detailed feasibility report, an environment management plan and a rapid risk analysis study via the northeast Indian territory", the Ministry of Petroleum announced.

GAIL is also exploring the idea of transporting gas from Myanmar via the sea. According to reports, GAIL is planning to invite bids for a long-term chartering service of ships or barges for the purpose.

These moves come a year after India, Myanmar and Bangladesh signed a trilateral pact to collaborate on the MBI project, which is also aimed at helping Bangladesh carry gas from its surplus regions to deficit areas.

The demand for compressed natural gas (CNG) and liquefied natural gas continues to grow in India, with over 300 CNG stations and over 300,000 vehicles running on CNG. The delay in Bangladesh firming up the agreement saw a worried Yangon, which is keen to exploit the financial viability of its new gas finds, acceding to China's demands for gas supplies after persistently urging India to tie up alternative plans, including setting up power projects near the gasfields.

Myanmar is concerned that India will be unable to evacuate gas once the reserves are certified by a third party agency and are made available for commercial production. India's ONGC and GAIL, along with two South Korean companies, Korea Gas and Daewoo, have agreed to jointly develop the block. But there is no agreement on evacuation, with both India and China at an equal distance from the gas blocks.

Though Bangladesh stands to earn substantial transit fees of $125 million per year, it has set conditions that include creation of corridors through India to carry out trade with other neighbors, such as Nepal and Bhutan, as well as steps to reduce its $2.5 billion trade deficit with India. Clearly, New Delhi has made up its mind to bypass Dhaka, even though the cost of the pipeline stands to increase substantially.

For the past year, New Delhi and Yangon have been exploring independent alternatives for importing gas. Bangladesh was not invited to the third meeting on the project. New Delhi has talked of the possibility of constructing the pipeline from Myanmar into Mizoram and onwards to Assam (both in northeast India) and culminating in West Bengal. The shortest pipeline route is from Myanmar to Bengal through Bangladesh, while the alternative land route would be twice the distance.

Thus, given the economic advantages as well as higher feasibility, India opened another window for negotiations with Bangladesh. Former foreign minister Natwar Singh visited Dhaka in August last and said that the tri-nation project would not proceed without the involvement of Bangladesh.

Last month, former petroleum minister Mani Shanker Aiyer visited Beijing. India and China signed a slew of MoUs on energy cooperation, including between ONGC Videsh Ltd, India's flagship firm for overseas oil and gasfield acquisitions, and China National Petroleum Corporation (CNPC). In the first instance of Sino-Indian cooperation, India and China won a joint bid in December last to buy PetroCanada's 37% stake in Syrian oilfields for $573 million.

However, most observers believe that any cooperation in future can only be on a case-by-case basis, with the Myanmar-China deal demonstrating that when it comes to energy security, nations will go it alone if they can.