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Asian News
- Thread starter Ichiro
- Start date
Thu Feb 23, 2:22 AM ET
TOKYO (AFP) - Japan reported its largest monthly trade deficit for almost a quarter century and the first for five years, as the New Year holidays hit exports to Asia and its oil import bill soared.
The trade balance slumped to a deficit of 348.9 billion yen (2.95 billion dollars) in January compared with surpluses of 911.9 billion yen in December and 193.9 billion yen a year earlier.
It was also more than three times bigger than the expected shortfall of about 102 billion yen.
The deficit was the largest since January 1983 and only the third in two decades.
Exports in January rose 13.5 percent to 5.01 trillion yen while imports expanded 27 percent to 5.36 trillion yen, the finance ministry said.
Financial markets took the data in their stride as analysts said the weak figures were largely due to seasonal factors and high oil prices, and were unlikely to derail Japan's economic recovery.
"Aside from the effects of high oil prices, growth in imports in general can be interpreted as a sign that domestic demand is robust, another reason to say the Japanese economy is on the right track," said Koji Kobayashi, senior economist at Mizuho Research Institute.
"Usually January is the month when the value of exports declines due to New Year holidays in Japan. I would say the deficit will disappear in February," Kobayashi predicted.
Taro Saito, senior economist at NIL Research Institute, said that China's Lunar New Year holidays appeared to be an additional factor for what he described as "irregular fluctuations" in the trade data.
"As the Lunar New Year in 2006 started at the end of January, this could have contributed to the decline in exports to Asia," he added.
Japan's trade surplus ballooned in the 1980s and 1990s, becoming the envy of other industrialized nations.
However it failed to usher in an era of steady growth and the world's number two economy stagnated for a decade after its "bubble economy" burst in the early 1990s.
Analysts say this time around, rising exports are accompanied by a pick-up in corporate and consumer spending although soaring energy costs are hurting the Japanese economy, which gets most of its oil and coal from overseas.
"The wider-than-expected deficit is due to high oil prices, which have now peaked. The growth in the value of imports will not last as we expect crude prices will cool later this year," said Kobayashi of Mizuho Research.
"Exports will stay on a recovery trend as we expect the world economy will be on an uptrend in the first half of this year," he added.
Crude oil imports jumped 67.2 percent while the value of imports of electronic parts was up 35.7 percent year-on-year, the ministry said.
Exports to the United States rose 21.7 percent for a 12th straight monthly increase, with shipments to the
European Union up 14.8 percent for a third consecutive monthly increase, the ministry said.
At the same time, however, exports to Asia managed only a modest increase of 5.1 percent.
"On the whole, the recovery in exports seems to be resilient as the value of exports to the United States and to the European Union grew steadily in January," said Saito.
Investors shrugged off the data as the Tokyo Stock Exchange's benchmark Nikkei-225 index closed up 314.32 points or 1.99 percent at 16,096.10.
Japan's government upgraded its view on the economy Wednesday for the first time for six months, after reporting last week blistering 5.5 percent annualized growth in the December quarter.
TOKYO (AFP) - Japan reported its largest monthly trade deficit for almost a quarter century and the first for five years, as the New Year holidays hit exports to Asia and its oil import bill soared.
The trade balance slumped to a deficit of 348.9 billion yen (2.95 billion dollars) in January compared with surpluses of 911.9 billion yen in December and 193.9 billion yen a year earlier.
It was also more than three times bigger than the expected shortfall of about 102 billion yen.
The deficit was the largest since January 1983 and only the third in two decades.
Exports in January rose 13.5 percent to 5.01 trillion yen while imports expanded 27 percent to 5.36 trillion yen, the finance ministry said.
Financial markets took the data in their stride as analysts said the weak figures were largely due to seasonal factors and high oil prices, and were unlikely to derail Japan's economic recovery.
"Aside from the effects of high oil prices, growth in imports in general can be interpreted as a sign that domestic demand is robust, another reason to say the Japanese economy is on the right track," said Koji Kobayashi, senior economist at Mizuho Research Institute.
"Usually January is the month when the value of exports declines due to New Year holidays in Japan. I would say the deficit will disappear in February," Kobayashi predicted.
Taro Saito, senior economist at NIL Research Institute, said that China's Lunar New Year holidays appeared to be an additional factor for what he described as "irregular fluctuations" in the trade data.
"As the Lunar New Year in 2006 started at the end of January, this could have contributed to the decline in exports to Asia," he added.
Japan's trade surplus ballooned in the 1980s and 1990s, becoming the envy of other industrialized nations.
However it failed to usher in an era of steady growth and the world's number two economy stagnated for a decade after its "bubble economy" burst in the early 1990s.
Analysts say this time around, rising exports are accompanied by a pick-up in corporate and consumer spending although soaring energy costs are hurting the Japanese economy, which gets most of its oil and coal from overseas.
"The wider-than-expected deficit is due to high oil prices, which have now peaked. The growth in the value of imports will not last as we expect crude prices will cool later this year," said Kobayashi of Mizuho Research.
"Exports will stay on a recovery trend as we expect the world economy will be on an uptrend in the first half of this year," he added.
Crude oil imports jumped 67.2 percent while the value of imports of electronic parts was up 35.7 percent year-on-year, the ministry said.
Exports to the United States rose 21.7 percent for a 12th straight monthly increase, with shipments to the
European Union up 14.8 percent for a third consecutive monthly increase, the ministry said.
At the same time, however, exports to Asia managed only a modest increase of 5.1 percent.
"On the whole, the recovery in exports seems to be resilient as the value of exports to the United States and to the European Union grew steadily in January," said Saito.
Investors shrugged off the data as the Tokyo Stock Exchange's benchmark Nikkei-225 index closed up 314.32 points or 1.99 percent at 16,096.10.
Japan's government upgraded its view on the economy Wednesday for the first time for six months, after reporting last week blistering 5.5 percent annualized growth in the December quarter.
AP
Japanese Stocks Edge Higher, Dollar Lower
Friday February 24, 3:27 am ET
Japanese Stocks Edge Higher As Gains Steel, Retailers Offset Drop in Autos, Electronics
TOKYO (AP) -- Japanese stocks edged up slightly Friday as gains in steel and retail stocks offset declines in autos and electronics issues. The dollar continued its slide against the yen.
The Nikkei 225 index gained 5.81 points, or 0.04 percent, to finish at 16,101.91 points on the Tokyo Stock Exchange. The index jumped 2 percent Thursday.
For much of Friday, the Nikkei remained in negative territory as many investors initially locked in profits after the index's rally the previous day.
The market's main index moved into positive territory toward the closing bell as investors snapped up stocks viewed as closedly tied to the domestic economy amid signs of an emerging recovery here.
Among gainers were Tokyo Steel MFG Co., which rose 5.63 percent to 2,250 yen ($19.23) and major retailer Daiei Inc. climbed 2.54 percent to 3,340 yen ($28.54).
Nippon Paper Group Inc. rose 0.58 percent to 521,000 yen ($4,452.99), Mitsui Sumitomo Insurance Co. picked up 2.25 percent to 1,410 yen ($12.05).
Decliners included Toyota Motor Corp., which fell 0.32 percent to 6,330 yen ($54.10) and Toshiba Corp. lost 1.54 percent to 661 yen ($5.65).
In currency trading, the U.S. dollar bought 116.64 yen on the Tokyo foreign exchange market at 3 p.m. Friday, down 0.48 yen from late Thursday in New York.
The dollar's drop against the yen stemmed from its weakness versus the 12-nation euro Thursday after a report showed economic sentiment in Germany rose in its highest level in 14 years, indicating that another European interest rate increase was likely.
The euro rose to $1.1923 from $1.1917 in New York.
The yield on the 10-year Japanese government bond rose to 1.5900 percent, from Thursday's close of 1.5550 percent. Its price fell 0.30 point to 100.08.
Japanese Stocks Edge Higher, Dollar Lower
Friday February 24, 3:27 am ET
Japanese Stocks Edge Higher As Gains Steel, Retailers Offset Drop in Autos, Electronics
TOKYO (AP) -- Japanese stocks edged up slightly Friday as gains in steel and retail stocks offset declines in autos and electronics issues. The dollar continued its slide against the yen.
The Nikkei 225 index gained 5.81 points, or 0.04 percent, to finish at 16,101.91 points on the Tokyo Stock Exchange. The index jumped 2 percent Thursday.
For much of Friday, the Nikkei remained in negative territory as many investors initially locked in profits after the index's rally the previous day.
The market's main index moved into positive territory toward the closing bell as investors snapped up stocks viewed as closedly tied to the domestic economy amid signs of an emerging recovery here.
Among gainers were Tokyo Steel MFG Co., which rose 5.63 percent to 2,250 yen ($19.23) and major retailer Daiei Inc. climbed 2.54 percent to 3,340 yen ($28.54).
Nippon Paper Group Inc. rose 0.58 percent to 521,000 yen ($4,452.99), Mitsui Sumitomo Insurance Co. picked up 2.25 percent to 1,410 yen ($12.05).
Decliners included Toyota Motor Corp., which fell 0.32 percent to 6,330 yen ($54.10) and Toshiba Corp. lost 1.54 percent to 661 yen ($5.65).
In currency trading, the U.S. dollar bought 116.64 yen on the Tokyo foreign exchange market at 3 p.m. Friday, down 0.48 yen from late Thursday in New York.
The dollar's drop against the yen stemmed from its weakness versus the 12-nation euro Thursday after a report showed economic sentiment in Germany rose in its highest level in 14 years, indicating that another European interest rate increase was likely.
The euro rose to $1.1923 from $1.1917 in New York.
The yield on the 10-year Japanese government bond rose to 1.5900 percent, from Thursday's close of 1.5550 percent. Its price fell 0.30 point to 100.08.
Folks, the yen touched 116.65 today...its time to put some $$$ in the I fund...
UPDATE 3-BOJ Fukui adds fuel to speculation on policy shift
Fri Feb 24, 2006 3:21 AM ET
By Chisa Fujioka
TOKYO, Feb 24 (Reuters) - Bank of Japan Governor Toshihiko Fukui added fuel to speculation of an imminent end to the central bank's ultra-loose monetary policy on Friday, sending short-term Japanese bond yields to five-year highs and the yen to a one-month peak against the dollar.
Following his equally hawkish remarks on Thursday and a newspaper report that the BOJ could change course as early as next month, Fukui said conditions for a policy shift were gradually falling into place -- yet another signal for a near-term policy shift.
"Core CPI excluding fresh food prices has been at or above zero percent for three months in a row since October, and I expect it to show a clearer rise from now on," he told a parliamentary committee.
"In that sense, I think conditions (for a policy shift) are gradually coming into place," he said.
Finance Minister Sadakazu Tanigaki on Friday gave a fresh warning against any hasty move by the central bank, saying mild deflation remains in the world's second-largest economy.
But emerging signs of mutual trust suggest the government is becoming more accepting of the BOJ's independence on monetary policy and less resistant to a shift as long as interest rates are kept near zero.
Fukui suggested he would not hesitate to move once the central bank confirms that prices are recovering steadily.
"We cannot always be fearing failure. Policy is something that takes future conditions into account, so we take risks," he said.
"We would like to make a calm and appropriate judgment on whether our three conditions are met by looking at not only CPI figures on the surface but also economic conditions behind them."
The BOJ has vowed to stick to its so-called quantitative easing policy of supplying the banking system with excess funds and pinning interest rates near zero until core CPI shows consistent year-on-year rises.
A 0.1 percent gain in December core CPI and expectations for a 0.4 percent jump in January have bolstered expectations for an end around April to the five-year-old policy aimed at beating deflation. January nationwide CPI data is due out on March 3.
Apart from steady CPI gains, the BOJ has said it must see that deflation poses no risk of returning and that trends in prices and the economy allow for a policy change.
BOND YIELDS RISE
Recent hawkish comments by Fukui have also convinced PIMCO, the world's biggest bond fund manager, that the central bank is serious about a policy shift, which Fukui said will eventually be followed by a move towards a "neutral interest rate level".
"Clearly, financial markets are getting the BOJ's message that the super, super easy money just isn't going to be there any more in the very near future," Tomoya Masanao, a portfolio manager in Tokyo for PIMCO, told Reuters in a telephone interview.
"Fukui's comments are powerful because in essence he is now saying the same thing as the Fed -- as long as policy remains accommodative, rate hikes are going to continue at a measured pace towards neutrality."
The yen rose and Japanese bond yields jumped as Fukui's comments this week appeared to signal an imminent policy shift, followed by higher interest rates later in the year. Fukui jolted the markets on Thursday when he said the central bank would eventually raise interest rates to a "neutral" level.
By 0725 GMT, the yen was at 116.65 to the dollar <JPY=> after touching 116.42 yen, its strongest level since Jan. 27.
The yield on five-year Japanese government bonds spiked 9.5 basis points to 1.100 percent <0#JPTSY=JBTC>, while the two-year yield rose 7.5 basis points to 0.475 percent.
Both are around their highest levels since late 2000, just months before the BOJ introduced its ultra-easy policy.
Markets also focused on a Yomiuri newspaper report on Friday that said without citing sources that Fukui and senior central bank officials were considering a policy shift as early as the BOJ's next policy-setting meeting on March 8-9.
Fukui would only say he had no idea about the likelihood of a policy shift in March.
"(Monetary policy) will be discussed at the monetary policy meeting. I have no idea," Fukui told reporters when asked about the newspaper report.
While Tanigaki -- worried about risks that higher interest rates could hamper the government's efforts to trim huge state debt -- remains cautious about any premature monetary policy shift, Economics Minister Kaoru Yosano encouraged the BOJ to act on its own.
"It is not good for central banks in the world to give in to politics and the government," he told parliament, adding that an independent central bank boosted the country's credibility. (Additional reporting by Yoko Nishikawa)
© Reuters 2006. All Rights Reserved.
UPDATE 3-BOJ Fukui adds fuel to speculation on policy shift
Fri Feb 24, 2006 3:21 AM ET
By Chisa Fujioka
TOKYO, Feb 24 (Reuters) - Bank of Japan Governor Toshihiko Fukui added fuel to speculation of an imminent end to the central bank's ultra-loose monetary policy on Friday, sending short-term Japanese bond yields to five-year highs and the yen to a one-month peak against the dollar.
Following his equally hawkish remarks on Thursday and a newspaper report that the BOJ could change course as early as next month, Fukui said conditions for a policy shift were gradually falling into place -- yet another signal for a near-term policy shift.
"Core CPI excluding fresh food prices has been at or above zero percent for three months in a row since October, and I expect it to show a clearer rise from now on," he told a parliamentary committee.
"In that sense, I think conditions (for a policy shift) are gradually coming into place," he said.
Finance Minister Sadakazu Tanigaki on Friday gave a fresh warning against any hasty move by the central bank, saying mild deflation remains in the world's second-largest economy.
But emerging signs of mutual trust suggest the government is becoming more accepting of the BOJ's independence on monetary policy and less resistant to a shift as long as interest rates are kept near zero.
Fukui suggested he would not hesitate to move once the central bank confirms that prices are recovering steadily.
"We cannot always be fearing failure. Policy is something that takes future conditions into account, so we take risks," he said.
"We would like to make a calm and appropriate judgment on whether our three conditions are met by looking at not only CPI figures on the surface but also economic conditions behind them."
The BOJ has vowed to stick to its so-called quantitative easing policy of supplying the banking system with excess funds and pinning interest rates near zero until core CPI shows consistent year-on-year rises.
A 0.1 percent gain in December core CPI and expectations for a 0.4 percent jump in January have bolstered expectations for an end around April to the five-year-old policy aimed at beating deflation. January nationwide CPI data is due out on March 3.
Apart from steady CPI gains, the BOJ has said it must see that deflation poses no risk of returning and that trends in prices and the economy allow for a policy change.
BOND YIELDS RISE
Recent hawkish comments by Fukui have also convinced PIMCO, the world's biggest bond fund manager, that the central bank is serious about a policy shift, which Fukui said will eventually be followed by a move towards a "neutral interest rate level".
"Clearly, financial markets are getting the BOJ's message that the super, super easy money just isn't going to be there any more in the very near future," Tomoya Masanao, a portfolio manager in Tokyo for PIMCO, told Reuters in a telephone interview.
"Fukui's comments are powerful because in essence he is now saying the same thing as the Fed -- as long as policy remains accommodative, rate hikes are going to continue at a measured pace towards neutrality."
The yen rose and Japanese bond yields jumped as Fukui's comments this week appeared to signal an imminent policy shift, followed by higher interest rates later in the year. Fukui jolted the markets on Thursday when he said the central bank would eventually raise interest rates to a "neutral" level.
By 0725 GMT, the yen was at 116.65 to the dollar <JPY=> after touching 116.42 yen, its strongest level since Jan. 27.
The yield on five-year Japanese government bonds spiked 9.5 basis points to 1.100 percent <0#JPTSY=JBTC>, while the two-year yield rose 7.5 basis points to 0.475 percent.
Both are around their highest levels since late 2000, just months before the BOJ introduced its ultra-easy policy.
Markets also focused on a Yomiuri newspaper report on Friday that said without citing sources that Fukui and senior central bank officials were considering a policy shift as early as the BOJ's next policy-setting meeting on March 8-9.
Fukui would only say he had no idea about the likelihood of a policy shift in March.
"(Monetary policy) will be discussed at the monetary policy meeting. I have no idea," Fukui told reporters when asked about the newspaper report.
While Tanigaki -- worried about risks that higher interest rates could hamper the government's efforts to trim huge state debt -- remains cautious about any premature monetary policy shift, Economics Minister Kaoru Yosano encouraged the BOJ to act on its own.
"It is not good for central banks in the world to give in to politics and the government," he told parliament, adding that an independent central bank boosted the country's credibility. (Additional reporting by Yoko Nishikawa)
© Reuters 2006. All Rights Reserved.
AP
Chinese Yuan Hits High Against U.S. Dollar
Friday February 24, 6:22 am ET
Chinese Yuan Hits High Against U.S. Dollar; Share Prices Also Rise
SHANGHAI, China (AP) -- China's currency rose Friday to its highest closing level against the U.S. dollar since a revaluation last July, after the biggest one-day drop in the opening dollar/yuan parity rate this year.
The yuan's advance pushed up property shares and reinforced currency traders' views that the central bank is letting the yuan rise faster than before.
The stronger yuan boosted buying of property shares on China's stock markets. The benchmark Shanghai Composite Index climbed 0.6 percent to 1,296.87. The Shenzhen Composite Index rose 0.8 percent to 316.31.
"Hopes for further yuan rises this year boosted interest in property shares, and this buying interest isn't likely to cool off in the near term," said Fang Yan, an analyst at Guosen Securities.
The dollar closed at 8.0424 yuan on the automatic price matching system after trading in a range of 8.0423, it's lowest level since the July 21 revaluation, and 8.0435. On Thursday, it closed at 8.0480.
The yuan's renewed gains preceeded a visit to China by the U.S. Treasury's undersecretary for international affairs, Tim Adams, who is scheduled to arrive in Beijing Sunday.
In July, China revalued the yuan by 2.1 percent against the dollar and began linking its value to a basket of currencies, instead of just the dollar. But Beijing limits the yuan's daily movements to within 0.3 percent above or below its opening level.
Since July, the yuan has risen only 0.83 percent against the dollar. Washington has urged China to let the yuan strengthen faster.
Critics of Beijing's currency policy argue that it is undervalued, giving Chinese exporters an artificial advantage that contributes to its trade surplus, which rose last year to $201.6 billion, the largest deficit the United States has ever incurred with a single country.
The Treasury Department has suggested it could label China a currency manipulator in a biannual report slated for release April, when Chinese President Hu Jintao is scheduled to visit the U.S.
In share trading, China Vanke A shares rose 1.1 percent to 5.61, Gemdale Corp. advanced 5.4 percent to 7.99 and China Merchants Property Development added 5.6 percent to 11.98.
"The yuan rise is good, not only for property companies but for all yuan-denominated assets, including A-shares," said Chen Huiqin, an analyst at Huatai Securities.
Speculation about further rises in the yuan will continue to attract fresh inflows of money to China's stock market this year, she forecast.
Large-capitalized blue chips, which are institutional investors' favorites, ended higher. Shanghai Pudong Development gained 1.6 percent to 12.19 and China United Telecommunications added 0.7 percent to 2.72.
Chinese Yuan Hits High Against U.S. Dollar
Friday February 24, 6:22 am ET
Chinese Yuan Hits High Against U.S. Dollar; Share Prices Also Rise
SHANGHAI, China (AP) -- China's currency rose Friday to its highest closing level against the U.S. dollar since a revaluation last July, after the biggest one-day drop in the opening dollar/yuan parity rate this year.
The yuan's advance pushed up property shares and reinforced currency traders' views that the central bank is letting the yuan rise faster than before.
The stronger yuan boosted buying of property shares on China's stock markets. The benchmark Shanghai Composite Index climbed 0.6 percent to 1,296.87. The Shenzhen Composite Index rose 0.8 percent to 316.31.
"Hopes for further yuan rises this year boosted interest in property shares, and this buying interest isn't likely to cool off in the near term," said Fang Yan, an analyst at Guosen Securities.
The dollar closed at 8.0424 yuan on the automatic price matching system after trading in a range of 8.0423, it's lowest level since the July 21 revaluation, and 8.0435. On Thursday, it closed at 8.0480.
The yuan's renewed gains preceeded a visit to China by the U.S. Treasury's undersecretary for international affairs, Tim Adams, who is scheduled to arrive in Beijing Sunday.
In July, China revalued the yuan by 2.1 percent against the dollar and began linking its value to a basket of currencies, instead of just the dollar. But Beijing limits the yuan's daily movements to within 0.3 percent above or below its opening level.
Since July, the yuan has risen only 0.83 percent against the dollar. Washington has urged China to let the yuan strengthen faster.
Critics of Beijing's currency policy argue that it is undervalued, giving Chinese exporters an artificial advantage that contributes to its trade surplus, which rose last year to $201.6 billion, the largest deficit the United States has ever incurred with a single country.
The Treasury Department has suggested it could label China a currency manipulator in a biannual report slated for release April, when Chinese President Hu Jintao is scheduled to visit the U.S.
In share trading, China Vanke A shares rose 1.1 percent to 5.61, Gemdale Corp. advanced 5.4 percent to 7.99 and China Merchants Property Development added 5.6 percent to 11.98.
"The yuan rise is good, not only for property companies but for all yuan-denominated assets, including A-shares," said Chen Huiqin, an analyst at Huatai Securities.
Speculation about further rises in the yuan will continue to attract fresh inflows of money to China's stock market this year, she forecast.
Large-capitalized blue chips, which are institutional investors' favorites, ended higher. Shanghai Pudong Development gained 1.6 percent to 12.19 and China United Telecommunications added 0.7 percent to 2.72.
MarketWatch
Crude soars after Saudi explosion report
Friday February 24, 9:05 am ET
By Ciara Linnane
NEW YORK (MarketWatch) -- Crude-oil futures surged early Friday on a report of an explosion in Saudi Arabia, with escalating tensions in Iraq and a report of more trouble for Royal Dutch Shell in Nigeria also offsetting U.S. data showing the nation well supplied with oil and petroleum products.
Crude for April delivery jumped to as high as $62.60 a barrel after a report sourcing the al-Arabiya television channel of an explosion and shots fired at an Eastern Saudi Arabian oil refinery.
The explosion came from Saudi security officials shooting at a vehicle packed with explosives, the television channel reported, according to the Associated Press.
The contract, which had already been trading higher before the Saudi reports, settled back to $62.10, up $1.56.
March-dated gasoline contracts rose 3.2 cents at $1.545 a gallon. March heating oil rose 3.74 cents at $1.70 a gallon.
Coming off loss
The oil contract ended down 47 cents at $60.54 a barrel on Thursday, recovering in part after trading as low as $59.70, its lowest since Feb. 16.
The Energy Department reported a 1.1 million-barrel increase in U.S. crude supplies for the week ended Feb. 17, placing them 9.9% above their year-ago level.
Motor gasoline supplies rose a smaller-than-expected 100,000 barrels to 225.6 million barrels, up 0.9% from a year ago and marking an eighth straight week of higher inventories.
Man Financial analyst Edward Meir said the demand side of the report was positive, particularly for gasoline, which was up 2.3% from last year.
"We have opened higher today, and should maintain these gains going into the close, as yesterday's numbers may be given a second look," he said.
"More importantly, we would suspect that not too many players would want to go home short into the weekend, especially considering the various hotspots still on the boil."
Violence in Nigeria, global concerns over Iran's nuclear-research program and workers going on strike in Ecuador had all contributed to the energy market's gains earlier this week, before moving into the background most recently.
But it's Iraq that is likely to grab the most attention Friday after the government put Baghdad and three provinces under a daytime curfew in an effort to tamp down sectarian violence.
At least 130 people, mostly Sunnis, have died since the al-Askaria shrine was bombed on Wednesday, according to the BBC.
The curfew was introduced on Thursday evening and will last until late afternoon Friday, the Muslim day of prayer.
"Increasing civil turmoil in Iraq will almost surely impact the oil sector, which is already struggling as it is," said Meir.
Meanwhile, a Nigerian court has ordered Shell to pay $1.5 billion to the iJaw people of the Niger Delta region as compensation for local environmental damage growing out of the company's oil operations, the BBC reported.
Shell intends to appeal the judgment, which comes in the same week that nine of its workers were kidnapped by a local group protesting the activities of foreign oil companies, forcing the company to halt 455,000 barrels a day of production.
The company also extended force majeure, whereby it's legally protected from not meeting contractual obligations on Nigerian crude exports.
Crude soars after Saudi explosion report
Friday February 24, 9:05 am ET
By Ciara Linnane
NEW YORK (MarketWatch) -- Crude-oil futures surged early Friday on a report of an explosion in Saudi Arabia, with escalating tensions in Iraq and a report of more trouble for Royal Dutch Shell in Nigeria also offsetting U.S. data showing the nation well supplied with oil and petroleum products.
Crude for April delivery jumped to as high as $62.60 a barrel after a report sourcing the al-Arabiya television channel of an explosion and shots fired at an Eastern Saudi Arabian oil refinery.
The explosion came from Saudi security officials shooting at a vehicle packed with explosives, the television channel reported, according to the Associated Press.
The contract, which had already been trading higher before the Saudi reports, settled back to $62.10, up $1.56.
March-dated gasoline contracts rose 3.2 cents at $1.545 a gallon. March heating oil rose 3.74 cents at $1.70 a gallon.
Coming off loss
The oil contract ended down 47 cents at $60.54 a barrel on Thursday, recovering in part after trading as low as $59.70, its lowest since Feb. 16.
The Energy Department reported a 1.1 million-barrel increase in U.S. crude supplies for the week ended Feb. 17, placing them 9.9% above their year-ago level.
Motor gasoline supplies rose a smaller-than-expected 100,000 barrels to 225.6 million barrels, up 0.9% from a year ago and marking an eighth straight week of higher inventories.
Man Financial analyst Edward Meir said the demand side of the report was positive, particularly for gasoline, which was up 2.3% from last year.
"We have opened higher today, and should maintain these gains going into the close, as yesterday's numbers may be given a second look," he said.
"More importantly, we would suspect that not too many players would want to go home short into the weekend, especially considering the various hotspots still on the boil."
Violence in Nigeria, global concerns over Iran's nuclear-research program and workers going on strike in Ecuador had all contributed to the energy market's gains earlier this week, before moving into the background most recently.
But it's Iraq that is likely to grab the most attention Friday after the government put Baghdad and three provinces under a daytime curfew in an effort to tamp down sectarian violence.
At least 130 people, mostly Sunnis, have died since the al-Askaria shrine was bombed on Wednesday, according to the BBC.
The curfew was introduced on Thursday evening and will last until late afternoon Friday, the Muslim day of prayer.
"Increasing civil turmoil in Iraq will almost surely impact the oil sector, which is already struggling as it is," said Meir.
Meanwhile, a Nigerian court has ordered Shell to pay $1.5 billion to the iJaw people of the Niger Delta region as compensation for local environmental damage growing out of the company's oil operations, the BBC reported.
Shell intends to appeal the judgment, which comes in the same week that nine of its workers were kidnapped by a local group protesting the activities of foreign oil companies, forcing the company to halt 455,000 barrels a day of production.
The company also extended force majeure, whereby it's legally protected from not meeting contractual obligations on Nigerian crude exports.
Reuters
Oil jumps $2 on Saudi oil blast
Friday February 24, 9:12 am ET
LONDON (Reuters) - Oil jumped more than $2 on Friday after reports of an explosion and shooting at the huge Abqaiq oil facility in Saudi Arabia, which triggered worries about supply from the world's top crude producer.
The Dubai-based Al Arabiya television station quoted witnesses as saying there was shooting in the area while a Saudi security source said the government had prevented suicide bombing attacks at Abqaiq.
"Security forces foiled an attempted suicide at the Abqaiq (facility) using at least two cars," the official said.
Most Saudi oil is exported from the Gulf via Abqaiq, the world's largest crude processing plant, which handles about two thirds of the country's output.
U.S crude prices hit a high of $62.60 a barrel, up $2.06. They later eased back to $62.23 at 1400 GMT.
London Brent was up $1.55 at $62.09 a barrel.
"It's not clear what damage there is, but Abqaiq is the world's most important oil facility," said Gary Ross, CEO at PIRA Energy consultancy in New York.
"This just emphasizes fears over global oil supply security when we're already facing major ongoing risks in Nigeria, Iran and Iraq."
Oil prices had risen a dollar earlier on Friday as fears of deeper disruptions to Nigerian exports overshadowed the comfort drawn from brimming fuel stockpiles in the United States.
Attacks on Nigeria's oil network have already forced Shell to cut output by 455,000 barrels a day, shutting in a fifth of the country's exports. Militants holding foreign oil workers hostage say they will continue attacks in the next few days.
But oil's upside may be limited by brimming U.S. fuel tanks. Gasoline stocks rose to 225.6 million barrels, the highest level in seven years, according to weekly data. Crude stocks rose 1.1 million barrels to 326.7 million barrels.
"The market is being tugged by two forces -- data are pulling it down and political forces are pulling it up," said independent oil consultant Geoff Pyne.
Outages in Nigeria, the world's eighth largest crude exporter, have helped push London Brent crude close to parity versus U.S. West Texas Intermediate (WTI) futures.
U.S. crude usually trades at a premium to Brent, but the London benchmark better reflects the Nigerian risk premium as it is used to price West African oil sales.
Aside from tension in Nigeria, traders said Iran's nuclear ambitions and the possible ramifications for the nation's oil production also remained a worry.
The board of the International Atomic Energy Agency (IAEA) meets on March 6 to discuss the next step in resolving Iran's nuclear row with the West.
Iraq, which has been struggling to get oil output back to pre-war levels, is suffering the worst sectarian violence since the fall of Saddam Hussein, compounding the geopolitical risks in the Middle East.
Oil jumps $2 on Saudi oil blast
Friday February 24, 9:12 am ET
LONDON (Reuters) - Oil jumped more than $2 on Friday after reports of an explosion and shooting at the huge Abqaiq oil facility in Saudi Arabia, which triggered worries about supply from the world's top crude producer.
The Dubai-based Al Arabiya television station quoted witnesses as saying there was shooting in the area while a Saudi security source said the government had prevented suicide bombing attacks at Abqaiq.
"Security forces foiled an attempted suicide at the Abqaiq (facility) using at least two cars," the official said.
Most Saudi oil is exported from the Gulf via Abqaiq, the world's largest crude processing plant, which handles about two thirds of the country's output.
U.S crude prices hit a high of $62.60 a barrel, up $2.06. They later eased back to $62.23 at 1400 GMT.
London Brent was up $1.55 at $62.09 a barrel.
"It's not clear what damage there is, but Abqaiq is the world's most important oil facility," said Gary Ross, CEO at PIRA Energy consultancy in New York.
"This just emphasizes fears over global oil supply security when we're already facing major ongoing risks in Nigeria, Iran and Iraq."
Oil prices had risen a dollar earlier on Friday as fears of deeper disruptions to Nigerian exports overshadowed the comfort drawn from brimming fuel stockpiles in the United States.
Attacks on Nigeria's oil network have already forced Shell to cut output by 455,000 barrels a day, shutting in a fifth of the country's exports. Militants holding foreign oil workers hostage say they will continue attacks in the next few days.
But oil's upside may be limited by brimming U.S. fuel tanks. Gasoline stocks rose to 225.6 million barrels, the highest level in seven years, according to weekly data. Crude stocks rose 1.1 million barrels to 326.7 million barrels.
"The market is being tugged by two forces -- data are pulling it down and political forces are pulling it up," said independent oil consultant Geoff Pyne.
Outages in Nigeria, the world's eighth largest crude exporter, have helped push London Brent crude close to parity versus U.S. West Texas Intermediate (WTI) futures.
U.S. crude usually trades at a premium to Brent, but the London benchmark better reflects the Nigerian risk premium as it is used to price West African oil sales.
Aside from tension in Nigeria, traders said Iran's nuclear ambitions and the possible ramifications for the nation's oil production also remained a worry.
The board of the International Atomic Energy Agency (IAEA) meets on March 6 to discuss the next step in resolving Iran's nuclear row with the West.
Iraq, which has been struggling to get oil output back to pre-war levels, is suffering the worst sectarian violence since the fall of Saddam Hussein, compounding the geopolitical risks in the Middle East.
Reuters
Stocks open little changed after Saudi blast
Friday February 24, 9:39 am ET
NEW YORK (Reuters) - U.S. stocks opened little changed on Friday after explosions and shooting at a Saudi Arabian oil facility sent oil futures climbing and erased early gains by stock index futures.
The Dow Jones industrial average (^DJI - News) was up 1.44 points, or 0.01 percent, at 11,070.66. The Standard & Poor's 500 Index (^SPX - News) was up 0.12 point, or 0.01 percent, at 1,287.91. The Nasdaq Composite Index (NasdaqSC:^IXIC - News) was down 1.05 points, or 0.05 percent, at 2,278.27.
Stocks open little changed after Saudi blast
Friday February 24, 9:39 am ET
NEW YORK (Reuters) - U.S. stocks opened little changed on Friday after explosions and shooting at a Saudi Arabian oil facility sent oil futures climbing and erased early gains by stock index futures.
The Dow Jones industrial average (^DJI - News) was up 1.44 points, or 0.01 percent, at 11,070.66. The Standard & Poor's 500 Index (^SPX - News) was up 0.12 point, or 0.01 percent, at 1,287.91. The Nasdaq Composite Index (NasdaqSC:^IXIC - News) was down 1.05 points, or 0.05 percent, at 2,278.27.
Japan's 5-Year Notes Tumble; Yields Jump to Highest Since 2000
Feb. 24 (Bloomberg) -- Japan's five-year notes tumbled, pushing yields to the highest since 2000, after the Yomiuri newspaper said the central bank may start to end its five-year deflation-fighting policy as early as next month.
The Bank of Japan may rein in its policy of making funds available to banks when board members end a two-day meeting on March 9, the Yomiuri said. A change may lead to the bank raising interest rates from near zero percent and prompt investors to demand higher yields in the world's biggest bond market.
``The sell-off happened because of speculation there will be a policy change soon,'' said Yoshihiro Ishida, who helps oversee the equivalent of $2.6 billion in Tokyo at Meiji Dresdner Asset Management Co. ``That's hurting two- and five-year notes.''
The yield on the 1 percent government note due in December 2010 increased 10 basis points to 1.1 percent as of 3:13 p.m. in Tokyo, the most since November 2000, according to Japan Bond Trading. Its price fell 0.457 yen to 99.543 yen. A basis point is 0.01 percentage point.
The yield on the 0.3 percent note maturing in February 2008 rose 5.5 basis points to 0.45 percent, the highest since January 2001. Its price fell 0.106 yen to 99.708 yen.
``We expect gains in core consumer prices will become clearer from now,'' BOJ Governor Toshihiko Fukui told parliament today in Tokyo. ``Conditions to shift our policy are being met gradually.''
The bank has pledged to stick with its policy until core prices stop falling for at least a few months and policy makers are sure they won't start sliding again. Fukui's comments indicate that the second of these conditions may soon be met. The bank also needs to be confident about the overall strength of the economy.
Inflation
Core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, in December posted their first back-to-back monthly gain since April 1998.
Twenty-year bonds earlier rose on speculation pension funds and other investors are buying to match a change the biggest change in a benchmark index in nine months.
Nomura Securities Co. will add debt including 10- and 20-year bonds sold this month to its Bond Performance Index in March. Demand from investors who follow the index, such as Japan's Government Pension Investment Fund, may help drive down yields.
``Investors who follow the index will continue to buy longer bonds,'' said Makoto Yamashita, chief Japanese government fixed- income strategist in Tokyo at Lehman Brothers Japan Inc., one of 25 primary dealers that discuss debt sales with the Ministry of Finance and have to bid for a minimum amount of bonds at auctions.
Nomura Securities will extend its index's duration by 0.15 year for March, said Shinji Hiramatsu, a fund manager in Tokyo at Sompo Japan Asset Management Co. It will be the biggest increase since June, when it pushed up the figure by 0.17 year. Duration measures a bond price's sensitivity to changes in yield.
Biggest Pension Fund
The yield on the 2 percent bond due December 2025 was unchanged at 2 percent after earlier falling to 1.98 percent.
Japan's government pension fund, the world's largest pool of retirement wealth at 58.5 trillion yen ($501 billion), has increased the amount of holdings it matches to the benchmark index.
The fund raised the weighting to 78.6 percent at the end of March from 31.6 percent four years earlier, according to a Fund Investment Operations note on the firm's Web site. The figures are the most recent available. About 55 percent of the fund's money invested in marketable securities is in bonds, the report said.
Yesterday central bank governor Fukui said the Bank of Japan will ``immediately'' shift policy once core consumer prices show solid gains and the bank is confident about the economy's overall strength, though an end to pumping funds into banks won't signal an immediate change in interest rates.
`Can't Stop Him'
Japan's government may say on March 3 that core consumer prices rose 0.4 percent in January, according to the median estimate of 12 economists in a Bloomberg survey. That would be the fastest pace since March 1998.
Finance Minister Sadakazu Tanigaki said deflation still persists in Japan, although there have been some signs that it is easing. He repeated that the BOJ and the government must cooperate to beat deflation. His comments came before Fukui spoke today.
``Some financial institutions believed Fukui would delay the action but the government can't stop him,'' said Xinyi Lu, chief strategist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender. ``It shocked some investors and they finally decided to cut their losses.''
Ten-year bond futures for March delivery dropped 0.62 to 135.65 on the Tokyo Stock Exchange.
Feb. 24 (Bloomberg) -- Japan's five-year notes tumbled, pushing yields to the highest since 2000, after the Yomiuri newspaper said the central bank may start to end its five-year deflation-fighting policy as early as next month.
The Bank of Japan may rein in its policy of making funds available to banks when board members end a two-day meeting on March 9, the Yomiuri said. A change may lead to the bank raising interest rates from near zero percent and prompt investors to demand higher yields in the world's biggest bond market.
``The sell-off happened because of speculation there will be a policy change soon,'' said Yoshihiro Ishida, who helps oversee the equivalent of $2.6 billion in Tokyo at Meiji Dresdner Asset Management Co. ``That's hurting two- and five-year notes.''
The yield on the 1 percent government note due in December 2010 increased 10 basis points to 1.1 percent as of 3:13 p.m. in Tokyo, the most since November 2000, according to Japan Bond Trading. Its price fell 0.457 yen to 99.543 yen. A basis point is 0.01 percentage point.
The yield on the 0.3 percent note maturing in February 2008 rose 5.5 basis points to 0.45 percent, the highest since January 2001. Its price fell 0.106 yen to 99.708 yen.
``We expect gains in core consumer prices will become clearer from now,'' BOJ Governor Toshihiko Fukui told parliament today in Tokyo. ``Conditions to shift our policy are being met gradually.''
The bank has pledged to stick with its policy until core prices stop falling for at least a few months and policy makers are sure they won't start sliding again. Fukui's comments indicate that the second of these conditions may soon be met. The bank also needs to be confident about the overall strength of the economy.
Inflation
Core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, in December posted their first back-to-back monthly gain since April 1998.
Twenty-year bonds earlier rose on speculation pension funds and other investors are buying to match a change the biggest change in a benchmark index in nine months.
Nomura Securities Co. will add debt including 10- and 20-year bonds sold this month to its Bond Performance Index in March. Demand from investors who follow the index, such as Japan's Government Pension Investment Fund, may help drive down yields.
``Investors who follow the index will continue to buy longer bonds,'' said Makoto Yamashita, chief Japanese government fixed- income strategist in Tokyo at Lehman Brothers Japan Inc., one of 25 primary dealers that discuss debt sales with the Ministry of Finance and have to bid for a minimum amount of bonds at auctions.
Nomura Securities will extend its index's duration by 0.15 year for March, said Shinji Hiramatsu, a fund manager in Tokyo at Sompo Japan Asset Management Co. It will be the biggest increase since June, when it pushed up the figure by 0.17 year. Duration measures a bond price's sensitivity to changes in yield.
Biggest Pension Fund
The yield on the 2 percent bond due December 2025 was unchanged at 2 percent after earlier falling to 1.98 percent.
Japan's government pension fund, the world's largest pool of retirement wealth at 58.5 trillion yen ($501 billion), has increased the amount of holdings it matches to the benchmark index.
The fund raised the weighting to 78.6 percent at the end of March from 31.6 percent four years earlier, according to a Fund Investment Operations note on the firm's Web site. The figures are the most recent available. About 55 percent of the fund's money invested in marketable securities is in bonds, the report said.
Yesterday central bank governor Fukui said the Bank of Japan will ``immediately'' shift policy once core consumer prices show solid gains and the bank is confident about the economy's overall strength, though an end to pumping funds into banks won't signal an immediate change in interest rates.
`Can't Stop Him'
Japan's government may say on March 3 that core consumer prices rose 0.4 percent in January, according to the median estimate of 12 economists in a Bloomberg survey. That would be the fastest pace since March 1998.
Finance Minister Sadakazu Tanigaki said deflation still persists in Japan, although there have been some signs that it is easing. He repeated that the BOJ and the government must cooperate to beat deflation. His comments came before Fukui spoke today.
``Some financial institutions believed Fukui would delay the action but the government can't stop him,'' said Xinyi Lu, chief strategist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender. ``It shocked some investors and they finally decided to cut their losses.''
Ten-year bond futures for March delivery dropped 0.62 to 135.65 on the Tokyo Stock Exchange.
Asian Stocks Climb to Three-Week Highs; Mitsubishi UFJ Gains
Feb. 27 (Bloomberg) -- Asian stocks climbed to three-week highs, led by Japanese banks such as Mitsubishi UFJ Financial Group Inc., on speculation reports this week will show the economy is recovering from a seven-year bout of deflation.
Steelmakers rose after Japan's Nihon Keizai newspaper said Nippon Steel Corp. and JFE Holdings Inc. will report record profits this business year. South Korea's Posco advanced.
``Investors expect reports this week will show Japan's recovery from deflation and that's driving domestic demand- related stocks higher,'' said Mitsushige Akino, who oversees $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The prospects for the steel industry are quite positive, supported by strong demand.''
The Morgan Stanley Capital International Asia-Pacific Index added 1.1 percent to 128.42 as of 3:45 p.m. in Tokyo, the highest since Feb. 7. All 10 of the measure's industry groups advanced. Woodside Petroleum Ltd. and PetroChina Co. gained after crude oil had its biggest jump in five months on Feb. 24 in New York.
Japan's Nikkei 225 Stock Average added 0.6 percent to 16,192.95, completing its first three-day gain this month. Government reports on industrial production and core consumer prices are due this week.
Stock indexes advanced around the region, except in New Zealand and Pakistan. India's Sensitive index rose 0.7 percent, set for a record close, while the Hang Seng Index climbed for a 10th day in Hong Kong, headed for its longest winning stretch in two years.
Indonesia's Jakarta Composite Index had the biggest jump in Asia, climbing 1.9 percent. Moody's Investors Service said it may raise the nation's credit rating because of the government's declining budget deficit. PT Telekomunikasi Indonesia led gains.
Mitsubishi UFJ
Mitsubishi UFJ, Japan's largest lender by assets, gained 2.4 percent to 1.7 million yen. Mizuho Financial Group Inc., the second largest, climbed 1.8 percent to 943,000 yen.
A government report tomorrow will probably show Japan's industrial production rose 0.5 percent in January for a sixth straight month, according to a Bloomberg survey of 30 economists.
The government may also say on March 3 that core consumer prices, which exclude fresh food, rose 0.4 percent in January, according to the median estimate of 29 economists surveyed by Bloomberg News. That would be the fastest pace since March 1998.
Rising consumer prices suggest that Bank of Japan may soon end its five-year policy of holding interest rates near zero.
Komatsu Ltd., the world's second-biggest maker of earth- moving machines, jumped 4.2 percent to 2,100 yen. Millea Holdings Inc., Japan's largest non-life insurer, rose 2.2 percent to 2.31 million yen.
Steel Demand
The MSCI Asia-Pacific Materials Index gained 1.7 percent, adding to a four-day, 5 percent rally.
Nippon Steel, Asia's largest steelmaker, rose 5.2 percent to 465 yen. The stock has risen in nine of the past 10 days, climbing 12 percent. JFE, the second biggest, jumped 3.8 percent to 4,420 yen, its fifth day of advance.
Posco, the region's No. 3 steelmaker, rose 2.2 percent to 237,000 won. The shares have jumped 13 percent since Feb. 14.
Last week, Goldman, Sachs & Co. raised its recommendation on U.S. steel producers to ``attractive'' from ``neutral,'' citing higher prices in China and Europe. Baoshan Iron & Steel Co., the listed unit of China's biggest steelmaker, said Feb. 24 rising demand will enable it increase prices as much as 18 percent next quarter.
Nippon Steel, China Steel
Nippon Steel will probably report a 40 percent jump in current profit, or pretax profit from operations, to 520 billion yen ($4.5 billion), for the year ending March 31 on increasing demand for steel used in automobiles, the Nihon Keizai reported.
The result would mark a second year of record profit and exceed the company's own estimate by 25 billion yen, the newspaper said, without saying where it got the information. Nippon Steel will also boost its dividend payout to as much as 9 yen a share, from 5 yen last fiscal year, as a result of the higher profit, the Nihon Keizai reported.
Nippon Steel will announce its forecast for profit this fiscal year on March 2, Tokyo-based spokesman Hiroshi Nakashima said, declining to comment further on the report.
JFE will also say that full-year pretax profit climbed 9 percent to a record 500 billion yen, the Nihon Keizai said.
Sumitomo Metal Industries Ltd., Japan's No. 3 producer of the alloy, gained 3.6 percent to 520 yen. China Steel Corp., Taiwan's largest steelmaker, advanced 1.7 percent to NT$29.55.
PetroChina, the nation's largest oil producer, gained 2 percent to HK$7.75. Woodside, Australia's second-biggest oil producer, climbed 0.8 percent to A$41.36. Santos Ltd., Australia's third biggest, added 1 percent to A$11.71.
`Huge Profits'
Crude-oil futures jumped 3.9 percent to $62.91 a barrel on Feb. 24, the biggest gain since Sept. 19, because of an attempted attack on a processing plant in Saudi Arabia, the world's largest petroleum producer.
At least two bombs exploded outside the Abqaiq oil center, which handles two-thirds of supply from the world's largest producer, during a foiled suicide attack. Oil prices retreated 1 percent to $62.14 today after Saudi oil production and exports were unaffected by the incident.
Al-Qaeda, which has targeted Saudi Arabia's oil industry, threatened to keep attacking the nation's oil production sites until foreigners leave the peninsula, Agence-France Presse reported on Feb. 25.
``I can't see oil prices going significantly lower any time soon,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``Oil companies will make huge profits.''
Indonesia
Telekomunikasi, Indonesia's biggest telephone company, gained 2.4 percent to 6,300 rupiah. PT Perusahaan Gas Negara, Indonesia's second-largest publicly traded company, climbed 2.6 percent to 9,800 rupiah.
Moody's became the second rating company this month to say it may raise the rating on Southeast Asia's largest economy. Standard & Poor's on Feb. 9 raised its outlook on Indonesia's B+ foreign-currency debt rating to ``positive'' from ``stable.'' Moody's rates Indonesia's debt at B2, the fifth junk rating.
Elsewhere in the region, Want Want Holdings Ltd. jumped 8.4 percent to $1.29, the biggest advance on the MSCI World Index. The maker of rice crackers and sweets said fourth-quarter profit almost doubled to $39.5 million as sales to China increased.
To contact the reporter for this story:
Michael Tsang in Tokyo at mtsang1@bloomberg.net.
Feb. 27 (Bloomberg) -- Asian stocks climbed to three-week highs, led by Japanese banks such as Mitsubishi UFJ Financial Group Inc., on speculation reports this week will show the economy is recovering from a seven-year bout of deflation.
Steelmakers rose after Japan's Nihon Keizai newspaper said Nippon Steel Corp. and JFE Holdings Inc. will report record profits this business year. South Korea's Posco advanced.
``Investors expect reports this week will show Japan's recovery from deflation and that's driving domestic demand- related stocks higher,'' said Mitsushige Akino, who oversees $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The prospects for the steel industry are quite positive, supported by strong demand.''
The Morgan Stanley Capital International Asia-Pacific Index added 1.1 percent to 128.42 as of 3:45 p.m. in Tokyo, the highest since Feb. 7. All 10 of the measure's industry groups advanced. Woodside Petroleum Ltd. and PetroChina Co. gained after crude oil had its biggest jump in five months on Feb. 24 in New York.
Japan's Nikkei 225 Stock Average added 0.6 percent to 16,192.95, completing its first three-day gain this month. Government reports on industrial production and core consumer prices are due this week.
Stock indexes advanced around the region, except in New Zealand and Pakistan. India's Sensitive index rose 0.7 percent, set for a record close, while the Hang Seng Index climbed for a 10th day in Hong Kong, headed for its longest winning stretch in two years.
Indonesia's Jakarta Composite Index had the biggest jump in Asia, climbing 1.9 percent. Moody's Investors Service said it may raise the nation's credit rating because of the government's declining budget deficit. PT Telekomunikasi Indonesia led gains.
Mitsubishi UFJ
Mitsubishi UFJ, Japan's largest lender by assets, gained 2.4 percent to 1.7 million yen. Mizuho Financial Group Inc., the second largest, climbed 1.8 percent to 943,000 yen.
A government report tomorrow will probably show Japan's industrial production rose 0.5 percent in January for a sixth straight month, according to a Bloomberg survey of 30 economists.
The government may also say on March 3 that core consumer prices, which exclude fresh food, rose 0.4 percent in January, according to the median estimate of 29 economists surveyed by Bloomberg News. That would be the fastest pace since March 1998.
Rising consumer prices suggest that Bank of Japan may soon end its five-year policy of holding interest rates near zero.
Komatsu Ltd., the world's second-biggest maker of earth- moving machines, jumped 4.2 percent to 2,100 yen. Millea Holdings Inc., Japan's largest non-life insurer, rose 2.2 percent to 2.31 million yen.
Steel Demand
The MSCI Asia-Pacific Materials Index gained 1.7 percent, adding to a four-day, 5 percent rally.
Nippon Steel, Asia's largest steelmaker, rose 5.2 percent to 465 yen. The stock has risen in nine of the past 10 days, climbing 12 percent. JFE, the second biggest, jumped 3.8 percent to 4,420 yen, its fifth day of advance.
Posco, the region's No. 3 steelmaker, rose 2.2 percent to 237,000 won. The shares have jumped 13 percent since Feb. 14.
Last week, Goldman, Sachs & Co. raised its recommendation on U.S. steel producers to ``attractive'' from ``neutral,'' citing higher prices in China and Europe. Baoshan Iron & Steel Co., the listed unit of China's biggest steelmaker, said Feb. 24 rising demand will enable it increase prices as much as 18 percent next quarter.
Nippon Steel, China Steel
Nippon Steel will probably report a 40 percent jump in current profit, or pretax profit from operations, to 520 billion yen ($4.5 billion), for the year ending March 31 on increasing demand for steel used in automobiles, the Nihon Keizai reported.
The result would mark a second year of record profit and exceed the company's own estimate by 25 billion yen, the newspaper said, without saying where it got the information. Nippon Steel will also boost its dividend payout to as much as 9 yen a share, from 5 yen last fiscal year, as a result of the higher profit, the Nihon Keizai reported.
Nippon Steel will announce its forecast for profit this fiscal year on March 2, Tokyo-based spokesman Hiroshi Nakashima said, declining to comment further on the report.
JFE will also say that full-year pretax profit climbed 9 percent to a record 500 billion yen, the Nihon Keizai said.
Sumitomo Metal Industries Ltd., Japan's No. 3 producer of the alloy, gained 3.6 percent to 520 yen. China Steel Corp., Taiwan's largest steelmaker, advanced 1.7 percent to NT$29.55.
PetroChina, the nation's largest oil producer, gained 2 percent to HK$7.75. Woodside, Australia's second-biggest oil producer, climbed 0.8 percent to A$41.36. Santos Ltd., Australia's third biggest, added 1 percent to A$11.71.
`Huge Profits'
Crude-oil futures jumped 3.9 percent to $62.91 a barrel on Feb. 24, the biggest gain since Sept. 19, because of an attempted attack on a processing plant in Saudi Arabia, the world's largest petroleum producer.
At least two bombs exploded outside the Abqaiq oil center, which handles two-thirds of supply from the world's largest producer, during a foiled suicide attack. Oil prices retreated 1 percent to $62.14 today after Saudi oil production and exports were unaffected by the incident.
Al-Qaeda, which has targeted Saudi Arabia's oil industry, threatened to keep attacking the nation's oil production sites until foreigners leave the peninsula, Agence-France Presse reported on Feb. 25.
``I can't see oil prices going significantly lower any time soon,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``Oil companies will make huge profits.''
Indonesia
Telekomunikasi, Indonesia's biggest telephone company, gained 2.4 percent to 6,300 rupiah. PT Perusahaan Gas Negara, Indonesia's second-largest publicly traded company, climbed 2.6 percent to 9,800 rupiah.
Moody's became the second rating company this month to say it may raise the rating on Southeast Asia's largest economy. Standard & Poor's on Feb. 9 raised its outlook on Indonesia's B+ foreign-currency debt rating to ``positive'' from ``stable.'' Moody's rates Indonesia's debt at B2, the fifth junk rating.
Elsewhere in the region, Want Want Holdings Ltd. jumped 8.4 percent to $1.29, the biggest advance on the MSCI World Index. The maker of rice crackers and sweets said fourth-quarter profit almost doubled to $39.5 million as sales to China increased.
To contact the reporter for this story:
Michael Tsang in Tokyo at mtsang1@bloomberg.net.
UPDATE 1-Japan braces for near-term BOJ policy shift
Mon Feb 27, 2006 1:45 AM ET
By Chisa Fujioka
TOKYO, Feb 27 (Reuters) - Japan braced for a near-term end to the Bank of Japan's ultra-easy policy on Monday after key government officials appeared to endorse a move and a poll showed that markets think the shift is set for April.
Government bond yields hit new five-year highs -- back to levels before the BOJ started its policy of flooding the banking system with huge amounts of money in March 2001 -- while the yen rose to a one-month high against the dollar and a six-week peak versus the euro.
Following hawkish comments from senior BOJ officials last week, Prime Minister Junichiro Koizumi sounded more resigned than ever to a policy shift despite worries that an eventual rise in interest rates may hamper government efforts to trim state debt.
"What measures are needed is something that the BOJ will determine, in line with the government and BOJ's mandate of overcoming deflation," he told reporters.
On Sunday, Economics Minister Kaoru Yosano gave his strongest endorsement yet to a policy shift, saying the BOJ should feel free to end its so-called quantitative easing policy once conditions for a move were met.
In a sign that government is becoming less resistant to a BOJ policy shift, top government spokesman Shinzo Abe told a news conference on Monday that Yosano's view should be respected.
The BOJ has vowed to stick to its policy of supplying the banking system with excess funds and pinning interest rates near zero until the core consumer price index shows consistent year-on-year rises.
A 0.1 percent gain in December core CPI, excluding fresh food prices, and expectations for a 0.4 percent jump in January have bolstered expectations for a policy shift in April, while some in the market are speculating on a move as early as the BOJ's March 8-9 meeting. January nationwide CPI data is due out on Friday.
DONE DEAL
A top executive of Japan's ruling Liberal Democratic Party warned on Monday that the BOJ should be sure deflation is over for good before it scraps its ultra-easy policy, but analysts say data over the next few months should start showing that. I hope the BOJ makes a decision based on confidence that there will be no return to deflation and that it can explain that," LDP policy council chief Hidenao Nakagawa told a business conference.
In a poll by Reuters and Jiji Press news agency, all but three of 88 analysts, traders and fund managers cited dates in April or March for an end to quantitative easing.
Nearly two-thirds, or 57, forecast the BOJ would end quantitative easing at its April 28 policy meeting, with a majority of them noting that the BOJ was due to publish its semi-annual outlook report on that day.
They added that March consumer price index data, due out on the same day, would likely show core CPI was at or above year-ago levels for the sixth consecutive month.
Comments from senior BOJ officials in recent weeks suggest the central bank has reached consensus on changing the course of monetary policy in the coming months, although they have been vague on plans for guiding market expectations under a new policy framework.
BOJ Governor Toshihiko Fukui said last week that the central bank would act promptly once conditions were in place and would eventually raise rates to a "neutral" level, or one that neither stimulates or hinders economic activity.
© Reuters 2006. All Rights Reserved.
Mon Feb 27, 2006 1:45 AM ET
By Chisa Fujioka
TOKYO, Feb 27 (Reuters) - Japan braced for a near-term end to the Bank of Japan's ultra-easy policy on Monday after key government officials appeared to endorse a move and a poll showed that markets think the shift is set for April.
Government bond yields hit new five-year highs -- back to levels before the BOJ started its policy of flooding the banking system with huge amounts of money in March 2001 -- while the yen rose to a one-month high against the dollar and a six-week peak versus the euro.
Following hawkish comments from senior BOJ officials last week, Prime Minister Junichiro Koizumi sounded more resigned than ever to a policy shift despite worries that an eventual rise in interest rates may hamper government efforts to trim state debt.
"What measures are needed is something that the BOJ will determine, in line with the government and BOJ's mandate of overcoming deflation," he told reporters.
On Sunday, Economics Minister Kaoru Yosano gave his strongest endorsement yet to a policy shift, saying the BOJ should feel free to end its so-called quantitative easing policy once conditions for a move were met.
In a sign that government is becoming less resistant to a BOJ policy shift, top government spokesman Shinzo Abe told a news conference on Monday that Yosano's view should be respected.
The BOJ has vowed to stick to its policy of supplying the banking system with excess funds and pinning interest rates near zero until the core consumer price index shows consistent year-on-year rises.
A 0.1 percent gain in December core CPI, excluding fresh food prices, and expectations for a 0.4 percent jump in January have bolstered expectations for a policy shift in April, while some in the market are speculating on a move as early as the BOJ's March 8-9 meeting. January nationwide CPI data is due out on Friday.
DONE DEAL
A top executive of Japan's ruling Liberal Democratic Party warned on Monday that the BOJ should be sure deflation is over for good before it scraps its ultra-easy policy, but analysts say data over the next few months should start showing that. I hope the BOJ makes a decision based on confidence that there will be no return to deflation and that it can explain that," LDP policy council chief Hidenao Nakagawa told a business conference.
In a poll by Reuters and Jiji Press news agency, all but three of 88 analysts, traders and fund managers cited dates in April or March for an end to quantitative easing.
Nearly two-thirds, or 57, forecast the BOJ would end quantitative easing at its April 28 policy meeting, with a majority of them noting that the BOJ was due to publish its semi-annual outlook report on that day.
They added that March consumer price index data, due out on the same day, would likely show core CPI was at or above year-ago levels for the sixth consecutive month.
Comments from senior BOJ officials in recent weeks suggest the central bank has reached consensus on changing the course of monetary policy in the coming months, although they have been vague on plans for guiding market expectations under a new policy framework.
BOJ Governor Toshihiko Fukui said last week that the central bank would act promptly once conditions were in place and would eventually raise rates to a "neutral" level, or one that neither stimulates or hinders economic activity.
© Reuters 2006. All Rights Reserved.
........The Yen may rise to 110 in the coming months....
Yen Climbs on Speculation Bank of Japan Preparing to Shift Policy in March
Feb. 27 (Bloomberg) -- The yen advanced to a one-month high against the dollar after Japanese officials said the government supports central bank plans to end deflation-fighting policies.
There's ``hardly any difference between the Bank of Japan and the government's views of the economy,'' said Fiscal and Economic Policy Minister Kaoru Yosano in a televised interview yesterday. The yen extended gains as Prime Minister Junichiro Koizumi said today the central bank should decide when to cut the amount of cash pumped into banks, a precursor to raising interest rates.
``There's potential for the yen to strengthen,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``Acceptance by the government the BOJ will move policy soon has generated interest.''
The yen rose to 116.18 against the dollar as of 7:25 a.m. in Tokyo from 116.90 in late trading in New York on Feb. 24. The currency rose as far as 115.70, the most since Jan. 26 when it touched 115.45. It gained to 137.70 versus the euro, from 138.82. The yen advanced against 61 of the 62 currencies Bloomberg tracks.
Japan's currency may rise to 110 in coming months, Gibbs said.
``The current rebound in the economy has legs,'' Yosano said on NHK's ``Sunday Debate'' program in Japan yesterday. ``It's okay for the central bank to change policy'' when conditions are met.
BOJ Pledge
The Bank of Japan has pledged to stick with its policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding. The bank has held rates near zero percent since 2001.
``The government and the Bank of Japan have united efforts to beat deflation, and the issue is how the central bank will judge necessary steps, following this policy,'' Koizumi said in Tokyo.
The government's endorsement marks a change from late last year when comments from lawmakers such as Liberal Democratic Party policy chief Hidenao Nakagawa suggested the Bank of Japan would need agreement from the government before changing its stance.
The bank should decide independently on when to shift policy and decide on what tools to use after that, Nakagawa said today in Tokyo. On Nov. 13 he had said the bank had ``no independence'' from the government, according to a Nihon Keizai newspaper report.
Under Bank of Japan law, government representatives to the central bank's policy board can urge it to postpone a change in monetary stance. The representatives have no voting rights.
Governor Toshihiko Fukui on Feb. 24 said a seven-year bout of deflation was nearly over and the BOJ would ``gradually'' move toward lifting rates from zero.
`Trigger'
``There's this building case that the BOJ will be changing policy soon,'' said Adrian Foster, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein. ``That's the trigger we've been looking for regarding the yen.''
The dollar may rise versus the euro on speculation reports in the U.S. this week will fuel expectations that the Federal Reserve will keep lifting benchmark interest rates.
Economic reports will show production, income and job gains, according to economists surveyed by Bloomberg News, suggesting the Fed will add to its 14 consecutive rate increases since June 2004 at a meeting next month. The extra yield on dollar-denominated assets over equivalents in Europe helped the U.S. currency rally about 14 percent against the euro last year.
``The U.S. dollar is going to continue to go higher,'' said Craig Ferguson, a currency strategist in Melbourne at Australia & New Zealand Banking Group Ltd. ``U.S. interest-rate differentials are going to help the dollar.''
`Go Higher'
The U.S. currency traded at $1.1851 from $1.1857 on Feb. 24.
The Fed has raised its benchmark rate a quarter percentage point at 14 consecutive policy meetings to 4.5 percent. The European Central Bank increased rates by a quarter percentage point in December for the first time in five years. The next Fed meeting is scheduled for March 28.
Japan's government has decided to endorse any change in BOJ stance at the next policy-setting meeting on March 8 and 9, the Yomiuri daily said today. Policy makers may vote to end the stance of pumping cash into the economy at the March meeting, it added.
``The gain in the yen is in reaction'' to the Yomiuri report and comments from officials, said Ashley Davies, a currency strategist in Singapore at UBS AG. The yen may climb to 115 against the dollar over the next few months, Davies said.
Japan's government may say March 3 that core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists in a Bloomberg survey. That would be the fastest since March 1998. Core prices in December posted their first back-to-back monthly gain since April 1998.
Forty-eight percent of the 48 traders, strategists and investors surveyed on Feb. 24 from Sydney to New York advised buying the euro against the dollar, compared with 42 percent who said to sell the 12-nation currency.
To contact the reporter on this story:
Chris Cooper in Tokyo at ccooper1@bloomberg.net
Last Updated: February 27, 2006 02:27 EST
Yen Climbs on Speculation Bank of Japan Preparing to Shift Policy in March
Feb. 27 (Bloomberg) -- The yen advanced to a one-month high against the dollar after Japanese officials said the government supports central bank plans to end deflation-fighting policies.
There's ``hardly any difference between the Bank of Japan and the government's views of the economy,'' said Fiscal and Economic Policy Minister Kaoru Yosano in a televised interview yesterday. The yen extended gains as Prime Minister Junichiro Koizumi said today the central bank should decide when to cut the amount of cash pumped into banks, a precursor to raising interest rates.
``There's potential for the yen to strengthen,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``Acceptance by the government the BOJ will move policy soon has generated interest.''
The yen rose to 116.18 against the dollar as of 7:25 a.m. in Tokyo from 116.90 in late trading in New York on Feb. 24. The currency rose as far as 115.70, the most since Jan. 26 when it touched 115.45. It gained to 137.70 versus the euro, from 138.82. The yen advanced against 61 of the 62 currencies Bloomberg tracks.
Japan's currency may rise to 110 in coming months, Gibbs said.
``The current rebound in the economy has legs,'' Yosano said on NHK's ``Sunday Debate'' program in Japan yesterday. ``It's okay for the central bank to change policy'' when conditions are met.
BOJ Pledge
The Bank of Japan has pledged to stick with its policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding. The bank has held rates near zero percent since 2001.
``The government and the Bank of Japan have united efforts to beat deflation, and the issue is how the central bank will judge necessary steps, following this policy,'' Koizumi said in Tokyo.
The government's endorsement marks a change from late last year when comments from lawmakers such as Liberal Democratic Party policy chief Hidenao Nakagawa suggested the Bank of Japan would need agreement from the government before changing its stance.
The bank should decide independently on when to shift policy and decide on what tools to use after that, Nakagawa said today in Tokyo. On Nov. 13 he had said the bank had ``no independence'' from the government, according to a Nihon Keizai newspaper report.
Under Bank of Japan law, government representatives to the central bank's policy board can urge it to postpone a change in monetary stance. The representatives have no voting rights.
Governor Toshihiko Fukui on Feb. 24 said a seven-year bout of deflation was nearly over and the BOJ would ``gradually'' move toward lifting rates from zero.
`Trigger'
``There's this building case that the BOJ will be changing policy soon,'' said Adrian Foster, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein. ``That's the trigger we've been looking for regarding the yen.''
The dollar may rise versus the euro on speculation reports in the U.S. this week will fuel expectations that the Federal Reserve will keep lifting benchmark interest rates.
Economic reports will show production, income and job gains, according to economists surveyed by Bloomberg News, suggesting the Fed will add to its 14 consecutive rate increases since June 2004 at a meeting next month. The extra yield on dollar-denominated assets over equivalents in Europe helped the U.S. currency rally about 14 percent against the euro last year.
``The U.S. dollar is going to continue to go higher,'' said Craig Ferguson, a currency strategist in Melbourne at Australia & New Zealand Banking Group Ltd. ``U.S. interest-rate differentials are going to help the dollar.''
`Go Higher'
The U.S. currency traded at $1.1851 from $1.1857 on Feb. 24.
The Fed has raised its benchmark rate a quarter percentage point at 14 consecutive policy meetings to 4.5 percent. The European Central Bank increased rates by a quarter percentage point in December for the first time in five years. The next Fed meeting is scheduled for March 28.
Japan's government has decided to endorse any change in BOJ stance at the next policy-setting meeting on March 8 and 9, the Yomiuri daily said today. Policy makers may vote to end the stance of pumping cash into the economy at the March meeting, it added.
``The gain in the yen is in reaction'' to the Yomiuri report and comments from officials, said Ashley Davies, a currency strategist in Singapore at UBS AG. The yen may climb to 115 against the dollar over the next few months, Davies said.
Japan's government may say March 3 that core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists in a Bloomberg survey. That would be the fastest since March 1998. Core prices in December posted their first back-to-back monthly gain since April 1998.
Forty-eight percent of the 48 traders, strategists and investors surveyed on Feb. 24 from Sydney to New York advised buying the euro against the dollar, compared with 42 percent who said to sell the 12-nation currency.
To contact the reporter on this story:
Chris Cooper in Tokyo at ccooper1@bloomberg.net
Last Updated: February 27, 2006 02:27 EST
Japan's Debt Straitjacket Is Out of Style: William Pesek Jr.
Feb. 27 (Bloomberg) -- Now that Japan is back, the hard part begins: getting the world's No. 2 economy out of debt.
Amid the euphoria over the end of deflation and a likely change in central bank policy, it's easy to forget that Japan remains addicted to borrowed money. For all the concern about the U.S. budget deficit, it's just 2.4 percent of gross domestic product, while Japan's is 6.9 percent.
Japan grew five times faster than the U.S. in the fourth quarter -- at an annual rate of 5.5 percent -- leaving little doubt this recovery is real. It's time Japan weaned itself off an unhealthy reliance on debt. The debt-to-GDP ratio is pushing 151 percent, by far the worst among industrialized nations.
Sadly, the issue is getting little traction in Tokyo. Prime Minister Junichiro Koizumi has pledged for years to reduce public debt, and he's made no progress. Doing so is necessary to avoid higher borrowing costs and to make room for companies to issue bonds. It also would return a sense of normalcy to an economy that for too long has relied on fiscal stimulants.
Because it's a uniquely wealthy nation, Japan has been able to borrow with abandon. After its asset bubbles of the 1980s burst, it relied on public-works projects to create jobs and support regional economies. Financed with debt, the strategy left Japan with the same local-currency bond rating as Kuwait, Latvia and Mauritius, and one notch lower than Botswana.
Rising Yields
Even so, 10-year yields are a scant 1.57 percent, while Australia, a top-rated nation, must pay 10-year investors 5.20 percent. The clubby nature of Japan's market keeps interest rates low; about 95 percent of government securities are held domestically. It explains how Japan manages to keep borrowing costs negligible even as it sells mountains of debt.
The arrangement will be tested as the Bank of Japan abandons its policy of holding short-term interest rates near zero. What's more, the BOJ is about to embark on its first sustained campaign to raise rates in more than a decade. Any resulting increases in borrowing costs will squeeze government coffers.
Only then will investors know how durable Japan's revival really is. Yes, Japan's biggest banks are healthy again, companies are restructuring and household spending is perking up. Yet the national economy is still operating with the benefit of artificial pick-me-ups, and huge ones at that.
The Fat Years
``Unless Japan moves to reduce its fiscal deficit sharply -- in the fat years of this business cycle -- its public sector debt-to-GDP ratio will rise without limit,'' said Carl Weinberg, chief economist at Valhalla, New York-based High Frequency Economics.
How efficiently Japan uses this window of opportunity to kick its debt addiction will say much about its outlook. Demographic trends are but one concern. Because of a low birthrate of 1.26 children per woman, Japan's population actually shrank in 2005.
``If the current birthrate, which is the lowest in the major developed countries, continues, there will be no Japanese,'' Jim Rogers, who co-founded the Quantum fund with George Soros in 1970, said in Tokyo last month. ``Who will pay the enormous debt?''
Debt could become a problem much sooner. ``The longer Japan waits to start acting, the more fiscal tightening will have to be implemented overall,'' Weinberg said. ``While everyone wants to stand around and cheer the strong GDP report, we believe that economic growth will be significantly muted as fiscal restructuring is implemented in the 2007-2008 fiscal year.''
It's Been a While
There's also a nagging risk that Japan's banking system isn't as ready for higher rates as many investors believe. Japan's major lenders are no longer crippled by bad loans, yet many bankers haven't experienced a rising-rate environment. For those who have, it's been 15 years since they needed to worry about tightening credit conditions.
Banks are major holders of government bonds. Such securities are also the main financial asset held by Japanese pension funds, insurance companies, government-run institutions, the postal savings system and individuals. If bond yields shoot higher, just about every sector of the economy will feel the pain.
Now that Japan is growing again, observers are commending Koizumi, who came to power in April 2001 promising ``reform without sacred cows.'' While Koizumi deserves credit for pushing for change, Japan's revival owes far more to China. Its boom both increased demand for Japan's exports and scared executives into making companies more competitive and profitable.
Heavy Lifting
Japan's debt load is a reminder that the heavy lifting is just beginning. Koizumi has promised to step down in September, and whoever replaces him would be wise to act immediately to trim debt. Doing so would soothe markets, avoid higher yields and perhaps lead rating companies to raise Japan's credit standing.
Letting the debt issue fester would be a huge mistake. It would put Japan in a fiscal straitjacket and lead to soaring debt-servicing costs. It also could leave Japan with yet another recovery it couldn't sustain.
To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net
Feb. 27 (Bloomberg) -- Now that Japan is back, the hard part begins: getting the world's No. 2 economy out of debt.
Amid the euphoria over the end of deflation and a likely change in central bank policy, it's easy to forget that Japan remains addicted to borrowed money. For all the concern about the U.S. budget deficit, it's just 2.4 percent of gross domestic product, while Japan's is 6.9 percent.
Japan grew five times faster than the U.S. in the fourth quarter -- at an annual rate of 5.5 percent -- leaving little doubt this recovery is real. It's time Japan weaned itself off an unhealthy reliance on debt. The debt-to-GDP ratio is pushing 151 percent, by far the worst among industrialized nations.
Sadly, the issue is getting little traction in Tokyo. Prime Minister Junichiro Koizumi has pledged for years to reduce public debt, and he's made no progress. Doing so is necessary to avoid higher borrowing costs and to make room for companies to issue bonds. It also would return a sense of normalcy to an economy that for too long has relied on fiscal stimulants.
Because it's a uniquely wealthy nation, Japan has been able to borrow with abandon. After its asset bubbles of the 1980s burst, it relied on public-works projects to create jobs and support regional economies. Financed with debt, the strategy left Japan with the same local-currency bond rating as Kuwait, Latvia and Mauritius, and one notch lower than Botswana.
Rising Yields
Even so, 10-year yields are a scant 1.57 percent, while Australia, a top-rated nation, must pay 10-year investors 5.20 percent. The clubby nature of Japan's market keeps interest rates low; about 95 percent of government securities are held domestically. It explains how Japan manages to keep borrowing costs negligible even as it sells mountains of debt.
The arrangement will be tested as the Bank of Japan abandons its policy of holding short-term interest rates near zero. What's more, the BOJ is about to embark on its first sustained campaign to raise rates in more than a decade. Any resulting increases in borrowing costs will squeeze government coffers.
Only then will investors know how durable Japan's revival really is. Yes, Japan's biggest banks are healthy again, companies are restructuring and household spending is perking up. Yet the national economy is still operating with the benefit of artificial pick-me-ups, and huge ones at that.
The Fat Years
``Unless Japan moves to reduce its fiscal deficit sharply -- in the fat years of this business cycle -- its public sector debt-to-GDP ratio will rise without limit,'' said Carl Weinberg, chief economist at Valhalla, New York-based High Frequency Economics.
How efficiently Japan uses this window of opportunity to kick its debt addiction will say much about its outlook. Demographic trends are but one concern. Because of a low birthrate of 1.26 children per woman, Japan's population actually shrank in 2005.
``If the current birthrate, which is the lowest in the major developed countries, continues, there will be no Japanese,'' Jim Rogers, who co-founded the Quantum fund with George Soros in 1970, said in Tokyo last month. ``Who will pay the enormous debt?''
Debt could become a problem much sooner. ``The longer Japan waits to start acting, the more fiscal tightening will have to be implemented overall,'' Weinberg said. ``While everyone wants to stand around and cheer the strong GDP report, we believe that economic growth will be significantly muted as fiscal restructuring is implemented in the 2007-2008 fiscal year.''
It's Been a While
There's also a nagging risk that Japan's banking system isn't as ready for higher rates as many investors believe. Japan's major lenders are no longer crippled by bad loans, yet many bankers haven't experienced a rising-rate environment. For those who have, it's been 15 years since they needed to worry about tightening credit conditions.
Banks are major holders of government bonds. Such securities are also the main financial asset held by Japanese pension funds, insurance companies, government-run institutions, the postal savings system and individuals. If bond yields shoot higher, just about every sector of the economy will feel the pain.
Now that Japan is growing again, observers are commending Koizumi, who came to power in April 2001 promising ``reform without sacred cows.'' While Koizumi deserves credit for pushing for change, Japan's revival owes far more to China. Its boom both increased demand for Japan's exports and scared executives into making companies more competitive and profitable.
Heavy Lifting
Japan's debt load is a reminder that the heavy lifting is just beginning. Koizumi has promised to step down in September, and whoever replaces him would be wise to act immediately to trim debt. Doing so would soothe markets, avoid higher yields and perhaps lead rating companies to raise Japan's credit standing.
Letting the debt issue fester would be a huge mistake. It would put Japan in a fiscal straitjacket and lead to soaring debt-servicing costs. It also could leave Japan with yet another recovery it couldn't sustain.
To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net
European stocks end at 4-1/2 year high on M&A fever
Mon Feb 27, 2006 1:13 PM ET
By Genevieve Butler
PARIS, Feb 27 (Reuters) - Acquisitions fever propelled European stocks to their highest close in 4-1/2 years on Monday as Suez (LYOE.PA: Quote, Profile, Research) and Gaz de France (GAZ.PA: Quote, Profile, Research) outlined a deal to create Europe's second-largest energy utility, offsetting Vodafone's (VOD.L: Quote, Profile, Research) warning of slowing mobile revenue growth.
"We are convinced that M&A will continue ... it is not over yet and our guess is that it has only just started," said Franz Wenzel, senior investment strategist at Axa Investment Management in Paris.
The pan-European FTSEurofirst index <.FTEU3> of 300 leading shares closed 0.3 percent higher at 1,363.76 points. London's FTSE 100 <.FTSE> gained 0.3 percent to near a five-year high, while Frankfurt's DAX <.GDAXI> added 0.8 percent and Paris's CAC 40 <.FCHI> was up 0.1 percent.
The German utility RWE (RWEG.DE: Quote, Profile, Research) rose more than 1 percent on a report that Britain's National Grid Plc (NG.L: Quote, Profile, Research) is set to conclude deals to buy two of its Dutch gas network businesses.
Shares in National Grid closed slightly lower after they agreed to buy U.S. natural gas distributor KeySpan Corp. (KSE.N: Quote, Profile, Research) for around $7.3 billion in cash.
Hopes of consolidation in the utilities sector boosted stocks such as International Power (IPR.L: Quote, Profile, Research) and Scottish & Southern Energy (SSE.L: Quote, Profile, Research) by 3.8 percent and 1.5 percent respectively.
"Merger talk among utilities has been dominating markets for days and you cannot say when this will end," said Guenter Senftleben, an equity strategist at Bankgesellschaft Berlin.
Shares in Gaz de France slipped 2.8 percent and Suez tumbled nearly 6 percent after the companies outlined a government-brokered "merger of equals" seen as a lightning French response to designs on Suez by Italy's Enel (ENEI.MI: Quote, Profile, Research).
"All in all, we welcome the deal, as the new Suez/GDF entity should create value," said Bertrand Lecourt, analyst with Dresdner Kleinwort Wasserstein, in a research note.
"However, we would expect short-term pressure on Suez's share price. Firstly, we believe that the group is likely to lose its 'bid premium', as the announced merger acts as a strong signal that the French government will fight hard against a foreign hostile bid," said Lecourt.
"Secondly, Suez's 'power price upside story' could be diluted. Investors who bought Suez to gain valuation upside via increase in power prices will now have exposure to regulated gas assets," he said.
BUY THE NEIGHBOUR
Italian oilfield services contractor Saipem (SPMI.MI: Quote, Profile, Research) soared more than 10 percent after it bought engineering unit Snamprogetti from parent Eni (ENI.MI: Quote, Profile, Research) for 680 million euros ($805.5 million).
The British glass maker Pilkington (PILK.L: Quote, Profile, Research) gained nearly 2 percent after Nippon Sheet Glass Co. Ltd. (NSG) (5202.T: Quote, Profile, Research) said it would buy the remaining 80 percent of the company for 1.8 billion pounds ($3.1 billion) in cash.
"There are two stories driving the market. The first is valuation related. Second, based on this phenomena that European companies are still very cash rich ... the stock markets are very positive," said Axa's Wenzel.
He also cited the gap between corporate cash flow yields, which he estimated at around 5 to 8 percent, and much lower borrowing costs.
"That invites companies to buy the neighbour."
Money supply growth and loans to the private sector accelerated unexpectedly in the euro zone in January, according to official data released on Monday. Analysts said this strengthened the case for interest rate increases beyond the expected rate hike on Thursday and limited the market's potential gains.
TELECOMS SLIDE
Shares in British mobile phone giant Vodafone (VOD.L: Quote, Profile, Research) dropped nearly 3 percent after the company warned of lower growth prospects, casting a pall over the telecoms sector.
"Vodafone is representative of the whole telecom sector," said Mark Sheikh, analyst at KBC Asset Management.
"They're in some of the most competitive markets, Japan, the U.S., Germany and the UK, and getting close to full penetration levels, so it's not as easy to get growth," he said.
Deutsche Telekom (DTEGn.DE: Quote, Profile, Research), BT Group (BT.L: Quote, Profile, Research), and France Telecom (FTE.PA: Quote, Profile, Research) all lost around 1 percent.
Among companies reporting earnings, Britain's Pearson (PSON.L: Quote, Profile, Research), the world's largest educational publisher, rose 2 percent after its 2005 pretax profit topped expectations.
© Reuters 2006. All Rights Reserved.
Mon Feb 27, 2006 1:13 PM ET
By Genevieve Butler
PARIS, Feb 27 (Reuters) - Acquisitions fever propelled European stocks to their highest close in 4-1/2 years on Monday as Suez (LYOE.PA: Quote, Profile, Research) and Gaz de France (GAZ.PA: Quote, Profile, Research) outlined a deal to create Europe's second-largest energy utility, offsetting Vodafone's (VOD.L: Quote, Profile, Research) warning of slowing mobile revenue growth.
"We are convinced that M&A will continue ... it is not over yet and our guess is that it has only just started," said Franz Wenzel, senior investment strategist at Axa Investment Management in Paris.
The pan-European FTSEurofirst index <.FTEU3> of 300 leading shares closed 0.3 percent higher at 1,363.76 points. London's FTSE 100 <.FTSE> gained 0.3 percent to near a five-year high, while Frankfurt's DAX <.GDAXI> added 0.8 percent and Paris's CAC 40 <.FCHI> was up 0.1 percent.
The German utility RWE (RWEG.DE: Quote, Profile, Research) rose more than 1 percent on a report that Britain's National Grid Plc (NG.L: Quote, Profile, Research) is set to conclude deals to buy two of its Dutch gas network businesses.
Shares in National Grid closed slightly lower after they agreed to buy U.S. natural gas distributor KeySpan Corp. (KSE.N: Quote, Profile, Research) for around $7.3 billion in cash.
Hopes of consolidation in the utilities sector boosted stocks such as International Power (IPR.L: Quote, Profile, Research) and Scottish & Southern Energy (SSE.L: Quote, Profile, Research) by 3.8 percent and 1.5 percent respectively.
"Merger talk among utilities has been dominating markets for days and you cannot say when this will end," said Guenter Senftleben, an equity strategist at Bankgesellschaft Berlin.
Shares in Gaz de France slipped 2.8 percent and Suez tumbled nearly 6 percent after the companies outlined a government-brokered "merger of equals" seen as a lightning French response to designs on Suez by Italy's Enel (ENEI.MI: Quote, Profile, Research).
"All in all, we welcome the deal, as the new Suez/GDF entity should create value," said Bertrand Lecourt, analyst with Dresdner Kleinwort Wasserstein, in a research note.
"However, we would expect short-term pressure on Suez's share price. Firstly, we believe that the group is likely to lose its 'bid premium', as the announced merger acts as a strong signal that the French government will fight hard against a foreign hostile bid," said Lecourt.
"Secondly, Suez's 'power price upside story' could be diluted. Investors who bought Suez to gain valuation upside via increase in power prices will now have exposure to regulated gas assets," he said.
BUY THE NEIGHBOUR
Italian oilfield services contractor Saipem (SPMI.MI: Quote, Profile, Research) soared more than 10 percent after it bought engineering unit Snamprogetti from parent Eni (ENI.MI: Quote, Profile, Research) for 680 million euros ($805.5 million).
The British glass maker Pilkington (PILK.L: Quote, Profile, Research) gained nearly 2 percent after Nippon Sheet Glass Co. Ltd. (NSG) (5202.T: Quote, Profile, Research) said it would buy the remaining 80 percent of the company for 1.8 billion pounds ($3.1 billion) in cash.
"There are two stories driving the market. The first is valuation related. Second, based on this phenomena that European companies are still very cash rich ... the stock markets are very positive," said Axa's Wenzel.
He also cited the gap between corporate cash flow yields, which he estimated at around 5 to 8 percent, and much lower borrowing costs.
"That invites companies to buy the neighbour."
Money supply growth and loans to the private sector accelerated unexpectedly in the euro zone in January, according to official data released on Monday. Analysts said this strengthened the case for interest rate increases beyond the expected rate hike on Thursday and limited the market's potential gains.
TELECOMS SLIDE
Shares in British mobile phone giant Vodafone (VOD.L: Quote, Profile, Research) dropped nearly 3 percent after the company warned of lower growth prospects, casting a pall over the telecoms sector.
"Vodafone is representative of the whole telecom sector," said Mark Sheikh, analyst at KBC Asset Management.
"They're in some of the most competitive markets, Japan, the U.S., Germany and the UK, and getting close to full penetration levels, so it's not as easy to get growth," he said.
Deutsche Telekom (DTEGn.DE: Quote, Profile, Research), BT Group (BT.L: Quote, Profile, Research), and France Telecom (FTE.PA: Quote, Profile, Research) all lost around 1 percent.
Among companies reporting earnings, Britain's Pearson (PSON.L: Quote, Profile, Research), the world's largest educational publisher, rose 2 percent after its 2005 pretax profit topped expectations.
© Reuters 2006. All Rights Reserved.
Yen Set for Monthly Gain as Japanese Factory Production Expands to Record
Feb. 28 (Bloomberg) -- The yen is poised for a third monthly gain, the longest rally since the end of 2004, as a Japanese government report today showed factory production rose to a record.
A sixth month of growth in industrial production for January marks the longest expansion since 1997 and bolsters expectations the economy is growing fast enough for the Bank of Japan to end deflation-fighting policies. The yen in the past five days had the biggest gain of all 62 currencies tracked by Bloomberg.
``We continue to get solid data out of Japan and that will be yen supportive, it's as simple as that,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney.
The yen, up 0.8 percent this month, bought 116.27 against the dollar as of 7:30 a.m. in London from 116.12 late in New York trade yesterday, when the currency rose as far as 115.70, the most since Jan. 26. It traded at 137.74 versus the euro, from 137.55.
The Japanese currency may strengthen to 115 against the dollar in the next few weeks, Rennie said.
Japan's factory production rose a seasonally adjusted 0.3 percent from December, the Ministry of Economy, Trade and Industry said in a report in Tokyo today. The median estimate of 36 economists in a Bloomberg News survey was for 0.4 percent growth.
Prime Minister Junichiro Koizumi said yesterday the central bank should decide when to cut the amount of cash it pumps into the financial system, a precursor to raising interest rates.
There's ``hardly any difference between the Bank of Japan and the government's views,'' said Fiscal and Economic Policy Minister Kaoru Yosano on Feb. 26.
UBS Upgrade
``In light of the flurry of comments from senior Japanese politicians regarding the Bank of Japan, we've revised our one- month forecast for the yen,'' said Ashley Davies, a currency strategist at UBS AG in Singapore.
The Japanese currency will trade at 117 against the dollar in one-month from a prior prediction of 120, according to UBS, the second-biggest currency trader. The bank is maintaining its three- month forecast for the yen to strengthen to 115.
The yen snapped a four-day rally today as some investors speculated gains went too far, too fast, and the yield advantage on dollar-denominated assets will support the U.S. currency.
``The whole move is overdone,'' Craig Ferguson, a currency strategist at Australia & New Zealand Banking Group Ltd., said in Melbourne. ``It may be the yen has done enough upside for now.''
The Bank of Japan won't likely raise interest rates until the fourth quarter, by which time the U.S. Federal Reserve will probably have lifted borrowing costs twice more, said Ferguson. He said the yen will fall to 119.50 in the next one-to-two months.
Rate Gap?
``The interest-rate differential will rise,'' he said. ``The rational for a lasting trend in dollar-yen just isn't there.''
The Fed has raised its target for the overnight lending rate between banks 14 consecutive times since June 2004 to 4.5 percent.
Interest-rate futures show traders are pricing in a 98 percent chance the Fed will raise its target rate to 4.75 percent when policy makers meet on March 2. The odds of another quarter- point increase at the May 10 meeting are about 76 percent.
The yen still held gains for the month as government reports in February indicated Japanese economic growth is accelerating and declines in consumer prices are ending.
The economy grew an annualized 5.5 percent in the last three months of 2005, outpacing Europe and the U.S. Faster growth and rising prices have raised speculation the Bank of Japan may end its five-year deflation-fighting policy as soon as next week.
The production data ``reinforces that the yen could rally further this year,'' said Chris Loong, head of currency and asset allocation at State Street Global Advisors in Sydney. The yen may rise to 115.75 in the ``very short-term,'' he said.
Inflation
The BOJ vowed to stick with a policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding.
The government may on March 3 say consumer prices excluding food, the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists surveyed by Bloomberg. That would be the fastest pace since March 1998. So-called core prices in November and December posted the first back-to-back monthly gains since April 1998.
Should the Bank of Japan reduce the amount of cash it pumps into the financial system in April, it would be only the second time in 17 years that it tightened policy.
The bank pushed up rates to 0.25 percent in August 2000 but kept them there for less than seven months. It previously raised rates in August 1990, when it lifted them to 6 percent from 5.25 percent. The U.S. Fed raised rates to 8 percent that month.
Investors ignore an expected shift in BOJ policy ``at our own peril,'' said Paul McCulley, a managing director at Pacific Investment Management Co. ``This will be a huge event,'' McCulley said in response to questions after a speech to the Money Marketeers in New York yesterday evening.
McCulley said he expects the Bank of Japan to reduce the amount of money it pumps into the economy in April. Newport Beach, California-based Pimco manages the $92 billion Total Return Fund, the world's biggest bond fund.
To contact the reporter on this story:
Chris Young in Sydney at cyoung12@bloomberg.net, or
Chris Cooper in Tokyo at ccooper1@bloomberg.net
Last Updated: February 28, 2006 02:32 EST
Feb. 28 (Bloomberg) -- The yen is poised for a third monthly gain, the longest rally since the end of 2004, as a Japanese government report today showed factory production rose to a record.
A sixth month of growth in industrial production for January marks the longest expansion since 1997 and bolsters expectations the economy is growing fast enough for the Bank of Japan to end deflation-fighting policies. The yen in the past five days had the biggest gain of all 62 currencies tracked by Bloomberg.
``We continue to get solid data out of Japan and that will be yen supportive, it's as simple as that,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney.
The yen, up 0.8 percent this month, bought 116.27 against the dollar as of 7:30 a.m. in London from 116.12 late in New York trade yesterday, when the currency rose as far as 115.70, the most since Jan. 26. It traded at 137.74 versus the euro, from 137.55.
The Japanese currency may strengthen to 115 against the dollar in the next few weeks, Rennie said.
Japan's factory production rose a seasonally adjusted 0.3 percent from December, the Ministry of Economy, Trade and Industry said in a report in Tokyo today. The median estimate of 36 economists in a Bloomberg News survey was for 0.4 percent growth.
Prime Minister Junichiro Koizumi said yesterday the central bank should decide when to cut the amount of cash it pumps into the financial system, a precursor to raising interest rates.
There's ``hardly any difference between the Bank of Japan and the government's views,'' said Fiscal and Economic Policy Minister Kaoru Yosano on Feb. 26.
UBS Upgrade
``In light of the flurry of comments from senior Japanese politicians regarding the Bank of Japan, we've revised our one- month forecast for the yen,'' said Ashley Davies, a currency strategist at UBS AG in Singapore.
The Japanese currency will trade at 117 against the dollar in one-month from a prior prediction of 120, according to UBS, the second-biggest currency trader. The bank is maintaining its three- month forecast for the yen to strengthen to 115.
The yen snapped a four-day rally today as some investors speculated gains went too far, too fast, and the yield advantage on dollar-denominated assets will support the U.S. currency.
``The whole move is overdone,'' Craig Ferguson, a currency strategist at Australia & New Zealand Banking Group Ltd., said in Melbourne. ``It may be the yen has done enough upside for now.''
The Bank of Japan won't likely raise interest rates until the fourth quarter, by which time the U.S. Federal Reserve will probably have lifted borrowing costs twice more, said Ferguson. He said the yen will fall to 119.50 in the next one-to-two months.
Rate Gap?
``The interest-rate differential will rise,'' he said. ``The rational for a lasting trend in dollar-yen just isn't there.''
The Fed has raised its target for the overnight lending rate between banks 14 consecutive times since June 2004 to 4.5 percent.
Interest-rate futures show traders are pricing in a 98 percent chance the Fed will raise its target rate to 4.75 percent when policy makers meet on March 2. The odds of another quarter- point increase at the May 10 meeting are about 76 percent.
The yen still held gains for the month as government reports in February indicated Japanese economic growth is accelerating and declines in consumer prices are ending.
The economy grew an annualized 5.5 percent in the last three months of 2005, outpacing Europe and the U.S. Faster growth and rising prices have raised speculation the Bank of Japan may end its five-year deflation-fighting policy as soon as next week.
The production data ``reinforces that the yen could rally further this year,'' said Chris Loong, head of currency and asset allocation at State Street Global Advisors in Sydney. The yen may rise to 115.75 in the ``very short-term,'' he said.
Inflation
The BOJ vowed to stick with a policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding.
The government may on March 3 say consumer prices excluding food, the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists surveyed by Bloomberg. That would be the fastest pace since March 1998. So-called core prices in November and December posted the first back-to-back monthly gains since April 1998.
Should the Bank of Japan reduce the amount of cash it pumps into the financial system in April, it would be only the second time in 17 years that it tightened policy.
The bank pushed up rates to 0.25 percent in August 2000 but kept them there for less than seven months. It previously raised rates in August 1990, when it lifted them to 6 percent from 5.25 percent. The U.S. Fed raised rates to 8 percent that month.
Investors ignore an expected shift in BOJ policy ``at our own peril,'' said Paul McCulley, a managing director at Pacific Investment Management Co. ``This will be a huge event,'' McCulley said in response to questions after a speech to the Money Marketeers in New York yesterday evening.
McCulley said he expects the Bank of Japan to reduce the amount of money it pumps into the economy in April. Newport Beach, California-based Pimco manages the $92 billion Total Return Fund, the world's biggest bond fund.
To contact the reporter on this story:
Chris Young in Sydney at cyoung12@bloomberg.net, or
Chris Cooper in Tokyo at ccooper1@bloomberg.net
Last Updated: February 28, 2006 02:32 EST
Here comes India!!!!
India to Spend More on Power, Roads to Spur GDP Growth to 10%
Feb. 28 (Bloomberg) -- India's government will increase spending on power plants, roads and ports to help boost annual economic growth to 10 percent and challenge China as the world's fastest-growing major economy.
Power generation capacity will expand by about 40,000 megawatts in the next three years, with 15,000 megawatts being added in the year starting April 1, Finance Minister Palaniappan Chidambaram said in his budget speech to lawmakers in New Delhi today. Roads are being built at a rate of 4.48 kilometers a day.
Indian ports take 10 times longer than those in Hong Kong to load and unload ships and manufacturers pay twice as much as in China for electricity. India, Asia's fourth-largest economy, attracts a tenth of China's overseas investment, reflecting transport bottlenecks that restricted growth to an average of 6 percent since 1980.
``Infrastructure had to be the priority of this year's budget,'' Saumitra Chaudhuri, chief economist at credit rating company ICRA Ltd., said in New Delhi. ``India can't raise its economic growth bar without fixing its infrastructure.''
Chidambaram said the economy will probably grow as much as 8.1 percent in the year ending March 31, following a 7.5 percent expansion a year earlier. China's economy, the world's fourth largest, expanded 10 percent a year in the past three years.
Prospects for the fiscal year starting April 1 are ``just as good, if not better,'' and the government is ``determined'' to achieve a 10 percent growth rate in the years ahead, Chidambaram told parliament.
Quarterly Growth Slows
Another report today showed economic growth slowed for a second quarter after a fire disrupted crude oil production and natural gas shortages crimped power generation.
Gross domestic product expanded 7.6 percent in the three months to Dec. 31 after an 8 percent gain in the second fiscal quarter, the Central Statistical Organisation said today in a statement in New Delhi. That was less than the median forecast of 7.7 percent in a Bloomberg survey of 11 economists.
The Mumbai stock exchange's benchmark Sensitive Index fell. The Sensex declined 39.11, or 0.4 percent, to 10,242.98, at 12:39 p.m. local time in Mumbai. The index earlier rose as much as 0.7 percent.
The increased spending will be funded from higher tax revenue generated by faster economic growth and through borrowing. India's government relies on tax collection and bond sales for additional resources because its communist coalition partners oppose cuts in food and fertilizer subsidies, which account for a tenth of overall spending.
Services Tax
Chidambaram today increased a tax on services to 12 percent from 10 percent and said more services such as bank's cash machines will attract the levy. Services will contribute 54 percent of gross domestic product, he said.
Chidambaram today left unchanged the tax rate for local companies at 30 percent and for overseas companies at 35 percent.
Last year, he cut the rate for local companies to 30 percent from 35 percent to improve tax compliance. Companies contribute a third of the government's tax revenue.
``Given the constraint on resources, the government can't afford another round of cuts in corporate tax rates,'' said D. H. Pai Panandiker, director general at RPG Foundation, an economic policy group in New Delhi. ``It may decide to bring in more businesses under the service tax net.''
In the last budget, of the total 5.1 trillion rupee spending projected for the year ending March 31, besides subsidies, 14 percent was defense expenditure, 22 percent interest on national debt, and 27 percent went to the country's 29 states as grants and revenue sharing, leaving little for infrastructure.
Subsidies
The government on Jan. 13 scrapped a week-old plan to cut its subsidy bill by 10 percent following opposition from communists, whose support gives Prime Minister Monmohan Singh's government a majority in parliament.
``It's difficult to balance the compulsions to spend aggressively and cut the budget deficit in the current political setting,'' said Sanjeet Singh, a fixed-income analyst at ICICI Securities Ltd. in Mumbai. ``The government is lucky the economy is on an upswing and that will help increase tax collection.''
Chidambaram today said the government's budget deficit will narrow to a revised 4.1 percent of GDP in the year ending March 31, and projected a 3.8 percent deficit for the year starting April 1.
The budget deficit for the current financial year was revised from 4.3 percent projected in last year's budget speech.
Budget Deficit
The government is required by law to cut the budget deficit each year by the equivalent of 0.3 percent of gross domestic product, and to eliminate its revenue deficit by 2009, borrowing only to fund investments thereafter.
Standard & Poor's has a below-investment-grade BB+ rating on India's long-term local-currency debt on concern it may struggle to reduce the deficit. It rates China's local-currency debt A-, its seventh-highest investment grade.
``We will be looking at the renewed commitment to fiscal consolidation,'' Chew Ping, New York-based S&P's director of financial services and sovereign ratings, told reporters during a conference call yesterday. ``India happens to be one of the highest, most indebted countries globally. It has a very high interest-burden budget.''
Last Updated: February 28, 2006 02:27 EST
India to Spend More on Power, Roads to Spur GDP Growth to 10%
Feb. 28 (Bloomberg) -- India's government will increase spending on power plants, roads and ports to help boost annual economic growth to 10 percent and challenge China as the world's fastest-growing major economy.
Power generation capacity will expand by about 40,000 megawatts in the next three years, with 15,000 megawatts being added in the year starting April 1, Finance Minister Palaniappan Chidambaram said in his budget speech to lawmakers in New Delhi today. Roads are being built at a rate of 4.48 kilometers a day.
Indian ports take 10 times longer than those in Hong Kong to load and unload ships and manufacturers pay twice as much as in China for electricity. India, Asia's fourth-largest economy, attracts a tenth of China's overseas investment, reflecting transport bottlenecks that restricted growth to an average of 6 percent since 1980.
``Infrastructure had to be the priority of this year's budget,'' Saumitra Chaudhuri, chief economist at credit rating company ICRA Ltd., said in New Delhi. ``India can't raise its economic growth bar without fixing its infrastructure.''
Chidambaram said the economy will probably grow as much as 8.1 percent in the year ending March 31, following a 7.5 percent expansion a year earlier. China's economy, the world's fourth largest, expanded 10 percent a year in the past three years.
Prospects for the fiscal year starting April 1 are ``just as good, if not better,'' and the government is ``determined'' to achieve a 10 percent growth rate in the years ahead, Chidambaram told parliament.
Quarterly Growth Slows
Another report today showed economic growth slowed for a second quarter after a fire disrupted crude oil production and natural gas shortages crimped power generation.
Gross domestic product expanded 7.6 percent in the three months to Dec. 31 after an 8 percent gain in the second fiscal quarter, the Central Statistical Organisation said today in a statement in New Delhi. That was less than the median forecast of 7.7 percent in a Bloomberg survey of 11 economists.
The Mumbai stock exchange's benchmark Sensitive Index fell. The Sensex declined 39.11, or 0.4 percent, to 10,242.98, at 12:39 p.m. local time in Mumbai. The index earlier rose as much as 0.7 percent.
The increased spending will be funded from higher tax revenue generated by faster economic growth and through borrowing. India's government relies on tax collection and bond sales for additional resources because its communist coalition partners oppose cuts in food and fertilizer subsidies, which account for a tenth of overall spending.
Services Tax
Chidambaram today increased a tax on services to 12 percent from 10 percent and said more services such as bank's cash machines will attract the levy. Services will contribute 54 percent of gross domestic product, he said.
Chidambaram today left unchanged the tax rate for local companies at 30 percent and for overseas companies at 35 percent.
Last year, he cut the rate for local companies to 30 percent from 35 percent to improve tax compliance. Companies contribute a third of the government's tax revenue.
``Given the constraint on resources, the government can't afford another round of cuts in corporate tax rates,'' said D. H. Pai Panandiker, director general at RPG Foundation, an economic policy group in New Delhi. ``It may decide to bring in more businesses under the service tax net.''
In the last budget, of the total 5.1 trillion rupee spending projected for the year ending March 31, besides subsidies, 14 percent was defense expenditure, 22 percent interest on national debt, and 27 percent went to the country's 29 states as grants and revenue sharing, leaving little for infrastructure.
Subsidies
The government on Jan. 13 scrapped a week-old plan to cut its subsidy bill by 10 percent following opposition from communists, whose support gives Prime Minister Monmohan Singh's government a majority in parliament.
``It's difficult to balance the compulsions to spend aggressively and cut the budget deficit in the current political setting,'' said Sanjeet Singh, a fixed-income analyst at ICICI Securities Ltd. in Mumbai. ``The government is lucky the economy is on an upswing and that will help increase tax collection.''
Chidambaram today said the government's budget deficit will narrow to a revised 4.1 percent of GDP in the year ending March 31, and projected a 3.8 percent deficit for the year starting April 1.
The budget deficit for the current financial year was revised from 4.3 percent projected in last year's budget speech.
Budget Deficit
The government is required by law to cut the budget deficit each year by the equivalent of 0.3 percent of gross domestic product, and to eliminate its revenue deficit by 2009, borrowing only to fund investments thereafter.
Standard & Poor's has a below-investment-grade BB+ rating on India's long-term local-currency debt on concern it may struggle to reduce the deficit. It rates China's local-currency debt A-, its seventh-highest investment grade.
``We will be looking at the renewed commitment to fiscal consolidation,'' Chew Ping, New York-based S&P's director of financial services and sovereign ratings, told reporters during a conference call yesterday. ``India happens to be one of the highest, most indebted countries globally. It has a very high interest-burden budget.''
Last Updated: February 28, 2006 02:27 EST
Very interesting article on "carry trade".... Its not only the Japan but also the eurozone such as Swedes, the Swiss.....
Global credit ocean dries up
(Filed: 24/02/2006)
The cash machine that sustained a world boom is about to close, and it's going to get ugly, says Ambrose Evans-Pritchard
One by one, the eurozone, the Swedes, the Swiss and now even the Japanese, are turning off the tap of ultra-cheap credit that has flushed the global system for the past year, keeping the ageing asset boom alive.
The "carry trade" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities.
Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the US and other central banks to restrain over-heating in their own countries.
The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2,400bn a day.
"The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned," said David Bloom, currency analyst at HSBC.
"It's going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet," he said.
"People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to US financial imbalances," he said.
There were early signs of panic this week when the Icelandic krone crashed 8pc in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil.
The debacle was triggered when the rating agency Fitch downgraded Iceland's sovereign debt, a move that would not normally rattle markets.
The new skittishness comes against a backdrop of ever more hawkish moves by Japan and Europe.
"There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable," said Stephen Lewis, an economist at Monument Securities. "When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes."
Toshihiko Fukui, the Japanese central bank governor, gave a fresh warning yesterday that this day is near, saying the country was pulling out of seven years of deflation. The economy grew at a 5.5pc rate in the fourth quarter of 2005.
In his strongest words yet, he said the bank would act "immediately" to curtail its extra injections of liquidity, preparing the way for rate rises above zero in coming months.
"The moment of truth is approaching,'' said Kenichiro Ikezawa of Daiwa SB. In Europe, Sweden raised rates to 2pc this week in the face of an overheated Stockholm property market, while Germany's IFO business climate index soared yesterday to its highest level in 14 years.
The European Central Bank will almost certainly raise eurozone rates to 2.5pc in March, with likely moves to 3pc by the end of the year.
Most of the world is now tightening, with no sign of a fresh credit window opening to keep the game going. This is new. Japan has had the tap on continuously as the trade exploded over the past five years, while America itself became the source of funds after it slashed rates to 1pc at the end of the dotcom bubble, and held them there until June 2004.
The US Federal Reserve has since raised rates 14 times to 4.5pc in a belated effort to restore monetary discipline, with at least two more rises priced into the markets.
It is an open question whether the yen, euro, Swiss franc and Swedish krona carry trades have occurred on such a scale that they have led to over-investment in Latin America and beyond, and compressed US yields, fuelling the American housing boom in 2005 despite Fed tightening.
There are other big forces at work: huge purchases of US Treasuries by Asian central banks, and petrodollar surpluses coming back to the US credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. "The lure of the carry trade is so compelling, it creates artificial demand for 'carryable' assets that has the potential to turn normal asset price appreciation into bubble-like proportions," he said.
"History tells us that carry trades end when central bank tightening cycles begin," he said. Ominously, almost every bank other than the Bank of England is now tightening in unison.
Global credit ocean dries up
(Filed: 24/02/2006)
The cash machine that sustained a world boom is about to close, and it's going to get ugly, says Ambrose Evans-Pritchard
One by one, the eurozone, the Swedes, the Swiss and now even the Japanese, are turning off the tap of ultra-cheap credit that has flushed the global system for the past year, keeping the ageing asset boom alive.
The "carry trade" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities.
Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the US and other central banks to restrain over-heating in their own countries.
The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2,400bn a day.
"The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned," said David Bloom, currency analyst at HSBC.
"It's going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet," he said.
"People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to US financial imbalances," he said.
There were early signs of panic this week when the Icelandic krone crashed 8pc in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil.
The debacle was triggered when the rating agency Fitch downgraded Iceland's sovereign debt, a move that would not normally rattle markets.
The new skittishness comes against a backdrop of ever more hawkish moves by Japan and Europe.
"There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable," said Stephen Lewis, an economist at Monument Securities. "When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes."
Toshihiko Fukui, the Japanese central bank governor, gave a fresh warning yesterday that this day is near, saying the country was pulling out of seven years of deflation. The economy grew at a 5.5pc rate in the fourth quarter of 2005.
In his strongest words yet, he said the bank would act "immediately" to curtail its extra injections of liquidity, preparing the way for rate rises above zero in coming months.
"The moment of truth is approaching,'' said Kenichiro Ikezawa of Daiwa SB. In Europe, Sweden raised rates to 2pc this week in the face of an overheated Stockholm property market, while Germany's IFO business climate index soared yesterday to its highest level in 14 years.
The European Central Bank will almost certainly raise eurozone rates to 2.5pc in March, with likely moves to 3pc by the end of the year.
Most of the world is now tightening, with no sign of a fresh credit window opening to keep the game going. This is new. Japan has had the tap on continuously as the trade exploded over the past five years, while America itself became the source of funds after it slashed rates to 1pc at the end of the dotcom bubble, and held them there until June 2004.
The US Federal Reserve has since raised rates 14 times to 4.5pc in a belated effort to restore monetary discipline, with at least two more rises priced into the markets.
It is an open question whether the yen, euro, Swiss franc and Swedish krona carry trades have occurred on such a scale that they have led to over-investment in Latin America and beyond, and compressed US yields, fuelling the American housing boom in 2005 despite Fed tightening.
There are other big forces at work: huge purchases of US Treasuries by Asian central banks, and petrodollar surpluses coming back to the US credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. "The lure of the carry trade is so compelling, it creates artificial demand for 'carryable' assets that has the potential to turn normal asset price appreciation into bubble-like proportions," he said.
"History tells us that carry trades end when central bank tightening cycles begin," he said. Ominously, almost every bank other than the Bank of England is now tightening in unison.
AP
Energy Prices Push Euro-Zone Inflation Up
Tuesday February 28, 7:28 am ET
By Aoife White, AP Business Writer
Energy Prices Push Euro-Zone Inflation Up to 2.4 Percent in January
BRUSSELS, Belgium (AP) -- Higher gas pump and heating prices pushed inflation to 2.4 percent in January in the 12 nations using the euro as their shared currency from 2.2 percent the previous month, the EU statistical agency Eurostat said Tuesday.
This is the first rise since inflation climbed to 2.6 percent in September from 2.2 percent in August as pressure on oil supplies squeezed prices.
Monthly price increases are also fueled by the high cost of energy. "Fuels for transport and gas had the largest upward impacts," Eurostat said, comparing prices with December.
The European Central Bank is expected to raise its key interest rate to 2.5 percent on Thursday to dampen price rises as the European economy slowly picks up pace.
Worries about price stability caused the ECB to raise its key interest rate for the euro zone to 2.25 percent from 2 percent in December, the first increase in five years.
The ECB's guideline for inflation is less than, but close to, 2 percent.
Eurostat said prices for housing, transport, alcohol, tobacco and education have risen over the course of the year while the cost of telecoms, clothes and recreation and culture have gone down or remained stable.
In the euro-zone, Spain had the highest January inflation at 4.2 percent, followed by Luxembourg at 4.1 percent. Austria reported the lowest rate at 1.5 percent.
Inflation in the entire European Union was 2.2 percent in January, up from 2.1 percent in December. Latvia leads the pack at 7.6 percent, with Estonia in second place at 4.7 percent and Slovakia following at 4.1 percent.
Poland has the EU's lowest inflation level at 0.9 percent. Sweden reported 1.1 percent.
The European Commission's business climate indicator for the euro area climbed to 0.61 in February from 0.34 in January, its highest level in five years.
"The improvement of the indicator suggests that industrial production growth has picked up further since the start of the year," the commission said, attributing the rise to industry managers' assessment that production trends, total order books and export order books had improved.
Overall economic confidence is also on an upward track, the EU executive said. Its economic sentiment indicator for the euro zone rose to 102.7 in February from 101.5 the previous month, "considerably above its long term average," it said.
The commission said industry, retail and consumers were more optimistic about the economy with construction remaining unchanged and the services sector recording a slight fall in confidence in both the euro zone and the entire EU.
Energy Prices Push Euro-Zone Inflation Up
Tuesday February 28, 7:28 am ET
By Aoife White, AP Business Writer
Energy Prices Push Euro-Zone Inflation Up to 2.4 Percent in January
BRUSSELS, Belgium (AP) -- Higher gas pump and heating prices pushed inflation to 2.4 percent in January in the 12 nations using the euro as their shared currency from 2.2 percent the previous month, the EU statistical agency Eurostat said Tuesday.
This is the first rise since inflation climbed to 2.6 percent in September from 2.2 percent in August as pressure on oil supplies squeezed prices.
Monthly price increases are also fueled by the high cost of energy. "Fuels for transport and gas had the largest upward impacts," Eurostat said, comparing prices with December.
The European Central Bank is expected to raise its key interest rate to 2.5 percent on Thursday to dampen price rises as the European economy slowly picks up pace.
Worries about price stability caused the ECB to raise its key interest rate for the euro zone to 2.25 percent from 2 percent in December, the first increase in five years.
The ECB's guideline for inflation is less than, but close to, 2 percent.
Eurostat said prices for housing, transport, alcohol, tobacco and education have risen over the course of the year while the cost of telecoms, clothes and recreation and culture have gone down or remained stable.
In the euro-zone, Spain had the highest January inflation at 4.2 percent, followed by Luxembourg at 4.1 percent. Austria reported the lowest rate at 1.5 percent.
Inflation in the entire European Union was 2.2 percent in January, up from 2.1 percent in December. Latvia leads the pack at 7.6 percent, with Estonia in second place at 4.7 percent and Slovakia following at 4.1 percent.
Poland has the EU's lowest inflation level at 0.9 percent. Sweden reported 1.1 percent.
The European Commission's business climate indicator for the euro area climbed to 0.61 in February from 0.34 in January, its highest level in five years.
"The improvement of the indicator suggests that industrial production growth has picked up further since the start of the year," the commission said, attributing the rise to industry managers' assessment that production trends, total order books and export order books had improved.
Overall economic confidence is also on an upward track, the EU executive said. Its economic sentiment indicator for the euro zone rose to 102.7 in February from 101.5 the previous month, "considerably above its long term average," it said.
The commission said industry, retail and consumers were more optimistic about the economy with construction remaining unchanged and the services sector recording a slight fall in confidence in both the euro zone and the entire EU.
Nikkei falls for first time in five sessions
Wed Mar 1, 2006 2:46 AM ET
For the latest Reuters poll of Japanese retail investors click on [ID:nT96490]. (Adds stocks)
By David Dolan
TOKYO, March 1 (Reuters) - The Nikkei average fell for the first time in five sessions on Wednesday, losing 1.49 percent as exporters such as Kyocera Corp. (6971.T: Quote, Profile, Research) declined after weaker-than-expected data raised concerns about U.S. economic growth and weighed on both Wall Street and the dollar.
Investors also unloaded Internet-related firms such as Softbank Corp. (9984.T: Quote, Profile, Research) after U.S. tech bellwether Google Inc. (GOOG.O: Quote, Profile, Research) warned that revenue growth from Internet-search advertising was slowing.
Shares in Rakuten Inc. (4755.Q: Quote, Profile, Research) may be in focus on Thursday. The Internet shopping mall operator said it would raise more than $900 million for financing and debt repayment by issuing new shares.
News of the weak data in the United States -- a key market for Japan's exporters -- weighed on Tokyo stocks, said Shigemi Nonaka, chairman of Polestar Investment Management.
"It was a bit of a negative surprise," he said.
The slowdown in the U.S. economy "is one of the things that we'll have to be watching this year, and it is one of the reasons why stocks aren't likely to book aggressive advances", he said.
A range of U.S. economic data released on Tuesday, including existing home sales and consumer confidence, was below expectations, fuelling concern about growth in the world's biggest economy.
That helped push the yen <JPY=> to its highest level in a month, weighing on shares of exporters. A stronger yen is a minus for exporters, as it eats into profits when dollar-denominated earnings are brought home.
Electronics components maker Kyocera fell 2.4 percent to 10,150 yen. Sony Corp. (6758.T: Quote, Profile, Research) lost 1.6 percent at 5,440 yen, falling for a second session. Toyota Motor Corp. (7203.T: Quote, Profile, Research), the world's second-biggest auto maker, lost 1.6 percent to 6,150 yen.
Yahoo Japan Corp. (4689.T: Quote, Profile, Research), the country's biggest Internet portal, lost 2.9 percent to 134,000 yen, following the fall in shares of Google. [ID:nN28151848]
Internet and communications conglomerate Softbank, which owns 42 percent of Yahoo Japan, slid 3.9 percent to 3,460 yen.
RETAIL INVESTORS CRIMP VOLUME
Slower trade activity due to the absence of many retail investors has weighed on the market in recent sessions, said Katsuhiko Kodama, a senior strategist at Toyo Securities.
Many retail investors have been holding back following the stock market tumble prompted by an investigation into Internet firm Livedoor Co. (4753.T: Quote, Profile, Research).
"The market lacks the kind of trade volume needed to push it higher," Kodama said.
"There were a lot of investors who were burned (by the Livedoor fall-out), and a lot of them have yet to come back to the market," he said.
Individual investors are no longer as bullish as they were on Japanese stocks, because of concerns that foreigners are pulling away from the market as well as the Livedoor scandal, a monthly Reuters survey showed on Wednesday.
Shares in Seven Seven & I Holdings Co. (3382.T: Quote, Profile, Research) fell 2.1 percent to 4,680 yen after Asia's second-largest retailer by sales cut its 2005/06 net profit forecast by 25 percent on Tuesday.
But shares in Japan Airlines Corp. (9205.T: Quote, Profile, Research) rose 4.8 percent to 326 yen, after domestic newspapers reported the airline will replace its chief executive in a bid to end internal strife at Asia's biggest carrier.
Trade activity on Wednesday hit its lowest level so far this week, with 2.1 billion shares changing hands on the Tokyo exchange's first section.
Decliners swept past advancers by a ratio of more than 5 to 1.
© Reuters 2006. All Rights Reserved.
Wed Mar 1, 2006 2:46 AM ET
For the latest Reuters poll of Japanese retail investors click on [ID:nT96490]. (Adds stocks)
By David Dolan
TOKYO, March 1 (Reuters) - The Nikkei average fell for the first time in five sessions on Wednesday, losing 1.49 percent as exporters such as Kyocera Corp. (6971.T: Quote, Profile, Research) declined after weaker-than-expected data raised concerns about U.S. economic growth and weighed on both Wall Street and the dollar.
Investors also unloaded Internet-related firms such as Softbank Corp. (9984.T: Quote, Profile, Research) after U.S. tech bellwether Google Inc. (GOOG.O: Quote, Profile, Research) warned that revenue growth from Internet-search advertising was slowing.
Shares in Rakuten Inc. (4755.Q: Quote, Profile, Research) may be in focus on Thursday. The Internet shopping mall operator said it would raise more than $900 million for financing and debt repayment by issuing new shares.
News of the weak data in the United States -- a key market for Japan's exporters -- weighed on Tokyo stocks, said Shigemi Nonaka, chairman of Polestar Investment Management.
"It was a bit of a negative surprise," he said.
The slowdown in the U.S. economy "is one of the things that we'll have to be watching this year, and it is one of the reasons why stocks aren't likely to book aggressive advances", he said.
A range of U.S. economic data released on Tuesday, including existing home sales and consumer confidence, was below expectations, fuelling concern about growth in the world's biggest economy.
That helped push the yen <JPY=> to its highest level in a month, weighing on shares of exporters. A stronger yen is a minus for exporters, as it eats into profits when dollar-denominated earnings are brought home.
Electronics components maker Kyocera fell 2.4 percent to 10,150 yen. Sony Corp. (6758.T: Quote, Profile, Research) lost 1.6 percent at 5,440 yen, falling for a second session. Toyota Motor Corp. (7203.T: Quote, Profile, Research), the world's second-biggest auto maker, lost 1.6 percent to 6,150 yen.
Yahoo Japan Corp. (4689.T: Quote, Profile, Research), the country's biggest Internet portal, lost 2.9 percent to 134,000 yen, following the fall in shares of Google. [ID:nN28151848]
Internet and communications conglomerate Softbank, which owns 42 percent of Yahoo Japan, slid 3.9 percent to 3,460 yen.
RETAIL INVESTORS CRIMP VOLUME
Slower trade activity due to the absence of many retail investors has weighed on the market in recent sessions, said Katsuhiko Kodama, a senior strategist at Toyo Securities.
Many retail investors have been holding back following the stock market tumble prompted by an investigation into Internet firm Livedoor Co. (4753.T: Quote, Profile, Research).
"The market lacks the kind of trade volume needed to push it higher," Kodama said.
"There were a lot of investors who were burned (by the Livedoor fall-out), and a lot of them have yet to come back to the market," he said.
Individual investors are no longer as bullish as they were on Japanese stocks, because of concerns that foreigners are pulling away from the market as well as the Livedoor scandal, a monthly Reuters survey showed on Wednesday.
Shares in Seven Seven & I Holdings Co. (3382.T: Quote, Profile, Research) fell 2.1 percent to 4,680 yen after Asia's second-largest retailer by sales cut its 2005/06 net profit forecast by 25 percent on Tuesday.
But shares in Japan Airlines Corp. (9205.T: Quote, Profile, Research) rose 4.8 percent to 326 yen, after domestic newspapers reported the airline will replace its chief executive in a bid to end internal strife at Asia's biggest carrier.
Trade activity on Wednesday hit its lowest level so far this week, with 2.1 billion shares changing hands on the Tokyo exchange's first section.
Decliners swept past advancers by a ratio of more than 5 to 1.
© Reuters 2006. All Rights Reserved.
