To: John Pitera who wrote (4553 ) 8/31/2001 9:02:09 AM From: John Pitera Respond to Japanese Consumer-Price Decline--Highlights Deflationary Problemsweak economy continues to exacerbate deflationary pressures. revamped the consumer-price data from July, aiming to more accurately capture price trends. The new standards for measuring consumer prices incorporate price changes for items such as personal computers and mobile-phone charges -- both of which have fallen sharply in recent years.The sharp rate of declines -- while unchanged from declines reported for June under the new standards -- will increase pressure on the Bank of Japan to ease monetary policy further. strong inverse correlation between the Nikkei and dollar/yen, we have seen a marked reversal of this trend since early March . For our part, we would argue that this dynamic is largely a function of the increased risk aversion on the part of Japanese investors . Such thoughts are supported by the continued plunge in the Nikkei on the back of a heightened economic deterioration, the unwinding of cross-share holdings on the part of Japanese banks and of course, uncertainty surrounding the aggressiveness of restructuring. However, given the benefit of the doubt mentality we have attached to the prospects for reform, we would argue that the traditional inverse correlation is likely to reestablish itself once we start to see a more credible global reflation bid, as well as some level of comfort with the bifurcated nature of restructuring. Remember, we saw a similar trend play out in the second half of 1998.....
