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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Cogito Ergo Sum who wrote (42913)	12/16/2005 11:44:50 AM
From: mishedlo	Respond to of 116555

Bank of Japan to Keep Pumping Cash Into the Economy (Update6) Dec. 16 (Bloomberg) -- Japan's central bank held interest rates near zero and will keep pumping cash into the economy as part of its 4 1/2-year policy to overcome deflation in the world's second-biggest economy. Policy makers maintained the bank's target for reserves it makes available to lenders at about six times more than in March 2001, the bank said in Tokyo. The decision, made at the end of a two-day meeting, was by a 7-2 majority. The Bank of Japan's Tankan business confidence survey this week indicated that the economy's expansion will be sustained, satisfying a condition that must be met before the bank will change its policy. Bank of Japan Governor Toshihiko Fukui said last week his board is ``close'' to ending the deflation- fighting policy. ``The Tankan survey confirmed Japan's economy is on a path of steady expansion,'' said Mitsumaru Kumagai, a fixed income chief strategist at Merrill Lynch & Co. in Tokyo, who said there's a ``high chance'' the bank will make a policy change in the second quarter next year. Confidence of large manufacturers climbed to 21 in the fourth quarter from 19 in the third, the central bank's Tankan survey showed on Dec. 14. Index for non-manufacturers such as retailers and developers rose to 17, the highest in 13 years. A positive number means optimists outnumber pessimists. The Bank of Japan ``has a stronger impression'' that the economy is achieving a ``well-balanced recovery,'' Governor Toshihiko Fukui said at a press conference in Tokyo after the policy announcement. ``We are seriously watching if core consumer prices can achieve stable gains.'' The bank kept the reserve target at between 30 trillion yen ($258 billion) and 35 trillion yen, it said today. Seven Years The central bank, which cut interbank overnight loan rates to near zero in March 2001, has focused on providing banks with plentiful reserves to encourage lending and overcome more than seven years of deflation, a policy known as ``quantitative easing.'' It set three conditions to be met before it ends the policy: core consumer prices stop falling at least for a few months; policy makers are sure they won't resume sliding; and the bank is confident about the overall strength of the economy. Consumer prices, which exclude fresh food, stopped falling in October for the first time in five months. Core prices, which the bank monitors when it decides policy, have risen in only one month since April 1998. Fukui, 70, said last week core prices will probably start to gain by the end of this year and they will show ``solid gains'' in the first quarter of 2006. While an interest-rate policy change may be coming, its timing is at the center of a dispute between the central bank and the government. Prime Minister Junichiro Koizumi has repeated since Nov. 14 that deflation persists and it's too soon to stop fighting it. The government is concerned that a policy change may prompt investors to dump bonds, raising yields and the cost of servicing the nation's debt, which is projected to reach 774 trillion yen, or 151 percent of gross domestic product by March. Joint Goals Ruling Liberal Democratic Party legislators have set up a committee to discuss the central bank's policy. The panel, which held its first meeting yesterday, will urge the central to set joint economic policy goals with the government, and aim to achieve a certain growth target. Kozo Yamamoto, the panel's chairman, told reporters yesterday the government and central bank should coordinate policies to achieve nominal economic growth of between 3.5 percent and 4 percent. The government has projected Japan's nominal growth at 1.3 percent this fiscal year. `Political Compromise' ``The Bank of Japan seems to be seeking a political compromise in order to realize the end of quantitative easing,'' said Jun Ishii, chief fixed income strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``That may mean the bank will have to keep zero rates after changing policy and set some sort of inflation target or reference.'' Fukui and other policy makers have said the bank will probably hold interest rates near zero even after it starts to reduce the amount of cash it injects into the banking system because prices won't likely rise quickly. Kazumasa Iwata, the bank's deputy governor, told reporters on Nov. 30 that Japan's real interest rates -- or nominal rates less inflation -- would be negative after a policy shift because the bank will keep rates at zero while consumer prices will gradually rise. ``The support for the economy would get even stronger'' after ending quantitative easing, Iwata said. The bank today confirmed it will stop buying asset-backed securities and will return to using stricter criteria for commercial paper purchases from March 31. The bank will release its monthly economic report at 3 p.m. Fukui is scheduled to speak to reporters at 3:20 p.m. Minutes of the meeting will be published on Jan. 25. Yen The yen was set for its biggest weekly gain versus the dollar in six years on speculation Fukui will signal the bank is a step closer to ending its policy of holding interest rates near zero. The Japanese currency rose to 116.04 against the dollar at 4:50 p.m. in Tokyo, from 116.23 late yesterday in New York. Since early September when Fukui started talking about the end to deflation, the yield on Japan's benchmark 10-year bond has risen about 20 basis points. The yield on the 1.5 percent bond due December 2015 rose 3 basis points to 1.535 percent as of 2:19 p.m. in Tokyo. quote.bloomberg.com

To: Cogito Ergo Sum who wrote (42913)	12/16/2005 12:05:14 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Heinz compiled by and thanks to ILD Date: Fri Dec 16 2005 12:04 trotsky (@the Yen) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved with the dollar's rate differential versus Yen and Euro becoming more and more favorable in the course of this year, big speculators correctly perceived that the carry trade would be revived, and began to put heavy bets against these currencies in the futures markets. recently e.g. the speculative net short position in Yen futures reached record levels. once a speculative short position becomes this lopsided, the danger of violent counter-trend reactions grows. with year end approaching, an excuse to square positions came along with the wording of the recent FOMC statement, which seemed to imply the end of the road for the Fed's rate hikes was close. this doesn't remove the rationale for the short position in the Yen completely ( after all, at least one more rate hike seems almost certain ) , but it was a short term trigger of the 'let's protect those profits' type. it is interesting that this has led to similar reactions in ALL the other futures markets that have sported extreme speculative positions recently. gold ( too many longs ) , oil ( too many shorts ) , etc. in short, an exercise in year-end book squaring triggered by the Fed. Date: Fri Dec 16 2005 11:49 trotsky (@pm stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved what are they saying? they are 1. confirming that indeed, the public at large isn't ( yet ) aboard. the downside following gold's recent short term top would have been much greater otherwise. 2. as i've alluded to previously, the fact that gold has broken the highs of the post 1980 bear market rally peaks is technically highly significant. usually after such a break a series of tests follows, often undershooting the new support levels. oil's break of the $40 level happened in a roughly similar manner. after the break, the market soon went below $40 again, however the oil stocks seemed largely unmoved by this. 3. they may be signaling a growing belief that a steepening of the yield curve isn't too far away. currently the curve is in danger of inverting, in fact it has already partially inverted ( at the very short end - t-bill yields are now well below the FF rate ) . inversions seldom last long, as they usually signal a growing recession risk. 4. as a more general remark, once a full inversion actually happens, there will probably be a correction, as both the stock market and commodities should begin to weaken , and all the buyers who are in the market due to perceived 'inflation risks' will probably sell at first. 5. it may not necessarily work out 'as usual' this time, due to the China and India factor. this is a big imponderable, in view of China's recent admission that its economy is already far larger than previously thought ( not really a surprise actually if one looks at electricity and import statistics ) . 6. on a technical note, we have now a combination of large put OI in the XAU options with large call OI in individual sector component options. this is normally considered bullish. Date: Fri Dec 16 2005 11:24 trotsky (WileE) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved if you recall, i mentioned last night that there was a good chance that the overnight plunge was meaningless. when TOCOM is limit down two days in a row, you must allow for at least one more down day during which the longs finally get a chance to liquidate positions. there must have been a ton of 'get me out as soon as it trades' orders.