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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7349)	6/2/2006 10:59:49 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

RPT-Reserve shift murmurs prompt call for new standard Friday, June 02, 2006 12:25:24 PM (GMT-06:00) Provided by: Reuters News By Mike Dolan, Economics Correspondent WASHINGTON, June 2 (Reuters) - A shockwave of financial volatility in recent weeks has refocused the attention of many experts and policy-makers on how to ease risks to global economic stability from jittery, unpredictable markets. As economists pore over the roots of the steep jump and then slide in commodity, equity and currency prices since mid-March, some are urging governments to seek ways to minimize hiccups in increasingly powerful and interdependent markets. Or at least, they argue, policy-makers should look at what they can do to starve speculators of unnecessary uncertainty while they seek a gradual and orderly reduction of imbalances in world trade, investment and foreign currency reserves. A principal source of such instability, according to Washington think-tank the Institute for International Economics, is speculation over how national central banks manage huge and growing stockpiles of hard currency reserves. Talk of even small shifts in the denomination of more than $4 trillion worth of reserves worldwide, more than twice the totals of four years ago and held mostly in Asia, has aggravated currency markets for several years. Rumblings about reserve managers from South Korea to Russia to oil-exporting Arab states shifting away from dollars, still estimated to be make up more than two-thirds of total world reserves, are expected to persist as currency hoards mount. "Policy-makers acting in their own interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange diversification," authors Edwin Truman and Anna Wong wrote. While arguing that actual reserve diversification has been modest to date, the IIE paper proposed the voluntary adoption by major foreign exchange reserve holders, in particular, of an "International Reserve Diversification Standard." CURRENCIES HIT BY RESERVES SHIFTS The proposed standard would consist of two elements -- routine public disclosure of the composition of national reserves, not just the dollar value of total reserves, and agreement to adjust gradually when adopting new benchmarks. Truman, a former senior U.S. Treasury and Federal Reserve official, said the standard could then be incorporated into the International Monetary Fund's existing standards on economic data dissemination and encouraged by the fund as part of its new role as international currency policy policeman. About 114 IMF members, with the notable exception of the world's top reserve holder China, provide the fund with voluntary. though confidential, detailed reserve breakdowns. The IMF now reports the aggregate numbers quarterly. Of the $4.17 trillion reserve total recorded in the final quarter of 2005, it published the overall currency makeup of some $2.8 trillion worth with divulging national compositions. Truman estimates only 23 countries make public disclosures at least annually. Even though 11 are industrial countries, Hong Kong is the only one if the top 10 reserve holders -- who represent a whopping $3 trillion of world totals -- to do so. The biggest reserve holders, China and Japan, do not and they account collectively for more than $1.5 trillion. But Truman argues that with more than three quarters of the top 25 reserve holders now subscribing to detailed IMF reserve reporting, it would not be a big leap to go one step further on a wider agreement on publicizing national breakdowns. "The vast majority of the large holders of foreign exchange reserves are on weak ground if they argue that releasing detailed information on their international reserves would reveal to the market too much information," Truman said. The response from currency market analysts was mixed. Many economists said they welcomed any proposal that provided more data transparency but others said the more important part would be agreement on gradual adjustment. "On aggregate reserves, we know quite a lot -- some two thirds of the total -- and it's the aggregate that matters," said Binky Chadha, head of global currency research at Deutsche Bank in New York. "The more important bit of any such accord would be that any benchmark shifts are done gradually." "As the IMF makes progress in its role to help resolve global imbalances, an accord on how central banks diversify their reserves should be an integral part of that." Likening any shift out of dollars to the subsequent gold sell-off after nations abandoned the gold standard for currency values in the 1970s, Merrill Lynch analysts wrote: "Reassurance that there will not be a wholesale exodus is crucial." "The best policy for central banks is to coordinate the selldown. This took many years in the case of gold but provides a good blueprint for any potential agreement on dollar sales." But others disagree with the premise that greater national transparency would reduce market volatility. Stephen Jen, chief currency economist at Morgan Stanley, said the paper makes too much of market disturbance already caused by such uncertainty. And he said more transparent, more frequent reporting may lead markets to overinterpret sometimes unrelated valuation shifts and portfolio adjustments." "I'm skeptical. It's quite easy to spook the market with what is just some technical position adjustment. Perfect transparency of what is sometimes pretty sophisticated reserve management could cause even bigger disruptions," Jen said.

To: John Pitera who wrote (7349)	6/3/2006 8:58:25 AM
From: robert b furman	Respond to of 33421

Hi John, I just value reading your always most interesting posts. Not only would higher rates increase the debt servicing for Japan,but it would also strengthen the yen which is then intervened on by the BOJ. It seems interesting that economic powers don'y mind transfering the manufacturing expertise to third world developing economies as long as their corporations get a piece of the action - the biggest part of profits. Ahh the world as it should be. Bob

To: John Pitera who wrote (7349)	6/22/2006 3:54:43 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

The Big Picture -- Japan's ZIRP (Zero Interest Rate Policy) To END. and .... Japanese companies expect capital expenditures to expand 8.8% this fiscal year, a reversal from the 8.7% contraction they forecast the previous quarter. ------------------------------ Japan's Economy Minister Says Zero-Rate Policy May End Soon By ANDREW MORSE and YUKA HAYASHI June 22, 2006; Page A6 TOKYO -- Japan's economy minister said yesterday that the Bank of Japan would likely abolish its policy of keeping a crucial interest rate near zero before the end of the summer, indicating diminishing political opposition to a rate rise. Kaoru Yosano's comments came as Japan increasingly debates the merits of abandoning its zero-interest-rate policy, adopted in 2001 as an emergency measure amid falling prices and economic stagnation. Now, as prices are rising and the economy is growing, the central bank has indicated it would like to abolish the highly unusual measure. Many politicians have cautioned the central bank against such a rise. Mr. Yosano's statement that a rate rise would be natural may make it politically easier for the bank to act. "Zero interest rate for overnight money is something unusual compared to other countries' situations," Mr. Yosano, who is both Japan's minister for economic and fiscal policy and minister for financial services, said in an interview. The Bank of Japan knows "that they have to leave that situation sometime," he said. "Maybe not in June, maybe not in July, but in a few months' to several months' time." The central bank's policy consists of holding the interest rate banks charge one another for overnight loans at near zero, in order to encourage bank lending and spark economic activity. Under the zero-rate policy, Japan has snapped out of a long downturn. In the January-March quarter, its economy, the world's second largest after the U.S., grew at an annualized rate of 3.1%. Consumer prices are rising moderately -- 0.4% in April from the same month the previous year. Many economists have forecast an initial rise in the policy rate to 0.25% in July or August. Several members of Prime Minister Junichiro Koizumi's government have called for a delay, especially after recent sharp declines in stock prices. On Tuesday, Chief Cabinet Secretary Shinzo Abe, a leading contender to succeed Mr. Koizumi as prime minister, reiterated calls for the central bank to maintain its current policy. Kozo Yamamoto, an influential Lower House member, said in a speech that a rate increase in July would be "suicidal" for the Japanese economy. A strong economy helps Japan's Asian neighbors, like China and South Korea, which are exporting more to Japan as the region integrates economically. Japanese growth also benefits U.S. multinational corporations, which are selling more services in Japan. Mr. Yosano also expressed support for central-bank Gov. Toshihiko Fukui, who has been embroiled in a scandal over his personal finances since he disclosed he had invested in a fund managed by shareholder activist Yoshiaki Murakami. After Mr. Murakami confessed to insider trading and was arrested earlier this month, the furor prompted some analysts to suggest the central bank might delay raising interest rates. To placate his critics, Mr. Fukui on Tuesday pledged to donate all of the $200,000 he had currently invested in the fund to charity and to take a 30% pay cut over the next six months. The Japanese media continued to attack Mr. Fukui yesterday. Mr. Yosano said he expected the issue would pass. Write to Andrew Morse at andrew.morse@wsj.com1 and Yuka Hayashi at yuka.hayashi@wsj.com2 ---------------------------- In Japan, Capital-Spending Plans Point to Rate Rise By NATASHA BRERETON June 22, 2006 TOKYO -- Japanese companies were less optimistic about the economic outlook in the April-June period than in the previous quarter, the government said, but bullish capital-spending plans fueled the case for a near-term rise in interest rates. The data showed that Japanese companies expect capital expenditures to expand 8.8% this fiscal year, a reversal from the 8.7% contraction they forecast the previous quarter. The government's corporate-sentiment survey is viewed as a leading indicator for the Bank of Japan's tankan survey, a widely watched indicator of Japanese business confidence next due for release July 3. The central bank appears concerned about the prospect of excessive capital spending, which "would raise the probability of an interest-rate increase in July if capex comes in above expectations in the tankan," said Yasuo Yamamoto, senior economist at Mizuho Research Institute. The spending data dragged on sentiment in the Japanese stock market, where it was interpreted as a warning the central bank could raise rates soon. The weakness of the headline corporate-sentiment index also discouraged buying, traders said. The Nikkei Stock Average of 225 companies fell to 14482.96 before recovering to end the day almost flat, down 4.15 points at 14644.26. The survey, which is compiled by the Ministry of Finance and the Cabinet Office, showed that while corporate sentiment stumbled in the April-June quarter, companies expect conditions to pick up sharply during the second half of the year. The business-sentiment index for large companies, which subtracts the percentage of managers saying economic conditions are worsening from those who say they are improving, stood at 1.8 in the April-June quarter, weaker than the 6.1 figure for January-March. But big companies forecast the index would rise to 13.6 in the July-September quarter and come in at 12 in the October-December period.