Friday, April 22, 2005
Japan to continue 0% interest rates
The Bank of Japan is poised to abandon its forecast of a return to inflation this fiscal year, according to Yutaka Yamaguchi, a former deputy governor.The move would delay a departure from zero interest rates until the March 2006-March 2007 financial year at the earliest.
Mr Yamaguchi said at a Tokyo press conference that the BoJ's much-watched half yearly forecast, due out next week, would reverse its October prediction that the economy would finally climb out of deflation this year by registering a consumer price rise of 0.1 per cent.
Instead it would predict yet more deflation, he said "The actual price development is running below the forecast path . . . which leads us naturally to think that the forecast would be negative rather than positive," he said.
He expected the BoJ to soften the blow by predicting inflation in the year to March 2007. But a projection so far ahead lacked credibility, he added.
The ending of zero interest rate policy - and with it the normalisation of Japan's monetary framework - would now almost certainly be pushed beyond this fiscal year, though even after that "the timing of the exit is still highly uncertain".
The assessment of the former governor, who still carries considerable weight in policy making circles, will come as a blow to investors hoping for an early end to deflation.
Consumer prices have been falling for more than seven years. In February they were still dropping by 0.4 per cent. The BoJ has blamed some of the fall on deregulated utility prices. The economy has also slowed more sharply than expected. Subsequent data have revealed Japan was in a recession when the BoJ made its optimistic projections.
Since October, economic data had been weak and business confidence had fallen.
Mr Yamaguchi said the so-called quantitative easing framework had failed in its principal aim of fighting deflation by stimulating economic and price activity. Under quantitative easing the bank floods the market with excess liquidity.%
Mr Yamaguchi said at a Tokyo press conference that the BoJ's much-watched half yearly forecast, due out next week, would reverse its October prediction that the economy would finally climb out of deflation this year by registering a consumer price rise of 0.1 per cent.
Instead it would predict yet more deflation, he said "The actual price development is running below the forecast path . . . which leads us naturally to think that the forecast would be negative rather than positive," he said.
He expected the BoJ to soften the blow by predicting inflation in the year to March 2007. But a projection so far ahead lacked credibility, he added.
The ending of zero interest rate policy - and with it the normalisation of Japan's monetary framework - would now almost certainly be pushed beyond this fiscal year, though even after that "the timing of the exit is still highly uncertain".
The assessment of the former governor, who still carries considerable weight in policy making circles, will come as a blow to investors hoping for an early end to deflation.
Consumer prices have been falling for more than seven years. In February they were still dropping by 0.4 per cent. The BoJ has blamed some of the fall on deregulated utility prices. The economy has also slowed more sharply than expected. Subsequent data have revealed Japan was in a recession when the BoJ made its optimistic projections.
Since October, economic data had been weak and business confidence had fallen.
Mr Yamaguchi said the so-called quantitative easing framework had failed in its principal aim of fighting deflation by stimulating economic and price activity. Under quantitative easing the bank floods the market with excess liquidity.%
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Thursday, April 21, 2005
UK Gilt issues to be lowered by £2.4bn to £51.1bn.
The UK government has decided to cut it's borrowing in the current financial year by £3.9bn after data revealed it had lower-than-anticipated net cash requirements for the year before.
With increasing government receipts and restraint on public spending towards the end of 2004-5, net cash required fell by about £4bn, according to figures from the Office for National Statistics.
The Debt Management Office- which borrows on behalf of the government, yesterday made a downward adjustment to planned gilt issues by £2.4bn to £51.1bn, and reduced Treasury bill sales by £1.5bn.
But while the government might welcome the revised figures this close to an election, the lower expected supply of paper was unlikely to make a lasting impression on the bond market.
This is partly because gilt issuance of £51.1bn is still the highest in over a decade – second only to the £54.8bn in 1993-4 – and does not change the worsening outlook for public finances.
Gilt issuance has soared since 2002, and analysts estimate a cumulative increase in financing requirements.
Borrowing remains biased toward longer-term issues – including plans for gilts with up to 50 years maturity – that let the government to lock in low interest rates.
The DMO reduced issues across the maturity sector, lowering short-, medium- and long-dated conventional bonds by £1.4bn and index-linked bonds by £1bn. It also cancelled an October auction of index-linked gilts.
With increasing government receipts and restraint on public spending towards the end of 2004-5, net cash required fell by about £4bn, according to figures from the Office for National Statistics.
The Debt Management Office- which borrows on behalf of the government, yesterday made a downward adjustment to planned gilt issues by £2.4bn to £51.1bn, and reduced Treasury bill sales by £1.5bn.
But while the government might welcome the revised figures this close to an election, the lower expected supply of paper was unlikely to make a lasting impression on the bond market.
This is partly because gilt issuance of £51.1bn is still the highest in over a decade – second only to the £54.8bn in 1993-4 – and does not change the worsening outlook for public finances.
Gilt issuance has soared since 2002, and analysts estimate a cumulative increase in financing requirements.
Borrowing remains biased toward longer-term issues – including plans for gilts with up to 50 years maturity – that let the government to lock in low interest rates.
The DMO reduced issues across the maturity sector, lowering short-, medium- and long-dated conventional bonds by £1.4bn and index-linked bonds by £1bn. It also cancelled an October auction of index-linked gilts.
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Wednesday, April 20, 2005
T Bonds soar as inflation fears ease
Housing starts post a dramatic fall and the PPI index grows less- than- expected; dollar falls.
Treasury prices jumped after dual government reports offered analysts some relief from inflation fears.
The dollar lost ground to the euro, sterling and yen.
The benchmark 10-year note climbed 19/32 of a point to 98-13/32 to yield 4.20 percent, down from 4.27 percent late Monday.
The 30-year bond surged 1 and 7/32 points to 112-22/32 to yield 4.54 percent, down from 4.60 percent Monday. Bond prices and yields move in opposite directions.
Shorter-dated debt also posted solid gains, with the five-year note adding 12/32 of a point to 100-24/32 to yield 3.83 percent, while the two-year added 3/32 of a point to 100-16/32, yielding 3.49 percent.
Housing starts posted their steepest drop in more than 14 years, suggesting some cooling in the housing Market, a Commerce Department report showed Tuesday.
March housing starts fell to a 1.837 million unit rate from an upwardly revised 2.229 million unit pace in February. The 17.6 percent decline marked the largest monthly drop since January 1991.
Wall Street economists had expected housing starts to drop a far smaller 4.8 percent in March to a 2.09 million unit rate from the 2.195 million unit clip initially reported for February.
The Producer Price Index, the government's key measure of wholesale prices, rose 0.7 percent in March, compared to the 0.4 percent increase seen in February. Economists surveyed by Briefing.com had forecast a 0.6 percent rise in March.
The so-called core PPI, which excludes often volatile food and energy prices, gained 0.1 percent. Economists had forecast a 0.2 percent rise in the core PPI in March.
The core measure is considered more important for monetary policy and added to speculation the Federal Reserve would not have to be more aggressive in raising interest rates.
Also helping to ease inflationary fears was the Redbook survey of April retail sales, which the company said were running 3.8 percent below March levels and called "disappointing."
Inflation hurts bonds as it erodes the value of the fixed-income investment.
Treasury prices jumped after dual government reports offered analysts some relief from inflation fears.
The dollar lost ground to the euro, sterling and yen.
The benchmark 10-year note climbed 19/32 of a point to 98-13/32 to yield 4.20 percent, down from 4.27 percent late Monday.
The 30-year bond surged 1 and 7/32 points to 112-22/32 to yield 4.54 percent, down from 4.60 percent Monday. Bond prices and yields move in opposite directions.
Shorter-dated debt also posted solid gains, with the five-year note adding 12/32 of a point to 100-24/32 to yield 3.83 percent, while the two-year added 3/32 of a point to 100-16/32, yielding 3.49 percent.
Housing starts posted their steepest drop in more than 14 years, suggesting some cooling in the housing Market, a Commerce Department report showed Tuesday.
March housing starts fell to a 1.837 million unit rate from an upwardly revised 2.229 million unit pace in February. The 17.6 percent decline marked the largest monthly drop since January 1991.
Wall Street economists had expected housing starts to drop a far smaller 4.8 percent in March to a 2.09 million unit rate from the 2.195 million unit clip initially reported for February.
The Producer Price Index, the government's key measure of wholesale prices, rose 0.7 percent in March, compared to the 0.4 percent increase seen in February. Economists surveyed by Briefing.com had forecast a 0.6 percent rise in March.
The so-called core PPI, which excludes often volatile food and energy prices, gained 0.1 percent. Economists had forecast a 0.2 percent rise in the core PPI in March.
The core measure is considered more important for monetary policy and added to speculation the Federal Reserve would not have to be more aggressive in raising interest rates.
Also helping to ease inflationary fears was the Redbook survey of April retail sales, which the company said were running 3.8 percent below March levels and called "disappointing."
Inflation hurts bonds as it erodes the value of the fixed-income investment.
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Monday, April 18, 2005
ECB may not raise rates this year
The European Central Bank may have to leave interest rates unchanged until the end of this year or beyond, an increasing number of economists believe, based on the recent poor economic performance of the 12-country eurozone and comments by the central bank.
The ECB has already kept interest rates at 2 per cent for 22 months running. But financial market expectations have shifted significantly in the past few weeks amid signs that eurozone growth is slowing.
The extended delay before the ECB follows the US Federal Reserve in raising rates will add to the concerns of "hawks" on the bank's governing council about the impact of historically low interest rates on credit growth and asset prices. But council members have admitted recent data has been "mixed".
In Washington at the weekend, Jean-Claude Trichet, ECB president, again ruled out a cut in interest rates, saying a decrease was "not an option".
But last week's ECB monthly bulletin noted that growth indicators showed "no clear signs as yet of a strengthening in underlying dynamics" while "persistently high oil prices in particular pose downside risks to growth".
The growth outlook has been confused because gross domestic product figures for the first quarter, to be released next month, are forecast to show a rebound compared with the last three months of last year. But the figures for late 2004 were seen as unusually weak, and recent confidence surveys have suggested second quarter growth figures will show a slowdown again.
The ECB has already kept interest rates at 2 per cent for 22 months running. But financial market expectations have shifted significantly in the past few weeks amid signs that eurozone growth is slowing.
The extended delay before the ECB follows the US Federal Reserve in raising rates will add to the concerns of "hawks" on the bank's governing council about the impact of historically low interest rates on credit growth and asset prices. But council members have admitted recent data has been "mixed".
In Washington at the weekend, Jean-Claude Trichet, ECB president, again ruled out a cut in interest rates, saying a decrease was "not an option".
But last week's ECB monthly bulletin noted that growth indicators showed "no clear signs as yet of a strengthening in underlying dynamics" while "persistently high oil prices in particular pose downside risks to growth".
The growth outlook has been confused because gross domestic product figures for the first quarter, to be released next month, are forecast to show a rebound compared with the last three months of last year. But the figures for late 2004 were seen as unusually weak, and recent confidence surveys have suggested second quarter growth figures will show a slowdown again.
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