Global Networks: Bank of Japan

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5:56 am

SBP to announce monetary policy today

(#GNN) - #KARACHI: The State Bank of Pakistan (#SBP) to announce its first bi-monthly #monetary #policy of the new fiscal year on Saturday here.

The central bank is expected to keep the current discount rate at 10 percent unchanged, the analysts predict.

Analysts said that the indicators like over $14 billion foreign exchange reserves, appreciation of rupees against dollar by 8 percent from the beginning of the current year and 71 percent reduction in local borrowings of the government during previous fiscal year suggest a cut in current discount rate, but IMF string to keep inflation in control forcing SBP to keep it unchanged at 10 percent.

Besides, some analysts suggest that the central bank in determining the discount rate should adopt a careful attitude in the backdrop of price-hikes of essential commodities during the month of Ramazan

On the other hand, some analysts are of the opinion that since the private sector during previous fiscal year availed Rs348 billion of loans—a positive indicator and if the central bank slashes the discount rate by ½ percent it would help promote the private sector development efforts.(GNN)(Geo)(AIP)

5:52 am

SBP leaves policy rate unchanged at 10 pc

(#GNN) - #Karachi: The #State #Bank of #Pakistan (#SBP) has decided to keep the #policy rate #unchanged at 10 percent.

This was announced by the Governor SBP Ashraf Mahmood Wathra while unveiling the Monetary Policy Statement MPS for the next two months at a press conference held at SBP head office Karachi.

The decision was taken during a meeting of the Central Board of Directors of SBP held under his chairmanship in Karachi Saturday.

Henceforth, the Board has also decided to publish the summary of minutes of monetary policy proceedings of the Board meeting in four weeks.

According to Wathra economic conditions are certainly better at the beginning of FY15 than a year ago but a detailed assessment of the economy indicates that challenges and vulnerabilities remain.

Continuation of prudent policies and reforms are needed to build on positive developments and to achieve protracted stability.

Governor SBP stated that SBP is effectively managing market sentiments by supplementing the monetary policy stance with calibrated liquidity operations in the interbank market, adding that this has contributed in achieving stability in the foreign exchange market and in building foreign exchange reserves.

This has also facilitated the shift in banks investment from T bills to PIBs improving domestic debt maturity profile of the government.

Wathra informed the audience that despite significant injections by SBP appetite for liquidity remained sufficiently high in the market.

It resulted in higher short term interest rates making rupee liquidity more expensive.

This reduced pressure on exchange rate as it discouraged speculative holdings of foreign exchange and made trade financing through foreign currency deposits held by banks more attractive, said Wathra.

He said that a significant reduction in government borrowings from the banking system is contributing towards low inflationary expectations and has provided necessary space to the private sector to borrow from the banking system.

However, persistent energy shortages and deteriorating security conditions hint towards some risks to credit demand.

Governor SBP maintained that sustainability of lower government borrowings from the banking system including SBP is contingent upon further reduction in the fiscal deficit and continuation of external financing, adding that government needs to watch the fiscal position of FY15 i.e. the revenue side cautiously.

Wathra told the audience that the growth in domestic debt during FY14 had decelerated to 14.5 percent which was significantly lower than the average growth of around 27 percent during the last three years.

This bodes well from the point of view of country’s risk perception and could help in attracting investment in the economy.

Governor SBP reminded the audience that the increase in external borrowings since February 2014 had provided a much needed respite and short term stability to the balance of payments position.

These foreign inflows resulted in a capital and financial account surplus of 6.1 billion which comfortably financed the current account deficit of 2.6 billion and led to a significant increase in SBP’s foreign exchange reserves.

By 4th July SBP’s foreign exchange reserves have increased to 9.6 billion.

He said that the increase in SBP’s foreign exchange reserves brought about a shift in sentiments in the foreign exchange market and stabilized the exchange rate Moody’s Investors Service has revised the outlook on Pakistan’s foreign currency government bond rating to stable from negative.

According to Governor, SBP the impetus of positive sentiments together with continuation of IMF program and government’s privatization plan is expected to result in further strengthening of the external position in FY15.

However, sustaining this trend in the medium term especially in the post IMF program years would require additional efforts and reforms.

Governor SBP said that despite challenging security conditions and energy shortages the real GDP grew by 4.1 percent in FY14. However, investment expenditures as a percent of GDP have declined which indicates erosion in economy’s future productive capacity, he added.

Wathra told the audience that the average CPI inflation in FY14 8.6 percent was in single digits for the second consecutive year.

For FY15, the SBP expects average CPI inflation to remain in the range of 7.5 percent to 8.5 percent.

However, international oil price uncertainty and unanticipated price shocks pose risks to the inflation outlook, he concluded. (GNN)(PPI)(AIP)

6:37 am

BOJ says inflation to stay above 1 pct despite cut in GDP forecast

(GNN) - The Bank of Japan's governor voiced confidence on Tuesday that inflation would hold above 1 percent even when a boost from energy costs fades, attempting to convince skeptics the economy was recovering and there was no threat of a return to deflation.

Haruhiko Kuroda, once Japan's top currency diplomat, also sought to keep the yen in check, warning that sharp gains were unwarranted with the BOJ maintaining its massive stimulus while its U.S. counterpart started to think of interest rate rises.

In a news conference after a widely expected decision to keep monetary policy steady, Kuroda said the world's third-largest economy would ride out the effects of a sales tax rise in April and inflation would head towards 2 percent next year.

"We're clearly seeing a shift in trend where companies, instead of cutting prices, are trying to heighten the quality of their goods to sell them at higher prices," he said.

"I don't think there is a possibility that consumer inflation will fall below 1 percent."

The BOJ believes that, after hitting 1.4 percent in the year to May, inflation will slow in coming months due largely to the base effect of last year's spike in energy costs, before accelerating again toward its 2 percent target.

Many market participants doubt prices will rise that much and some have speculated that if inflation slides below 1 percent in coming months, the BOJ could be forced into easing policy further to ensure the target is met.

Kuroda's remarks may cause the market to scale back already shrinking expectations of further easing this year.

"I think the chance of additional easing is small as slack in the economy is gone," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities, agreeing with the BOJ's view that inflation would probably not fall below 1 percent.

"However, Kuroda's comments could reduce room for maneuver as the BOJ would be compelled by the market to react if consumer price inflation did fall below 1 percent."

The BOJ maintained its policy framework, under which it has pledged to increase base money by 60-70 trillion yen ($590-$690 billion) per year through aggressive asset purchases, largely of Japanese government bonds.

In a quarterly review of its long-term forecasts, the central bank cut its economic growth projection slightly for this fiscal year as exports remain weak and household spending tumbled more than expected after a sales tax increase in April.

But the BOJ's nine-member board maintained its inflation projections and stuck to the view the economy would continue recovering moderately as the impact of the tax rise fades.

"The downturn in spending after the sales tax hike is roughly within expectations," Kuroda said. "Domestic demand, including capital expenditure, remains firm as a trend. A virtuous cycle in economic activity clearly remains in place."

OPTIMISTIC VIEW INTACT

The BOJ has left policy unchanged since unleashing an intense burst of stimulus in April last year, when it pledged to pull Japan out of chronic deflation and push up consumer price inflation to 2 percent in roughly two years.

But a recent slew of weak data has cast doubt on the BOJ's scenario of an investment-driven economic recovery.

Household spending and machinery orders, a leading indicator of capital spending, both tumbled in May, underscoring the fragile state of a recovery that has been driven by domestic demand as exports fail to pick up.

The BOJ trimmed its economic growth forecast for the fiscal year to March 2015 to 1.0 percent from the 1.1 percent projected three months ago. That is still higher than the 0.9 percent rise forecast in a Reuters poll.

But it left unchanged its growth projections for fiscal 2015 and 2016, as well as its price forecasts that see consumer price inflation hitting 1.9 percent in the next fiscal year.

Kuroda acknowledged that a slump in exports was lasting longer than expected, although he saw shipments picking up as global growth recovers.

He also said the differing monetary policy trajectories of Japan and the United States meant the yen was unlikely to rise much against the dollar. A weaker yen gives Japanese exporters a competitive advantage in overseas markets.

"In the United States, monetary policy isn't heading towards further easing and is rather heading towards a taper (of asset purchases) and an interest rate hike," he said.

"On the other hand, in Japan, we're only halfway through in meeting the 2 percent price target and we will maintain our quantitative easing program until the price target is stably met. If that's the case, I see no reason for the yen to strengthen against the dollar."

($1 = 101.3500 Japanese Yen)

(Reuters)(GNN - AIP)(Additional reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing by Kim Coghill and Alan Raybould)

6:18 am

Japan ex-economy minister Takenaka says unthinkable to debate BOJ exit now

(GNN) - Former Japanese Economy Minister Heizo Takenaka said on Tuesday it would be unthinkable to debate now on an exit from the Bank of Japan's monetary stimulus as it would take another half a year to a year to see if deflation is conquered.

Takenaka, a prominent economist and member of a government advisory panel, also said Japan's growth figures for April-June could be a factor in determining whether fresh monetary stimulus would be needed, although that alone would not be a trigger.

"Exit is still far off," Takenaka told Reuters shortly before the BOJ decided to leave its massive monetary stimulus steady.

"We must pull consumers and investors out of a deflationary mindset by conquering deflation," said Takenaka, a Keio University professor who was considered a reformist when he was Junichiro Koizumi's economy minister from 2001-2005.

In recent months, the BOJ has begun informal discussions on how to prepare for the exit from the massive easing, current and former central bankers familiar with internal discussions have told Reuters.

In public, however, Kuroda has insisted it is too early to discuss exit strategies.

Contrary to Japanese policymakers' view, Takenaka said the economy is not on track yet although it is improving.

"It is getting better than before ... but we cannot yet say it's on track. It's going in the right direction but still insufficient in terms of absolute level," he said, noting that Tokyo share prices now are below their levels when Prime Minister Shinzo Abe was in power in his first term in 2007.

Takenaka expressed concern about a bigger-than-expected decline in household spending in May.

He said he wants to see whether consumer spending recovered in June and how sharply economic activity slumped in the second quarter following the April 1 sales tax hike.

"April-June GDP figures most likely turned out negative but to what extent ... would be one factor for judging" the need of additional monetary stimulus, Takenaka said.

He said the BOJ was unlikely to change policy on the basis of second-quarter gross domestic product (GDP) data alone.

(Reuters)(GNN - AIP)(Reporting by Tetsushi Kajimoto; Editing by William Mallard & Kim Coghill)

2:40 pm

Japan investors bulk up on French bonds, bet on euro zone "Japanisation"

* Japanese investors bought 60 pct or more of French debt in May-June

* Buying up six-fold from last year

* Euro zone a déjà vu for Japanese investors seared by long deflation

* French debt yields more than Germany's, rated higher than Italy's

* ECB easing seen as "biggest event of the year" for Japanese investors, broker says

By Hideyuki Sano

TOKYO, July 14 (GNN) - Japanese investors have been buying most of France's government debt recently in a record surge spurred by expectations that Europe faces the kind of deflation and growth that Japan suffered for decades.

Since the European Central Bank (ECB) signalled in May it would take radical steps to ease monetary conditions, banks and other big investors in Japan have piled into French bonds, convinced from their own experience that the debt of a country where the central bank is battling deflation represents a winning bet, market participants say.

"In a way, they are expecting Japanisation - deflation and a long period of zero interest rates," said Hiroki Shimazu, senior market economist at SMBC Nikko Securities.

Japanese investors bought a net 1.9 trillion yen (14 billion euros) of French bonds in May, equal to more than 60 percent of the government's new issuance that month, Japanese Finance Ministry data shows.

Data is not available for June, but market participants say Japanese buying of French bonds has picked up from May amid a broader increase in buying of euro-zone debt. One suggested Japanese investors may have bought the equivalent of three-fourths of the French new issuance.

French bonds represents a Goldilocks trade for Japanese investors keen for euro-zone exposure: they yield more than German bonds, while lower credit ratings on Italy's bonds - the region's third-most-liquid market - deter active Japanese buying.

On a gross basis, Japanese investors bought 6.60 trillion yen ($65.2 billion) of French government debt in May, dwarfing last year's 1 trillion yen average and by far the most since the ministry began compiling such data in 2005.

JAPAN DEJA-VU

While the euro zone's financial crisis has seen spikes in market interest rates as bond prices plunged, Japanese investors have strong memories of a completely different dynamic.

As Japan suffered years of falling prices and tepid growth, the government's bond market proved one of the world's great long-term bull markets.

Having slashed interest rates to zero during this period, the Bank of Japan invented the now globally recognised idea of "quantitative easing" - mass purchases of bonds and other debt to inject cash into the economy.

"If you want to make money investing, you have to take the largest position you can take on the most important event of the year - that's how you win," said the Tokyo director of fixed income at a European brokerage. Japanese investors "think the ECB's easing is the biggest event of the year."

The ECB under President Mario Draghi has cut rates, pledged to keep them low "for an extended period" and said it will continue market operations that allot banks their full funding requests at a very cheap rate until December 2016.

Japanese investors have taken that as a signal rates won't rise for more than two years. That means free money by playing for "roll-down" gains on the yield curve: a five-year bond bought now at a 0.47 percent yield and held for two years should rise in price if market rates remain the same, given that three-year debt now yields 0.08-0.09 percent.

Helped by heavy Japanese buying, the French 10-year bond yield fell to a record low 1.5 percent last week.

But that is still nearly triple the yield that Japanese investors can get at home, where the BOJ's massive purchases - the central bank gobbles up the bulk of domestic JGBs - has crushed the 10-year yield to a 15-month low of 0.54 percent .

The ECB says there is little risk that the euro zone will slip into deflation, but it is déjà vu for Japanese investors, where the BOJ's unprecedented easing is only now generating a modest rebound in prices.

The euro zone inflation rate has slid for three years to 0.5 percent, with Italy at 0.2 percent in June.

Bank lending in the euro zone is falling as companies shed debt.

Wage growth is slowing, with some countries in southern Europe seeing wages falling.

Japanese investors keenly recall how, during long periods of stagnation, consumers stuffed their money into bank deposits and borrowing slumped, leaving banks with little choice but to plough their cash into Japanese government bonds.

Rising domestic savings boosted Japan's current-account surplus, supporting the yen and inflaming deflationary pressure - another parallel with the euro zone now. The euro zone's current-account surplus hit a record high in January, helping to support the euro despite the ECB's attempt to talk it down. (Reuters)(AIP)(Editing by William Mallard and Neil Fullick)

10:05 pm

Asia spooked by Wall Street loss, dollar dips

(GNN) - Asian shares caught Wall Street's gloom on Wednesday, while the dollar was on track for a sixth losing session against the yen after the Bank of Japan upgraded its view on capital expenditures.

The BOJ held policy steady as expected at the conclusion of a two-day meeting and maintained its overall upbeat economic assessment.

http://www.gnnworld.tk/2014/05/asia-spooked-by-wall-street-loss-dollar.html

A man looks at an electronic board displaying Japan's Nikkei average (top C) and various countries' stock indices, as passers-by walk past outside a brokerage in Tokyo April 16, 2014.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.1 percent, after U.S. stocks fell in a broad selloff. .N

Asian investors also kept a wary eye on the situation in Thailand, where the army declared martial law on Tuesday after months of civil and political unrest.

Japan's Nikkei stock average .N225 skidded 0.6 percent, as investors awaited post-meeting comments by Bank of Japan Governor Haruhiko Kuroda from 3:30 p.m. (2.30 p.m.), after the Tokyo market close.

"The market is already jittery about falling U.S. bond yields leading to a weak dollar-yen. Kuroda's comment dismissing the possibility of further easing again won't do any good to the mood," said Hiromichi Tamura, chief strategist at Nomura Securities.

Japanese trade data for April released shortly before the market opened showed that the country posted a record 22nd month

of trade deficits. While last month's rise in exports beat forecasts, shipments to the key U.S. market slowed.

The dollar lost about 0.1 percent against the yen to 101.24 yen, not far from Monday's low of 101.10 yen, which was its weakest level since early February.

The recent downtrend in U.S. Treasury yields continued to undermine the dollar's appeal.

The yield on benchmark U.S. 10-year notes inched up to 2.51 percent in Asia from its U.S. close of 2.50 percent on Tuesday, but remained close to half-year lows.

Later on Wednesday, the U.S. Federal Reserve will release the minutes of its latest policy meeting, though most market participants did not expect any solid clues to emerge on the timing of a future hike to interest rates.

New York Federal Reserve President William Dudley said at an event on Tuesday that the U.S. central bank will likely be "relatively slow" in hiking interest rates.

The euro was flat on the day at $1.3702, not far from a nadir of $1.3648 touched on Thursday, which was its lowest since late February.

In commodities trading, U.S. crude rose 0.6 percent to $102.90 per barrel, supported by a disruption in Libya's oil output and an unexpected draw in U.S. crude oil inventory according to industry data.

Spot gold was up about 0.1 percent on the day at $1,295.50 an ounce.(GNN) (Reuters)

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam & Kim Coghill)

11:42 pm

BOJ keeps stimulus in place, downgrades exports in warning sign

GNN - The Bank of Japan maintained its massive monetary stimulus on Tuesday on the view that growth in the economy and consumer prices remains on track, but it downgraded its view of exports in a warning that external demand will continue to disappoint.

http://www.globalnewsnetwork.tk/2014/03/boj-keeps-stimulus-in-place-downgrades.html

A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014.

The BOJ did upgrade its view of capital expenditure and turn more optimistic about industrial production, showing more confidence in domestic demand before a sales tax increase scheduled for April 1.

However, this optimism is unlikely to ease concerns that domestic demand will weaken after the tax hike and that exports will not be strong enough to support growth, which could increase calls for more monetary stimulus.

"It is not an atmosphere where the BOJ will ease immediately even if it downgrades growth forecasts as core consumer prices have been hovering in a range higher than previously expected," said Junko Nishioka, chief economist at RBS Securities.

"If the yen appreciates sharply and share prices plunge due to geopolitical risks, including the Ukraine, the BOJ will have to move."

As expected, the central bank on Tuesday maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($590-$690 billion).

The BOJ launched the stimulus last April, saying it would lift inflation to 2 percent within around two years via aggressive asset purchases as it sought to end 15 years of deflation.

BOJ Governor Haruhiko Kuroda will hold an embargoed news conference from 3:30 p.m. (0630 GMT) with his comments expected to come out any time after 4:15 p.m. (0715 GMT).

The yen and Japanese government bonds were little changed after the policy decision.

EXPORTS, CAPEX

The BOJ said that exports have leveled off recently, which was a downgrade from last month, when the central bank said exports were on a recovery path.

Japan posted a record current account deficit in January due to consistently weak exports, undermining the BOJ's argument until now that exports would eventually pick up pace as the U.S. economy recovers.

The central bank said capital expenditure is showing clear signs of recovery, which is more positive than its assessment last month that business investment is recovering.

The BOJ also said industrial production is rising at a slightly faster pace.

Recent strength in industrial output, and signs companies are more willing to invest in factories and equipment as consumers buy more goods before the tax hike, likely encouraged optimists within the BOJ to take a more positive view of domestic demand.

The labor market is tightening, which also backs its view the economy will continue a gradual recovery and its 2 percent inflation target is achievable over the next 12 months or so.

Kuroda and other officials have been confident the economy can survive the short-term shock when the sales tax rate rises to 8 percent from 5 percent on April 1, but some economists worry growth could falter.

Core consumer inflation reached a five-year high of 1.3 percent in January, supporting the BOJ's view that it will stay above 1 percent and accelerate again later this year. Some BOJ officials think prices are rising a tad faster than expected.

A Reuters poll last month showed economists expect the BOJ to ease policy further around the middle of the year, as they say it will otherwise be difficult to meet the inflation target.(GNN INT) (Reuters)

(Editing by Chris Gallagher)