Job market gains could lead Fed to taper QE3 early http://t.co/VKtF8Y5vxs
11 minutes ago
Roubini Topic Archive: Northeast Asia
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It’s Lonely at the Top: Now It’s Up to the Bank of Japan to Hold the Yen Down
Wow, FX space is totally rattled this week: the yen hit 76.25 against the dollar at the end of the day on March 16 and has since rebounded to current levels 80.90 (1:50pm in NY on 3/18). What happened over this time span? Mass speculation on yen appreciation due to earthquake-related repatriation, followed by technical levels being hit that drove the yen up against the dollar, and a collapse of the dollar against the yen (spike downward in the chart below). And then yesterday the G7 central banks (the Bank of Japan, Bank of England, European Central Bank, the Federal Reserve, and the Bank of Canada) agreed to coordinate a weak-yen effort. Today the yen is off 2.7% against the dollar.
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It’s Pretty Obvious How China Can Achieve Its Top Economic Priority of Price Stability
Premier Wen Jiabao made stabilizing prices China’s top economic priority for 2011. Amid the surge in world energy costs, this story didn’t make the front page. However, Chinese policymakers did take their time spent out of the limelight to allow the Chinese yuan to appreciate roughly 0.3% against the US dollar.
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Japanese Q3 2010 GDP Growth Hit It Out of the Ballpark But Set to Fall Flat Next Quarter
The Japanese economy grew 3.9% at a seasonally-adjusted annualized rate in Q3 2010 and over 2X the pace in Q2 2010 (data here). According to Bloomberg, the headwinds to Q4 growth are household consumption and the yen:
Consumption, accounting for about 60 percent of GDP, led the gain as households stepped up purchases of fuel-efficient cars ahead of the expiration of a subsidy program and as smokers stocked up before an Oct. 1 tobacco-tax rise. The yen’s climb to a 15-year high will probably damp growth this quarter as companies from Sharp Corp. to Nikon Corp. cut profit forecasts.
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China’s Competitive Devaluation
China took the world by surprise on Tuesday by raising bank lending and deposit rates for the first time since 2007. The story is, that restrictive monetary policy (i.e., raising rates) is needed to curb excessive lending, with an eye on mitigating inflation pressures. See this Bloomberg article to the point.
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More on how the NY Times Is Wrong About the Japanese Economy
The NY Times writes Japan Goes From Dynamic to Disheartened. As highlighted by Dean Baker, this article grossly misrepresents the dynamics of the Japanese economy. I likewise read this article with some dismay, wondering was there any actual research done in preparation for this commentary? -
Crib Notes for G7 Unemployment Rates
Unemployment rates across the G7 illustrate a broad-based labor recovery. Fantastic – now let’s get to the underlying stories.
(Note: The US is the first to release the June 2010 figures. All other unemployment rates, except for the UK, are current as of May 2010.)
Germany, France, and Italy: Germany’s labor market is ostensibly improving, as the unemployment rate continues its descent. However, don’t be fooled by these statistics: the German government is subsidizing firms to drop hours in lieu of outright layoffs.
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I Understand Why Asia’s Worried About Europe
On the forefront of the Chinese economic releases this week was the trade data, where headlines shouted +48.5% Y/Y export growth in May. This report didn’t go unnoticed in Washington, as renewed obsessions with the Chinese peg against the US dollar fired up again.
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China’s Not the Answer for the Eurozone
“Go long whatever Chinese consumers buy and go short Chinese capital spending (construction) plays. Consistently, go long tech/short material stocks.”
That is the first sentence of a BCA Research report’s executive summary on China equity strategy (link not available). Rather than a global equity strategy, I’d like to put this into an economic growth context via trade…and with Europe.
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China’s Got Options
This morning there was an abundance of links evidencing the building anxiety over U.S.-China relations. Edward Harrison at Credit Writedowns links to a Reuters article, China vows to hit back if targeted by U.S. on yuan. Calculated Risk refers to commentary at the Financial Times and the Washington Post referencing China Losing Support of American Business Community.
Let’s think about the currency from a U.S. auto exporter’s viewpoint. The China Daily looks at China’s relatively “young” automotive market compared to its developed U.S. counterpart. But what if the yuan appreciates more than expected against the U.S. dollar? This market would develop much quicker than the article portends, and the room for revenue growth is vast.
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The Currency Play – Act 1, Scene I
Don’t let anybody tell you that they know what the Chinese government will do with the yuan because they don’t. If you are interested in the pros and cons of yuan revaluation, some time ago Michael Pettis wrote a nice article worth revisiting. Basically, all signs economic point toward yuan appreciation.
