Category Archives: China

Japan Adopts Stealth Intervention as Yen Gains Hurt Growth

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Japan traditionally bought $ and built it’s fx reserves to support its exporters.

It was finally Tsy Sec. Paulson who shamed them into suspending their $ purchases by calling Japan, China, and others ‘outlaws’ and ‘currency manipulators’ in what was then, functionally, an attempt at a ‘weak dollar’ policy.

The current administration, however, is on the defensive with regards to the dollar, under attack from political adversaries for allowing the Fed to ‘print money’ and ‘debase the currency’ even as the dollar has been reasonably strong.

So Japan has been testing the waters first with an announced ‘one time’ intervention in response to the earthquake, which didn’t attract the name calling of the prior US administration, and now with the announcement of ongoing intervention.

Seems to me its highly unlikely the US administration will respond negatively which would support their opposition’s ‘currency debasing’ labeling. So I expect Japan to continue to sell yen in an orderly fashion at least until they strike a US nerve.

Japan Adopts Stealth Intervention as Yen Gains Hurt Growth

By Monami Yui and Shigeki Nozawa

Feb 7 (Bloomberg) — Japan used so-called stealth intervention in November as the government sought to stem yen gains that hammered earnings at makers of exports ranging from cars to electronics.

Finance Ministry data released today showed Japan conducted 1.02 trillion yen ($13.3 billion) worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 against the dollar. The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth undermines demand.

“Japan has clearly shown its intention to stop a further appreciation of the yen, and there is a high chance” for more yen selling, said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “Caution against intervention has increased in markets.”

November’s unannounced yen sales were the most effective strategy to weaken the currency, said a Japanese official who spoke to reporters in Tokyo today on condition of anonymity. Finance Minister Jun Azumi said he won’t rule out any options to curb the yen’s appreciation and that he will take action whenever necessary.

Exporting ‘Nearly Impossible’

His comment came a week after Sharp, Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen. Panasonic Corp., Japan’s biggest appliance maker, forecast a 780 billion yen loss, the worst since the Osaka-based company was established in 1918.

Honda, the nation’s third-largest automobile maker, forecast on Jan. 31 net income for the 12 months ending March will decline to a three-year low of 215 billion yen. The company estimates its operating income is cut by 15 billion yen for every one yen gain against the dollar.

The Bank of Japan last month lowered its forecast for economic growth to 2 percent in the year starting in April from an October estimate of 2.2 percent, citing a slowdown overseas and the stronger yen.

The U.S. Treasury Department criticized Japan in a December report for unilaterally selling its currency in August and October, saying the Asian nation should focus on steps to “increase the dynamism of the domestic economy.” Intervention is an option if the yen moves excessively, Naoyuki Shinohara, a deputy managing director at the International Monetary Fund, said in an interview in Tokyo on Feb. 3.

U.S. Criticism

“Coming under growing criticism from overseas, Japan couldn’t openly intervene in the markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Japan had to choose stealth intervention from the very few options to deal with increasing pressure within the country.”

Intervention is defined as “stealth” when it’s done without any finance ministry announcement, he said.

The yen sale in October was the biggest intervention on a monthly basis in data going back to 1991, while sales totaled 14.3 trillion yen in 2011, the third-largest annual amount, ministry data also showed.

No New Tactics

“We do not believe that the intervention over a period of several days by Japanese authorities signals a significant shift in tactics compared to previous interventions,” Osamu Takashima, Issei Suzuki and Todd Elmer, foreign-exchange strategists at Citibank Japan Ltd. in Tokyo, wrote in a note to clients today. “Investors may be inclined to sell into any renewed bout of intervention on USDJPY on a breakdown beneath recent range lows.”

The first intervention of 2011 was a 692.5 billion yen sale on March 18, when the Bank of Japan led a coordinated effort with Group of Seven nations to counter a jump in the yen after a record earthquake struck Japan a day earlier, stoking speculation companies would repatriate overseas assets to pay for rebuilding. Current Prime Minister Yoshihiko Noda, who was finance minister at the time, ordered the nation’s central bank to intervene again unilaterally on Aug. 4.

The yen reached 76.03 per dollar on Feb. 1, the strongest since Oct. 31. It traded at 76.72 as of 2:33 p.m. today in Tokyo.

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China’s Wen Suggests Euro Funding After Meeting With Merkel

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Out of the goodness of their hearts.

Not if, but Wen-

China’s Wen Suggests Euro Funding After Meeting With Merkel

Feb 6 (Bloomberg) — Chinese Premier Wen Jiabao raised the prospect of contributing to the euro-area’s bailout programs, telling Chancellor Angela Merkel that China may be prepared to assist in resolving its debt crisis.

The Chinese government is considering funding options for the temporary European Financial Stability Facility and its permanent successor, the European Stability Mechanism, through the International Monetary Fund to help stabilize the monetary union, Wen said yesterday after meeting Merkel in Beijing. China has previously said that it needs more detail on any plan to contribute funds to the euro area.

China is “investigating and evaluating ways, through the IMF, to be more deeply involved using the ESM and EFSF channels in solving the European debt issue,” Wen said at a briefing alongside Merkel, who arrived in China early yesterday on her fifth visit to the world’s most populous country as chancellor.

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CHINESE PREMIER WEN JIABAO SAYS CHINA NEEDS TO HELP EUROPE

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Trojan horse
They just want to support their exports.

Premier Wen says China needs to help Europe – report

Feb 5 (Reuters) — Chinese Premier Wen Jiabao said that China needs to help Europe stabilise its markets due to strategic considerations in its relations with the region, the official China Securities Journal reported on Monday.

China also needs to keep its policy on imports and exports stable via more encouragements rather than restrictions, the newspaper quoted Wen as saying during a visit to China’s southern province of Guangdong earlier this month.

“Europe is now in a debt crisis,” Wen was quoted as saying. “We must consider our relations with Europe from strategic needs, maintaining our nation’s own interest.

“On the other hand, Europe is our largest export market. Europe is our biggest source of technological imports. Helping Europe stabilise its markets is thus helping ourselves.”

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CH News – 02.01.12

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Reads like inflation fears are still there which should temper growth initiatives:

China economy faces downward risks in 2012

Feb 1 (Reuters) — China’s economy faces downward risks in 2012, as weakening external demand cuts into growth of the country’s export sector, the Finance Minister Xie Xuren said in remarks published on Wednesday.

He also said inflationary pressures in China remain strong as international markets are awash with cash, which has helped push up global commodity prices.

“There exists some downward pressure for the economic growth. As the external demand is now fading clearly, Chinese exporters are facing increasing difficulties,” Xie said in an article published in the ruling Communist Party’s mouthpiece magazine, Seeking Truth, which was posted on the central government website, www.gov.cn.

China’s economy, which grew at its weakest pace in 21/2 years in the latest quarter, looks to be heading for an even sharper slowdown in coming months, although an official survey of purchasing managers showed a slight upturn in factory production in January.

Xie also emphasized the important role of fiscal policy in maintaining China’s steady and relatively fast economic growth and said Beijing would continue to implement a proactive fiscal policy this year.

China’s fiscal deficit and government debt ratio, both of which remain within a safe and comfortable zone, are expected to give much scope for the government to keep its proactive fiscal policy, Xie added.

China’s nationwide fiscal revenues jumped 25.8 percent to a record high of 10.37 trillion yuan in 2011, leaving the country with a fiscal deficit of 519 billion yuan, lower than the budgeted 900 billion yuan.

“It is necessary and also possible for us to continue to implement a proactive fiscal policy,” he said. Xie also said that his ministry would provide more fiscal support to small to mediumsized enterprises and step up efforts to cut taxes for some selected sectors to restructure the economy away from exports and towards domestic consumption. “We will further improve tax cut policies in some areas to promote the development of enterprises and boost household consumption,” he added. Beijing has unveiled a slew of tax breaks to help cashstrapped small firms cope with rising costs and has also allowed them to issue more bonds and tap other sources of financing to ease the funding squeeze. The finance ministry also vowed to guarantee enough funding for key construction projects in the 12th five year plan period. Chinese Premier Wen Jiabao also said at a state council meeting on Tuesday that the central government would back funding to major projects already under way to ensure steady growth in investments.

China 2012 Budget Deficit May Rise Slightly

Feb 1 (Bloomberg) — China’s budget deficit may rise slightly or be almost unchanged this year from 2011, Gao Peiyong, a researcher with the Chinese Academy of Social Sciences, wrote in a commentary in today’s People’s Daily.

China may control fiscal expansion this year as maintaining consumer prices is a main problem for the country, Gao wrote

China may cut tax, rather than increase spending to continue conducting positive fiscal policies, according to Gao.

2012 Economic Fundamentals Remain Sound

Feb 1 (Bloomberg) — China’s economic fundamentals remain sound and the country has some advantages that will promote development this year, Finance Minister Xie Xuren wrote in Qiushi article posted on the central government’s website today.

China has “huge” domestic demand potential, Xie writes

China still faces downward pressure on economic growth, “relatively large” inflationary pressure and potential economic and financial risks, Xie writes

China’s deficit rate and debt rate are in a “safe range,” Xie writes

China Says it Will Implement Proactive Fiscal Policy This Year

Feb 1 (Yonhap) — China said Wednesday it will implement a proactive fiscal policy this year in a bid to drive up growth amid growing signs of a global economic slump.

Chinese Minister of Finance Xie Xuren, said in a statement that the government will use financial functions to maintain stable and rapid economic development in China.

China’s economic growth slowed last year, with its gross domestic product growing 8.9 percent on-year in the fourth quarter, slowing from 9.1 percent in the third quarter and 9.5 percent in the second quarter.

Over the course of the year, China’s economy expanded 9.2 percent in 2011 from a year earlier, down from 10.3 percent on-year growth in 2010.

Xie noted that China’s economy is facing downward pressure stemming from external shocks.

“The country’s exports are facing increasing difficulties, affected by significantly weakening external demand,” he said. “New drivers for economic growth need to be developed.”

The country’s export growth has begun slowing on falling global trade.

With global economic uncertainty lingering, including the European fiscal crisis, China has been looking to transform itself into a consumption-oriented economy by raising domestic demand.

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China Forex Reserves Dip for 2nd Month in Dec

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I’ve been watching the fundamentals for the exchange rate to deteriorate for the last couple of years. Could be the timing is now right with FDI flows as well as trade flows looking like they may have turned.

ch

China Forex Reserves Dip for 2nd Month in Dec

May 25 (PTI) — From K J M Varma China’s foreign exchange reserves amounting to over USD 3 trillion declined for the second straight month in December, snapping the trend of years of accumulation.

Chinese lenders bought USD 142.5 billion on behalf of their clients in December, while they sold USD 157.8 billion, marking the second monthly deficit, China’s State Administration of Foreign Exchange (SAFE) said in a statement.

The December deficit stood at USD 15.3 billion, up from USD 800 million in November.

China sits on the world’s largest forex reserves.

The SAFE data came after the central bank had said earlier this month that the country’s yuan funds outstanding for foreign exchanges fell to 25. 36 trillion yuan in December.

Analysts said the deficit, like falling yuan funds, is a result of a narrowing trade surplus, a slowdown in the growth of foreign direct investment and weakened expectation for yuan’s appreciation.

Last year, Chinese banks bought USD 1.6 trillion in foreign currency, and sold USD 1. 23 trillion, leading to a surplus of USD 367.8 billion, the SAFE statement said.

Reports of the decline came as China starts celebrating the lunar New Year, or the Spring Festival from January 23. This will mark the beginning of the ‘Year of the Dragon’, according to the Chinese Zodiac that assigns one animal, real or fabricated, to each year, repeating every 12 years.

However, experts say that this year is expected to be a tough one for China as it is seeing a declining trend in exports which is narrowing the decades of trade surplus.

Besides the dip in the forex reserves, China also saw a decline in the double digit growth rate in its economy, which grew by 9.2 per cent in 2011, with official projections that it will decline to 8.5 per cent this year in the face of falling exports and global financial crisis.

China’s trade surplus fell to 6-year low at USD 155 billion in 2011 amid shrinking exports market, even as its foreign trade surged by 22.5 per cent to hit an all-time high of USD 3.64 trillion.

The annual trade surplus narrowed to 14.5 per cent year-on-year to USD 155.14 billion in 2011, according to the General Administration of Customs (GAC).

China is the world’s second-largest importer and is expected to become the top importer in 2-3 years and contribute to global economic recovery, a senior research fellow from the Center for US-China Relations, Tsinghua University, Zhou Shijian, was quoted by the official media here as saying.

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Chinese Agencies Working to Boost Consumption

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More signs the western educated kids are taking charge.
Instead of the public sector spending more than it’s ‘income’
seems they are working on expanding private sector debt?
And tax cuts for institutional investors to buy equities?

Good luck to them…

Chinese Agencies Working on Fiscal Steps to Boost Consumption

Jan 18 (Bloomberg) — Commerce Ministry spokesman Shen Danyang says his agency, central bank and finance ministry are working on such steps

* China will support wider use of credit, bank cards

* Agencies will submit plan to State Council

* NOTE: State-run China Securities Journal today reported govt may introduce tax cuts, other preferential policies for institutional investors to encourage long-term stockholding

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China PBOC Asks Banks to Refrain From Lending Too Much

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China PBOC Asks Banks to Refrain From Lending Too Much

Jan. 13 (Bloomberg) — The People’s Bank of China’s regional branches asked banks to refrain from lending “too much” in early part of the year, Reuters reports today, citing unidentified people in the banking industry.

Shanghai PBOC branch told banks that 1Q new loans shouldn’t exceed 40% of total new loans last year, according to Reuters

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Proposal update, including the JG

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My proposals remain:

1. A full FICA suspension:

The suspension of FICA paid by employees restores spending which supports output and employment.
The suspension of FICA paid by business helps keep costs down which in a competitive environment lowers prices for consumers.

2. $150 billion one time distribution by the federal govt to the states on a per capita basis to get them over the hump.

3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.

Call me an inflation hawk if you want. But when the fiscal drag is removed with the FICA suspension and funds for the states I see risk of what will be seen as ‘unwelcome inflation’ causing Congress to put on the brakes long before unemployment gets below 5% without the $8/hr transition job in place, even with the help of the FICA suspension in lowering costs for business.

It’s my take that in an expansion the ’employed labor buffer stock’ created by the $8/hr job offer will prove a superior price anchor to the current practice of using the current unemployment based buffer stock as our price anchor.

The federal government caused this mess for allowing changing credit conditions to cause its resulting over taxation to unemploy a lot more people than the government wanted to employ. So now the corrective policy is to suspend the FICA taxes, give the states the one time assistance they need to get over the hump the federal government policy created, and provide the transition job to help get those people that federal policy is causing to be unemployed back into private sector employment in a more orderly, more ‘non inflationary’ manner.

I’ve noticed the criticism the $8/hr proposal- aka the ‘Job Guarantee’- has been getting in the blogosphere, and it continues to be the case that none of it seems logically consistent to me, as seen from an MMT perspective. It seems the critics haven’t fully grasped the ramifications of the recognition of the currency as a (simple) public monopoly as outlined in Full Employment AND Price Stability and the other mandatory readings.

So yes, we can simply restore aggregate demand with the FICA suspension and funds for the states, but if I were running things I’d include the $8 transition job to improve the odds of both higher levels of real output and lower ‘inflation pressures’.

Also, this is not to say that I don’t support the funding of public infrastructure (broadly defined) for public purpose. In fact, I see that as THE reason for government in the first place, and it should be determined and fully funded as needed. I call that the ‘right size’ government, and, in general, it’s not the place for cyclical adjustments.

4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.

Here my presumption is there’s more to life than burning our way to prosperity, with ‘whoever burns the most fuel wins.’

Perhaps more important than what happens if these proposals are followed is what happens if they are not, which is more likely going to be the case.

First, given current credit conditions, world demand, and the 0 rate policy and QE, it looks to me like the current federal deficit isn’t going to be large enough to allow anything better than muddling through we’ve seen over the last few years.

Second, potential volatility is as high as it’s ever been. Europe could muddle through with the ECB doing what it takes at the last minute to prevent a collapse, or doing what it takes proactively, or it could miss a beat and let it all unravel. Oil prices could double near term if Iran cuts production faster than the Saudis can replace it, or prices could collapse in time as production comes online from Iraq, the US, and other places forcing the Saudis to cut to levels where they can’t cut any more, and lose control of prices on the downside.

In other words, the risk of disruption and the range of outcomes remains elevated.

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Japan To Buy Chinese Govt Bonds Under Bilateral Pact

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This is peculiar.
This supports the yuan vs the yen,
supporting Japan’s exports to China.

Could be more evidence of China’s inflation concern?

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (Nikkei) — Japan will likely purchase yuan-denominated bonds issued by the Chinese government under a proposed bilateral currency and financial agreement, The Nikkei learned Monday.

Japanese and Chinese officials are working out plans to have the pact signed when their leaders meet for a summit this coming Sunday. The agreement will be pillared on the purchase of Chinese government bonds using Japan’s foreign exchange fund special account, along with the joint establishment of a green investment fund.

Japan seeks to diversify its forex fund special account, which now focuses on dollar investments. It also aims to strengthen economic cooperation with China by supporting that nation’s efforts to turn the yuan into a more international currency.

The bond purchases may total up to 10 billion dollars’ worth, or roughly 780 billion yen, with buying carried out in stages through the special account.

The Chinese government counts Japanese government bonds among its foreign-currency reserves. Through cross-holding of bonds, Japan and China will be better poised to exchange information on financial developments in the bond market and elsewhere.

The Japanese government also plans to aid Chinese efforts to nurture an offshore market for yuan-denominated transactions.

The proposed joint fund for environmental investment would feature the participation of the Japan Bank for International Cooperation and private-sector companies from the Japanese side. Details of the fund’s size and investment percentages are to be fleshed out in the near future.

Thailand and Nigeria are among the countries that hold yuan-denominated government bonds through their central banks. Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.

China’s government bond offerings totaled 1.4 trillion yuan in 2009, up 55% on the year.

Such issuances have recently increased in Hong Kong. Overseas investors can acquire government bonds issued on the mainland, but regulations — including a ceiling on purchase amounts — remain strict. top

China Bond Purchases Could Help Ties: Finance Minister

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (NQN) — Finance Minister Jun Azumi on Tuesday confirmed a report that Japan is considering buying Chinese government bonds, arguing that such purchases will offer the two countries significant advantages while strengthening bilateral economic ties.

At a news conference after a Cabinet meeting, Azumi said Japan should hold yuan-denominated bonds as a means of strengthening diplomatic relations.

Azumi said no official decisions have been made on the matter, and that Tokyo will discuss the issue at a future Japan-China summit. He also suggested that the two nations may be able to strike an agreement when Prime Minister Yoshihiko Noda visits China.

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