Category Archives: UK

Japan- Foreign countries have no right to lecture us

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This confirming much of what’s been previous discussed.

The remaining question whether there already has been direct intervention, as evidenced by rising fx reserves.

Interestingly, with floating fx it’s operationally easy for Central Banks to offset each other’s intervention. For example, if the BOJ buys dollars the Fed could simply buy the yen. Each CB would have a deposit on the other’s books and the (global) economy wouldn’t know the difference.

Also interestingly, all governments currently miss the point that exports are real (real vs nominal) costs and imports are real benefits.

So the CB that weakens its currency is in fact gifting the world superior real terms of trade via lower export prices via lower domestic real wages, etc. as it reduces its own real terms of trade.

Japan Rebuke to G-20 Nations May Signal More Moves to Weaken Yen

By Eunkyung Seo and Masaki Kondo

December 31 (Bloomberg) — Japanese purchases of foreign bonds to weaken the yen may become more likely as the nation rejects trading partners’ rights to criticize its currency policies.

“Foreign countries have no right to lecture us,” Finance Minister Taro Aso told reporters at a briefing in Tokyo on Dec. 28. He said that the U.S. should have a stronger dollar and questioned whether major Group of 20 nations had stuck to pledges from 2009 to avoid competitive currency devaluations.

Japan’s new Prime Minister Shinzo Abe may accept trade friction as a cost of spurring growth and countering deflation through a looser monetary policy and weaker yen. The currency is set to complete its biggest annual decline in seven years after Abe’s Liberal Democratic Party secured a landslide victory in this month’s lower-house election. During his campaign, Abe said foreign-bond purchases were a possible monetary tool.

“The LDP wants to boost stock prices before the upper- house election in July next year, and the easiest option for them is to weaken the currency,” said Satoshi Okagawa, a senior global-markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest bank by market value. “The explicit policy to weaken the yen is likely to upset the U.S. and China.”

The yen was at 86.08 per dollar as of 7:30 a.m. in London after touching 86.64 on Dec. 28, the weakest since August 2010. It traded at 113.53 per euro.

Currency Promises

The currency has dropped more than 10 percent versus the greenback since the end of 2011, set to complete the biggest annual slump since 2005. At the same time, the yen remains about 30 percent higher than it was five years ago.

In his Dec. 28 comments, Aso, a former prime minister, said that Japan and other countries made “a promise not to resort to competitive currency devaluations” at a G-20 meeting in 2009. “How many countries have kept the promise? The U.S. should have a stronger dollar. What about the euro?” he asked. “Foreign countries have no right to lecture us” as Japan is the only major economy to keep the pledge, Aso said.

The U.S. criticized Japan for undertaking unilateral sales of the yen in August and October last year, after Group of Seven economies earlier jointly intervened to weaken the currency in the aftermath of an earthquake and tsunami.

“Rather than reacting to domestic ‘strong yen’ concerns by intervening to try to influence the exchange rate, Japan should take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy,” the Treasury Department said in a report in December last year.

Shrinking Economy

The Liberal Democratic Party faces the task of reviving growth after the economy contracted for the past two quarters, meeting the textbook definition of a recession. The nation’s industrial output tumbled more than forecast in November to the lowest level since the aftermath of last year’s record quake.

At the same time, stock prices are climbing, with Toyota Motor Corp. at a more than two-year high, as a weaker yen and prospects for central-bank easing brighten the outlook for exporters. Such improvements may cause concern for some of Japan’s Asian neighbors.

“South Korea is one of the countries most vulnerable to the weak yen policy as many export items are in direct competition, such as cars and electronic goods,” said Lee Sang Jae, a Seoul-based economist at Hyundai Securities Co. “Japan will try whatever it can to stop the deflation and to weaken the yen for export growth.”

Shirakawa’s Caution

After a Dec. 28 call with U.S. Treasury Secretary Timothy F. Geithner, Aso said he had told Geithner that the yen was making some corrections from one-sided moves and Aso would keep monitoring changes in the currency.

Bank of Japan (8301) Governor Masaaki Shirakawa, whose five-year term ends in April, has rejected suggestions that the bank buy foreign bonds and called for respect for the BOJ’s independence. Such a policy would amount to currency intervention, which is the responsibility of the finance minister, he says.

At the same time, the Nikkei newspaper on Dec. 29 cited Shirakawa as saying that central bank and government must work together to overcome deflation. Abe is pressing for the Bank of Japan to adopt a 2 percent inflation target, compared with a current goal of 1 percent. Consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, showing the central bank is struggling to fulfil even the lesser ambition.

The LDP proposed in its campaign manifesto establishing a joint BOJ, Ministry of Finance and private sector fund to buy foreign bonds. Takatoshi Ito, a former finance ministry official and a possible contender to become central-bank governor, said in a Dec. 6 interview that the BOJ “can and should buy foreign bonds,” adding that such a move is possible if the finance minister publicly declares support for it.

In a note this month, Australia and New Zealand Banking Group Ltd. said that foreign bond purchases are contrary to the legislation governing the BOJ. At the same time, it’s possible that the government may cajole the central bank into putting money into a proposed private-public vehicle for investment in foreign asssets, the lender said.

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yen tailspin?

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When the nukes shut down Japan started imported a lot more oil etc. And their trade surplus started fading and yen became ‘easier to get’ internationally.

Meanwhile, conditional funding in the euro zone worked to take away the euro evaporation risk, while the austerity continued to make the euro ‘harder to get’.

And the US cliff is making the dollar ‘harder to get’ and about to get more so.

And Japan’s fx reserves keep marching higher indicating that somehow yen are being exchanged for dollars that Japan keeps at the Fed, and probably same with euro, as the euro zone has been encouraging foreign buying of euro. All making euro and dollars ‘harder to get’

The Fed’s growing portfolio continues to remove interest income from the global economy, making the dollar ‘harder to get’.

So if nothing else changes the yen goes down until net exports rise sufficiently.

Just like the euro goes up until that trade surplus goes away (or the euro zone goes away, which ever comes first, but that’s another story), and the dollar keeps fundamentally firming until fiscal relaxes.

Regarding the yen, however, a falling yen doesn’t necessarily cause trade to reverse. In fact, initially, the rising price of oil, for example, exacerbates the fall, as the quantity purchased doesn’t immediately fall. Nor does the drop in real wages immediately cause exports to rise.
This was called the J curve when I was in school back in the last century.

And not to forget Japan thinks a falling yen is a good thing.

So given all that, the J part could go a lot further than markets currently are discounting.

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Berlusconi comments

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As if their problems end with lower borrowing costs.
No mention of needing to run much larger deficits:
Yesterday Berlusconi put it plainly and simply:

Berlusconi says Italy may be forced to leave the euro zone

Silvio Berlusconi said that Italy would be forced to leave the euro zone unless the ECB gets more powers to ensure lower borrowing costs. Berlusconi, who will again lead his People of Freedom party (PDL) in a national election, said that the ECB should become a lender of last resort for the currency bloc. “If Germany doesn’t accept that the ECB must be a real central bank, if interest rates don’t come down, we will be forced to leave the euro and return to our own currency in order to be competitive,” Berlusconi said.Berlusconi is already campaigning hard for the election with a spate of television interviews in an attempt to close the wide gap with the center-left Democratic Party which is polling at above 30 percent, some 14 points above the PDL.

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Bitcoins join global bank network

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Been looking at Bitcoins for a while and seems it’s not a currency but a payments system.

For example, a acquaintance of mine who wanted to buy an item arranged with the seller to do it via Bitcoins to ‘save’ on vat taxes.

Say the Bitcoin happened to be valued at $12, the buyer wanted to pay $120 dollars.(Note that the value per se was of no consequence for this transaction.)

What the buyer of the item did was buy 10 Bitcoins for the $120, while simultaneously the seller sold 10 bit coins for $120.

The buyer then then bought the item by transferring his 10 Bitcoins to the seller via the exchange, who ‘delivered’ them to the exchange for his prearranged $120.

Bitcoins facilitate untaxed and anonymous transactions. The value of a Bitcoin is of no particular consequence to the buyer and seller in the case of transactions like this, and will fluctuate as a function of the policies of the exchange management.

And seems the right to ‘operate as a bank’ now officially sanctions this type of activity.

Virtual cash exchange becomes bank

** Bitcoins join global bank network **

A currency exchange that specialises in the virtual currency known as bitcoins has won the right to operate as a bank.

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UK Future Jobs Fund vindicated

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Helps support the idea that an employed labor buffer stock works a lot better than an unemployed labor buffer stock, much like we’ve been suggesting for the last two decades:

Future Jobs Fund vindicated

By Tanweer Ali

November 27 — Last week the government finally published its impact report on Labour’s Future Jobs Fund. According to the report, two years after starting their jobs with the scheme, participants were 16 per cent less likely to be on benefits than if they had not taken part and 27 per cent more likely to be in unsubsidised employment. The net benefit to society of the scheme was £7,750 per participant, after accounting for a net cost of £3,100 to the Treasury . Not bad for a scheme condemned as a failure by the current government, and certainly better than anything that replaced it.

The Future Jobs Fund was introduced in 2009 to address the problem of long-term youth unemployment. About 100,000 people in the 18-24 age group out of work for a year or more were guaranteed a job for six months. Later the threshold was reduced to six months. An additional 50,000 guaranteed jobs were available for people of all ages in selected unemployment hotspots.

The idea of addressing long-term unemployment through job guarantees is not new. A number of such schemes were created in Depression-era America, putting young people to work in the National Parks, among other places. An economic rationale was provided by the economist Hyman Minsky. Many schemes for the unemployed focus on skills, and making people more employable, but don’t address the lack of demand for labour. Especially in times of recession and economic stagnation, the big problem is that there simply aren’t enough private sector jobs to go around. Minsky’s solution was for the state to act, in his terminology as ‘employer of last resort’, and provide work at the minimum wage (though I’d prefer to see people paid a living wage). This way the state is not competing with the private sector, merely providing a buffer in hard times.

Direct job creation schemes fell out of favour in the 1970s and 1980s, and the focus shifted to other active labour market policies. Poorly designed job creation programmes are beset by a number of serious problems. The FJF was designed after a careful study of the failure of earlier schemes, drawing on best practices from around the world, and ironing out potential faults. The scheme provided real jobs, not workfare, which created real benefits in the community, paid at the national minimum wage, with time off to look for other, unsubsidised jobs. It seems that the current government never understood the idea of transitional jobs. Anyway it was Labour’s idea, so it must have been bad, right?

Job guarantees have big advantages. For building confidence and job-readiness it’s hard to beat – the best way to prepare people for the job market is to give them a job. It is also visibly fair. Rather than leaving people idle, we are deploying our nation’s key resource in carrying out important work, be it caring in the community, working in schools, or preserving the environment. Also, boosting the incomes of people who would otherwise be unemployed constitutes a highly economic effective stimulus, one that, at a relatively low wage level, is unlikely to be inflationary. Finally, such a scheme will be cost-effective. A job guarantee is a more efficient use of money than other, broader stimulus schemes, as it is specifically targeted at a clear objective. The job guarantee is cheap for what it can achieve, far from being unaffordable.

Labour should be proud of the FJF and of its 2010 manifesto pledge to extend it to all adults out of work for two years or more. Now that the FJF has been vindicated, it’s time to reaffirm our commitment to a job guarantee, and make it a central part of a full employment policy. A robust job guarantee, once turned into an enduring institution, may not be a silver bullet for all our problems, but will go some way to addressing the misery and waste of long-term unemployment, in this downturn and in future recessions.

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Sweden Pays Jobless Youth to Move to Norway

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Sweden Pays Jobless Youth to Move to Norway

November 1 (Telegraph) — A Swedish town has taken to paying people to look for work in Norway in an attempt to reduce soaring youth unemployment.

Under a scheme organised by the local authorities in the town of Soderhamn and by Sweden’s national employment office, anyone aged between 18 and 28 can volunteer to take a “Job Journey” to Oslo and attempt track down gainful employment.

Those who sign up get a ticket to the Norwegian capital and are put up in an Oslo youth hostel for a month, with Soderhamn council picking up the 20 a night bill. The package also includes on-the-spot guidance on how to get a job in Sweden’s northern neighbour.

“We had an unemployment rate of over 25 per cent, so we had to find solutions,” Magus Nilsen, the man in charge of the project at Soderhamn council, told the Daily Telegraph. “Going to Norway to find work has always been quite popular with young people, but sometimes they want to go but don’t know how to find a job or accommodation so we thought we’d give them a bit of help with both.”

So far around 100 people have decided to leave Soderhamn, a town of 12,000, 250 kilometres due north of Stockholm, to try their luck in the bright lights of Oslo, and some, at least, have struck gold.

After two years on the dole in his hometown Andreas Larsson opted for a “Job Journey” to Norway and now works as a lorry driver in Oslo.

“I came here on a Thursday and on Monday morning I had a job, so it was fast,” he told Swedish Radio. “It almost felt a bit unreal, as if you have come to the promised land.”

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U.K. Economy Surges 1% as Britain Exits Double-Dip Recession

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Deficit finally large enough for a bit of stability and growth?

U.K. Economy Surges 1% as Britain Exits Double-Dip Recession

By Scott Hamilton and Jennifer Ryan

October 25 (Bloomberg) — Britain exited a double-dip recession in the third quarter with the strongest growth in five years as Olympic ticket sales and a surge in services helped boost the rebound.

Gross domestic product rose 1 percent from the three months through June, the fastest growth since 2007, the Office for National Statistics said in London today. That exceeded the highest estimate in a Bloomberg News survey for growth of 0.8 percent. The median forecast of 33 economists was 0.6 percent. The pound rose after the data were published.

The growth surge reflects a boost from the Olympics and a rebound from the second quarter, when GDP was affected by an extra public holiday. While the data may give some short-term relief to Prime Minister David Cameron’s struggling government, Bank of England Governor Mervyn King said this week that the recovery is “slow and uncertain.” That suggests the figures mask underlying weakness that could warrant further stimulus from the central bank.

“We’re still concerned the U.K. economy is going to be pretty much flat throughout next year,” James Shugg, an economist at Westpac Banking Corp. (WBC) in London, said on Bloomberg Television’s “The Pulse” with Maryam Nemazee. “It all depends how rigidly determined the government is to stick to its deficit reduction plan.”

Ticket Sales

Services, which make up about three quarters of GDP, surged 1.3 percent in the third quarter from the previous three months, the most in five years, the ONS said. Olympic ticket sales are estimated to have added 0.2 percentage points to GDP. Production rose 1.1 percent, the most in more than two years, while manufacturing increased 1 percent. Construction output fell 2.5 percent, a third straight quarterly decline.

The pound extended its gain against the dollar after the report and was trading at $1.6134 as of 10:52 a.m. in London, up 0.6 percent on the day. Bonds declined, pushing the yield on the 10-year government bond up 8 basis points to 1.93 percent.

From a year earlier, GDP was unchanged in the third quarter, the ONS said. That compared with a decline of 0.5 percent forecast by economists in a separate Bloomberg survey.

While today’s data confirm Britain exited its first double- dip recession since 1975, GDP is still 3.1 percent below its peak in the first quarter of 2008. The report also showed that the economy has grown 0.6 percent since the third quarter of 2010, just after Cameron’s coalition government came to power.

Economy ‘Healing’

Cameron urged caution on the GDP data, saying there is “still much to do.” The opposition Labour Party has accused his government of exacerbating the economic slump by sticking to its fiscal squeeze. Ed Balls, Labour’s finance spokesman, said today the economy “remains weak” and “is only just back to the size it was a year ago.”

“There are always one-off figures in all of these announcements but they do show an underlying picture of good and positive growth,” Cameron said. “We’ve got to stick with the program.”

The data today are an initial estimate and the figures are subject to revision when the ONS gets more information. In the second quarter, the decline in GDP was revised up to 0.4 percent from an initially reported 0.7 percent.

Britain is the first of the Group of Seven nations to report GDP data for the third quarter. U.S. growth probably accelerated to a 1.9 percent annual rate after expanding at a 1.3 percent pace the prior quarter, according to a Bloomberg survey before a Commerce Department report tomorrow. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.

Deficit Reduction

The U.K. data come two weeks before the Bank of England’s Monetary Policy Committee must decide whether to end its stimulus program or extend it beyond 375 billion pounds ($605 billion). Governor Mervyn King said this week that a “zig-zag” pattern of recovery is likely to persist.

Debenhams Plc (DEB), Britain’s second-largest department-store chain, said today that the U.K. experienced “challenging trading conditions during 2012.” Whitbread Plc (WTB) Chief Executive Officer Andy Harrison said the consumer market is “pretty flat” and generating any growth is “jolly difficult.”

Stripping out one-time distortions, the National Institute of Economic and Social Research said on Oct. 9 that third- quarter growth was closer to between 0.2 percent and 0.3 percent.

Inflation Cools

Still, recent data have shown pressure on consumers easing. Inflation cooled to the slowest in almost three years in September, while retail sales increased more than forecast. Payrolls rose to a record in the quarter through August, pushing the unemployment rate down to 7.9 percent from 8.1 percent.

“At this stage, it is difficult to know whether some of the recent more positive signs will persist,” King said on Oct. 23. “The MPC will think long and hard before it decides whether or not to make further asset purchases. But should those signs fade, the MPC does stand ready.”

Elsewhere in Europe, Sweden’s Riksbank kept benchmark interest rates unchanged at their lowest level since early 2011 and said further easing has become more probable as growth slows in the largest Nordic economy.

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French Industrial Production Unexpectedly Rose 1.5% in August

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I know it’s a stretch at this point, but I keep looking for evidence their budget deficits are large enough to support GDP at current (depressed) levels.

And yes, further austerity works against this.

French Industrial Production Unexpectedly Rose 1.5% in August

October 10 (Bloomberg) — French industrial production unexpectedly rose in August, driven by manufacturing of transport equipment. Production gained 1.5 percent in the month from July, Insee said.

Italian Industrial Output Unexpectedly Rises 1.7% in August

October 10 (Bloomberg) — Italian industrial production unexpectedly rose in August. Output rose 1.7 percent from July, when it contracted a revised 0.1 percent, Istat said. Production fell 5.2 percent from a year earlier on a workday-adjusted basis, the 12th annual decline. The euro region’s third-biggest economy will probably contract 2.4 percent this year and 0.2 percent next, the government said last month. Industrial production fell 0.9 percent in the third quarter from the previous three months, employers lobby Confindustria predicted on Oct. 1. Output declined 0.3 percent in September from the previous month, according to the survey. Istat had originally reported a 0.2 percent drop industrial production in July.

Same goes for the UK:

U.K. Third-Quarter GDP Jumps the Most in Five Years, Niesr Says

October 10 (Bloomberg) — The U.K. economy grew at its fastest pace in five years in the third quarter after a rebound from one-off disruptions in the prior three months, the National Institute of Economic and Social Research said. Gross domestic product rose 0.8 percent, compared with 0.1 percent in the quarter through August, Niesr said. Underlying growth was weaker than suggested by the headline number, Niesr said. Stripping out distortions stemming from June’s extra public holiday for Queen Elizabeth II’s Diamond Jubilee, it measured the economy’s pace of expansion as closer to between 0.2 percent and 0.3 percent. “The strength of the figure for the three months to September is largely an artefact of special events,” it said.

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Turkey Masses Troops on Syrian Border; Syria Slams Turkey

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This is very serious.

And if Turkey intervenes and topples the regime it may be a case of out of the frying pan and into the fire.

Turkey Masses Troops on Syrian Border; Syria Slams Turkey

By Selcan Hacaoglu

October 9 (Bloomberg) — Turkey’s top general inspected newly deployed units on the Syrian border Tuesday following six days of firing by Turkish batteries against President Bashar al-Assad’s forces.

Turkey has deployed additional tanks, howitzers, and missile defense systems on the border since a Syrian artillery shell killed five people in the town of Akcakale on Oct. 3, prompting parliament to give the government a one-year mandate to send forces into Syria if necessary.

General Necdet Ozel, chief of the general staff, today inspected troops in Hatay province, which was hit by seven artillery shells or mortar rounds in the past week, state-run TRT television said.

General Hayri Kivrikoglu, chief of the land forces, accompanied Ozel along with several other senior officers, the state-run Anatolia agency said. Ozel will inspect troops in Akcakale tomorrow, TRT television said.

Tensions between the two countries have risen during the 19-month rebellion against Assad’s government, with Turkey offering support to the rebels.

These worsened in June, when Syria shot down a Turkish warplane it said was in its airspace and on Oct. 3, when the Syrian shell fired over the border killed two women and three children in Akcakale, triggering the cross-border exchanges.

Foreign Minister Ahmet Davutoglu told state-run television on Oct. 6 that Syrian Vice President Farouk al-Sharaa hadn’t taken part in massacres and could serve as interim leader if Assad leaves office.

‘Confusion, Blundering’

Syria’s Information Minister Omran al-Zoubi said yesterday that Davutoglu’s remarks reflect “obvious political and diplomatic confusion and blundering,” Syria’s state-run SANA news agency said.

“Turkey isn’t the Ottoman Sultanate; the Turkish Foreign Ministry doesn’t name custodians in Damascus, Mecca, Cairo, and Jerusalem,” he said.

Syrian forces have continued firing at rebels along the border even though Turkey has responded to artillery shells or mortars landing inside its territory.

At least 27 schools along the border areas in Akcakale remain closed due to fears they could be hit by an errant shell, Anatolia said today.

The two countries share a 911-kilometer (566 miles) border. Turkey, a member of NATO, has a 720,000-strong military, the second-largest army within the alliance.

Deputy Prime Minister Bulent Arinc said late yesterday that although Turkey has no intention to go to war with Syria, it is determined to use the mandate if needed.

‘Solid Ground’

“Concerning Syria, primarily in the face of international law, Turkey will continue to walk on solid ground,” Anatolia quoted Deputy Prime Minister Ali Babacan as saying during a news conference today.

Turkey shelters nearly 100,000 Syrian refugees in 15 camps along the frontier. Syria says Turkey lets rebels use the camps as a safe haven.

More than 30,000 people have died in Syria since the rebellion against Assad began in March 2011, according to the British-based Syrian Observatory for Human Rights.

The Local Coordination Committees in Syria said 31 people have died so far today, including 28 in Damascus and its suburbs.

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