JPY Market Color Mar/21/2013

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Debt to GDP over 200%
0 rates for decades
Strong currency
Alarmingly low term structure of rates

Recent yen weakness looking ‘fundamental’ as trade goes negative maybe until nukes are restarted and ‘replacement’ gas and oil imports go back to where they were.

Trade going negative after initial yen weakening due to ‘j curve’ effect where initially actual quantities of imports stay pretty much the same but prices are higher. Only some time later do quantities respond to the higher price.


Yen:

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German Manufacturing Output Surprisingly Contracted in March

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Warning- a weakening economy will make their deficit go up!
;)

German Manufacturing Output Surprisingly Contracted in March

By Zoe Schneeweiss

March 21 (Bloomberg) — A German index based on a survey of purchasing managers in the manufacturing industry declined to 48.9 this month from 50.3 in February, while a services gauge fell to 51.6 from 54.7, London-based Markit Economics said in an e-mailed report today. A reading below 50 indicates contraction. Economists had forecast a reading of 50.5 for the manufacturing index and 55.0 for the services gauge, according to the median estimates in Bloomberg News surveys.

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restaurant spending down

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Americans Cut Restaurant Spending as Taxes Bite: EcoPulse

By Anna-Louise Jackson & Anthony Feld

March 20 (Bloomberg) — Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.

Sales at casual-dining establishments fell 5.4 percent last month, after declining 0.6 percent in January and 1.6 percent in December, according to the Knapp-Track Index of monthly restaurant sales.

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Cyprus- Just in case you thought negative interest rates help an economy

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Many have proposed negative interest rates as further ‘easing’ to help the economy.(too many, actually)

The proposed deposit tax in Cypress is functionally a one time negative interest rate. So maybe if they made it annual- just like the negative interest rates proposed elsewhere- it would help the economy?

So as previously discussed, I still see it in a spectrum. Positive rates are a govt subsidy and negative rates a tax. And so the Fed’s rate cuts and QE removed the prior subsidy, for example.

:(

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Boehner- debt crisis dead ahead

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Wrong.
If there’s no inflation problem there’s no deficit problem:

The country isn’t facing an immediate debt crisis, House Speaker John Boehner (R-Ohio) said Sunday, but he argued that Congress and the president must reform entitlements to avert one that lies dead ahead.

“We all know that we have one looming,” Boehner said onABC’s “This Week”. “And we have one looming because we have entitlement programs that are not sustainable in their current form. They’re going to go bankrupt.”

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Pesky Cyprus Agrees to Euro Zone Bailout Package – Who wood have thought?

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As suspected the PSI/bond tax/deposit tax has become more attractive politically than other tax hikes and spending cuts. And it is also deflationary/contractionary, though less so than other taxes. And yes, it destabilizes the banking system in general.

After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package

In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than $130,000, or 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said.

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Bank of Italy Urges Banks to Retain Earnings, Preserve Capital

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Another deflationary demand leakage:

Bank of Italy Urges Banks to Retain Earnings, Preserve Capital

March 15 (Bloomberg) — Italian banks should retain earnings and cut bonuses to boost their capital as the country’s longest recession in 20 years undermines lenders’ profitability, the Bank of Italy said. Banks are not allowed to pay variable bonuses to senior executives and pay a dividend if they posted a loss in 2012, the central bank wrote in a bulletin. Lenders should retain earnings even if their core Tier 1 ratio is below a set target set by the central bank. Lenders including UniCredit SpA and Intesa Sanpaolo SpA are cutting costs, reorganizing their branch networks and selling assets to strengthen their balance sheets and boost equity. Banks should also increase their provisions for bad loans and further reduce costs, the Bank of Italy said, adding that it will review the banks behavior.

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CBRC to boost control of lending to local govts

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The question is whether this slows down new lending. Appears it does?

CBRC to boost control of lending to local govts

By Xie Yu

March 15 (Xinhua) — The China Banking Regulatory Commission has drafted a guideline to boost the risk control of local governments’ financing vehicles. The guideline reiterated that the authority will control the total volume of loans that go to local governments’ financial vehicles, or LGFV, demanding that the volume should not surpass the level of late 2011. Chinese banks had 9.1 trillion yuan of outstanding loans issued to LGFV as of September 30, 2011, and at least 65 percent of these loans were fully covered by cash flows. The current loans amount to about 9.3 trillion yuan. The regulator requires banks to keep the percentage of those loans below the 2012 level. Local governments have set up more than 6,500 financing vehicles to raise money for projects.

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