Tag Archives: USD

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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Asia Banks Face Dollar Funding Squeeze After US Cut

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This has nothing to do with the downgrade.
Looks like the boys got themselves caught in a bit of a dollar short squeeze.
Falling crude oil and other commodity prices will only make it worse.
The Aussie dollar looks to be down close to 10% from recent highs, indicating a bit of a $US short there too.
Seems near 0 rates, QE, and general bad mouthing of the $US may have gotten them carried away on the short side, using it as a ‘funding currency’ and all that.

Could have been worse, could have been short yen for the same reason, which they also are…

Asia Banks Face Dollar Funding Squeeze After US CutAsia Banks Face Dollar Funding Squeeze After US Cut

August 8 (Reuters) — Asia’s banks are seen facing a bump-up in dollar-funding costs and potentially slower credit growth after Standard & Poor’s historic U.S. debt rating downgrade, strengthening China’s case to push the yuan as a global alternative to the dollar.

Ratings agency S&P cut the U.S. long-term rating by one notch to AA+ from AAA on Friday, sparking a sell off in global stock markets already roiling from concerns about the euro zone’s debt crisis.

Banks in Asia have about 15-20 percent of their loan book in U.S. dollars, according to an estimate by Ismael Pili, head of Asian bank research at Macquarie Capital. Analysts said their demand and costs have been climbing.

“We have seen rising demand for U.S dollar loans by corporates throughout the region,” said Christine Kuo, Singapore-based team leader for banking at Moody’s Investor Service.

“Banks have been raising U.S. dollar funding to meet their customer demand. If there is tightening or there is great volatility in the U.S. dollar market, that’s where we think the impact will come in. Some of the banks will need to pay higher for U.S. dollar funding or they may have to delay their capital market issuance should the market become too volatile,” she added.

Moody’s estimates Singapore’s DBS and OCBC have loan-to-deposit ratios in U.S. dollar of 140-160 percent. That means they do not have sufficient U.S. dollar deposits for loans but borrow from the wholesale market to finance corporate needs.

The funding squeeze will again intensify calls for replacing the dollar as the reserve currency.

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China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

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So it looks like QE2 indeed managed to scare China out of the dollar. This is the portfolio shifting previously discussed that’s been dragging down the dollar even though, fundamentally sound, as Fed Chairman Bernanke correctly stated.

And when China (and Japan) offered to buy Spanish and other euro zone national govt debt to ‘help out’, the euro zone fell for that one, watching their currency rise against their better judgement with regards to their euro wide exports.

And maybe Fed Chairman Bernanke is aware of this, and has assured China he does favor a strong dollar as per his latest public statements, and let them know that QE3 is unlikely, and has ‘won them back’? No way to tell except by watching the market prices.

And with most everyone out of paradigm with regards to monetary operations, there’s no telling what they all might actually do next.

What is known is that world fiscal balance is tight enough to be slowing things down, and looking to keep getting tighter.
And QE/lower overall term structure of rates removes interest income from the economy, and shifts income from savers to bank net interest margins.
And if China’s growth is going to slow dramatically, its most likely to happen the second half as they tend to front load their state lending and deficit spending each year.

And all the while our own pension funds continue to allocate to passive commodity strategies, distorting those markets and sending out price signals that continue to bring out increasing levels of supply that are filling up already overflowing storage bins.

Note in particular that reserve accumulation has been high and rising recently, though UST accumulation has been moderate.

China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

By Terence P. Jeffrey

Jun 4 (CNSNews.com) — China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.
Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.

Prior to the fall of 2008, acccording to Treasury Department data, Chinese ownership of short-term Treasury bills was modest, standing at only $19.8 billion in August of that year. But when President George W. Bush signed legislation to authorize a $700-billion bailout of the U.S. financial industry in October 2008 and President Barack Obama signed a $787-billion economic stimulus law in February 2009, Chinese ownership of short-term U.S. Treasury bills skyrocketed.

By December 2008, China owned $165.2 billion in U.S. Treasury bills, according to the Treasury Department. By March 2009, Chinese Treasury bill holdings were at $191.1 billion. By May 2009, Chinese holdings of Treasury bills were peaking at $210.4 billion.

However, China’s overall appetite for U.S. debt increased over a longer span than did its appetite for short-term U.S. Treasury bills.
In August 2008, before the bank bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at $573.7 billion. That number continued to escalate past May 2009– when China started to reduce its holdings in short-term Treasury bills–and ultimately peaked at $1.1753 trillion last October.

As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.

Most of the U.S. national debt is made up of publicly marketable securities sold by the Treasury Department and I.O.U.s called “intragovernmental” bonds that the Treasury has given to so-called government trust funds—such as the Social Security trust funds—when it has spent the trust funds’ money on other government expenses.

The publicly marketable segment of the national debt includes Treasury bills, which (as defined by the Treasury) mature in terms of one-year or less; Treasury notes, which mature in terms of 2 to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30 years.

At the end of August 2008, before the financial bailout and the stimulus, the publicly marketable segment of the U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was in TIPS.

At the end of March 2011, by which time the Chinese had dropped their Treasury bill holdings 97 percent from their peak, the publicly marketable segment of the U.S. national debt had almost doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS.

Before the end of March 2012, the Treasury must redeem all of the $1.7 trillion in Treasury bills that were extant as of March 2011 and find new or old buyers who will continue to invest in U.S. debt. But, for now, the Chinese at least do not appear to be bullish customers of short-term U.S. debt.

Treasury bills carry lower interest rates than longer-term Treasury notes and bonds, but the longer term notes and bonds are exposed to a greater risk of losing their value to inflation. To the degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of March must be converted into longer-term U.S. Treasury securities, the U.S. government will be forced to pay a higher annual interest rate on the national debt.

As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement. Of that, approximately $9.74 trillion was debt held by the public and approximately $4.61 trillion was “intragovernmental” debt.

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QE2: Captain, your ship is sinking

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So imagine the corn crop report comes out and it surprises on the upside at up 30%
What happens? The price of corn probably starts to fall. Commercial buyers back off, farmers rush to hedge, and, overall, players of all ilks try to reduce positions, get short, etc.

A few weeks later it’s further confirmed that the farmers are producing a massive bumper crop.

What happens? The same adjustments continue.

But what if that crop report was wrong? What if, in actual fact, there had been a crop failure? And market participants never do get that information?

What happens? Prices go down for a while as described above, but at some point they reverse, as sellers dry up, and as consumption overtakes actual supply price work their way higher, and then accelerate higher, even if no one ever actually figures out there was a crop failure.

QE is, in fact, a ‘crop failure’ for the dollar. The Fed’s shifting of securities out of the economy and replacing them with clearing balances removes interest income. And the lower rates from Fed policy also reduces interest paid to the economy by the US Treasury, which is a net payer of interest.

But the global markets mistakenly believed QE was producing a bumper crop for the dollar. They all believed, and some to the of panic, that the Fed was ‘printing money’ and flooding the world with dollars.

So what happened? The tripped overthemselves to rid them selves of dollars in every possible manner. Buying gold, silver, and the other commodities, buying stocks, selling dollars for most every other currency, selling tsy securities, etc. etc. etc. in what was, in most ways, all the same trade.

This went on for months, continually reinforced by the pervasive rhetoric that QE was ‘money printing’, and that the Fed was playing with fire and risking hyperinflation, with the US on the verge of suddenly/instantly becoming the next Greece and getting its funding cut off.

Not to mention Congress with it’s deficit reduction phobia.

So what’s happening now? While everyone still believes QE is a bumper crop phenomena, QE (and 0 rate policy in general) is none the less an ongoing crop failure, continuously removing $US net financial assets from the economy.

And so now that the speculators and portfolio shifters have run up prices of all they tripped over each other to buy, the anticipated growth in spending power-underlying aggregate demand growth needed to support those prices- isn’t there. And, to throw more water on the fire, the higher prices triggered supply side repsonse that have increased net supply along with a bit of ‘demand destruction’ as well.

Last week I suggested that higher crude prices were the last thing holding down the dollar, and that as crude started to fall I suggested its was all starting to reverse.

It’s now looking like it’s underway in earnest.

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Saving Money by Selling Excess Property | The White House

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It may indeed serve public purpose to sell federal property.

In fact, the burden of proof of public purpose is with the federal government as to why it would own any specific property in the first place.

However, selling property does remove net financial assets from the economy, make the dollar ‘harder to get’, and is thereby a contractionary/deflationary bias that reduces aggregate demand/output and employment.

The continuing problem is that deficit reduction doesn’t currently serve any public purpose that I can discern, but it’s actively being pursued by both sides, now trying to out do each other in what’s shaping up to be a death race to the bottom.

The good news is that at least so far the Saudis seem to be following/allowing crude oil prices to decline. Possible reasons range from the demand destruction or looming supply increases due to the higher prices, to the possibility they got short in their personal accounts. There’s no telling why they do what they do, and as a simple point of logic they remain swing producer/price setter.

Falling crude prices serve to directly make US dollars ‘harder to get’ as the US bill for imported crude and products falls, and thereby offers substantial and ongoing fundamental support to a US dollar that has to be one of the most oversold items of all time.

The only negative for the US dollar I can see is the chart, which has been telling me there continuous portfolio shifting away from the US dollar, which, when assisted by the rising crude prices, combined to keep the US dollar in decline. Without the support of the rising crude prices the tide could be turning.

The White House Blog: Saving Money by Selling Excess Property

By Jeffrey Zients

May 4 — As we look at our fiscal situation, the President understands that the Federal Government must do what American families are doing all across the country: find ways to live within our means and invest in the future. That means cracking down on waste and getting the most from taxpayer dollars.

Since President Obama took office, we’ve made unprecedented progress in reforming the way Washington works – saving billions of taxpayer dollars through IT reform, cut contracting spending, and eliminated duplicative and ineffective programs.

In his State of the Union address, the President discussed another area that is ripe for savings and reform — the real estate footprint of the Federal government. For too long, the American people’s hard-earned tax dollars have gone to waste, funding empty buildings and holding on to valuable properties the government no longer needs. That is something that shouldn’t be tolerated at any time, but especially with this challenging fiscal environment, it’s unacceptable.

Today, we’re sending legislation to the Hill that will cut through red tape and politics to rid the government of the burden of excess property and save taxpayers at least $15 billion. We look forward to working with members of Congress to pass this legislation, the Civilian Property Realignment Act.

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State of the Union

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Some of the risks listed at year end seem to be coming on line, including slower growth out of China, euro austerity keeping a lid on demand in the euro zone, and US fiscal balance too tight for anything more than very modest top line growth, given current credit conditions and the negative income effects of near 0 interest rate policy and QE.

With crude oil continuing to soften, and Brent looking to close the gap with WTI by falling more than WTI, the dollar continues to gain fundamental support as it becomes ‘harder to get’ overseas.

And falling gold and silver prices, along with most other commodities, are showing a world that is sensitive to those indicators that QE2 doesn’t look to have been at all inflationary, leaving many people with positions they otherwise would not have taken (long gold, silver, commodity currencies, and other implied ‘short dollar’ positions).

The risk here is that the dollar gets very strong, and commodities very weak, which can lead to a US equity correction as well as a strong bond rally, all contributing to a deflationary malaise, as the theme remains:

Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan

Which includes a misguided national effort to export our way to prosperity, which is likely to be featured by the President tonight.

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QE providing the ‘cover’ for foreign dollar buying?

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Japan has already begun the resumption of dollar buying.
Now looking like QE is may be opening the door for a lot more?

Emerging Market Policymakers Vow to Combat Fed’s Easing

November 4 (Bloomberg) — Policymakers from Brazil to South Korea and China on Thursday pledged to come up with fresh measures to curb capital inflows after the U.S. Federal Reserve said it would print billions of dollars to rescue the economy.

The frosty reaction from emerging economies makes any substantive deal on global imbalances and currencies at next week’s Group of 20 meeting that Seoul is hosting even less likely.

South Korea’s Ministry of Finance and Strategy sent “a message to the markets”on Thursday saying it would “aggressively” consider controls on capital flows while Brazil’s Foreign Trade Secretary said the Fed’s move could cause “retaliatory measures.”

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