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Japan Begins To Use Its $ Reserves To Buy Hard Assets?

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From bloomberg, the bit in bold sums it up:

http://www.bloomberg.com/news/2011-08-23/moody-s-lowers-japan-s-government-credit-rating-to-aa3-outlook-stable.html

Japan Unveils $100 Billion to Fight Surging Yen as Moody’s Lowers Rating

Japan unveiled a $100 billion effort to help companies cope with a surging yen, signaling that officials may be resigned to the currency remaining high.

The government will release foreign-exchange reserves to the state-run Japan Bank for International Cooperation for funding to aid exporters and spur purchases overseas, Finance Minister Yoshihiko Noda told reporters in Tokyo today. The announcement came hours after Moody’s Investors Service lowered the nation’s debt rating one step to Aa3, with a stable outlook.

The yen was trading today at a level stronger than before officials last intervened to weaken the currency on Aug. 4. Its rise since the March 11 earthquake to post-World War II highs is undermining the nation’s recovery after three straight quarters of economic contraction, complicating the government’s efforts to tackle its debt burden.

“The government’s message may be that businesses need to come up with their own ways to deal with the strengthening currency, that they shouldn’t hold their breath for intervention,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd. “But the reality is that the demerits of a strong yen far outweigh the merits.”

The ministry will bolster monitoring of the currency market, requiring major financial institutions to disclose trading positions through Sept. 30, Noda said. About 30 organizations will be subject to the procedures, a ministry official told reporters in Tokyo on condition of anonymity.

The yen’s appreciation is bad for the economy and may exacerbate the nation’s fiscal woes, Thomas Byrne, a vice president at Moody’s, said at a press conference in Tokyo today. He said it was unlikely his company would take negative action on the credit rating over the next 18 months.

Amassed Reserves

Japan has amassed $1.07 trillion in foreign-exchange reserves, the world’s largest after China. The yen traded at 76.55 per dollar at 4:12 p.m. in Tokyo today. It touched a postwar high of 75.95 on Aug. 19 in New York and has been the second-best performer of ten major currencies tracked by Bloomberg over the past month.

“It does seem as though they’re trying everything but intervention now,” Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, told Bloomberg Television. The case for “big scale intervention in the near term” isn’t as compelling as it was for Switzerland when that nation moved to weaken the franc, because Japan’s currency is proving less volatile, he said.

BOJ Praise

The Bank of Japan applauded the Finance Ministry’s announcement, saying in a statement that the measures would “contribute to the stability” of currency markets. The one- year funding program through JBIC is intended to encourage “the private sector to exchange yen-denominated funds to foreign currencies by supporting exports by small and mid-sized companies, securing energy resources and helping Japanese companies to purchase foreign businesses,” Noda said.

The downgrade in Japan’s credit grade was the first by Moody’s since 2002 and reflects deteriorating credit quality across developed nations from Italy to the U.S., which lost its AAA status at Standard & Poor’s this month. While the move adds to the challenges of the next Japanese prime minister, scheduled to be picked next week, the impact on bond yields may be limited by what Moody’s described as domestic investors’ preference for government debt.

Bank Downgrade

Bank units of Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. (8411) were among lenders that had their ratings lowered one step by Moody’s after the cut to the government’s grade.

The cost of insuring corporate and sovereign bonds in Japan against default increased, according to traders of credit- default swaps. The Markit iTraxx Japan index rose 7 basis points to 153 basis points as of 12:09 p.m. in Tokyo, on course for its highest level since June 10, 2010, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Today’s rating move brings Japan to the same level as China, showing the diverging paths of Asia’s two biggest economies. China replaced Japan as the world’s No. 2 last year and Moody’s has a positive outlook on its ranking.

Moody’s put Japan on review in May, calling on the government to step up efforts to narrow the budget gap. S&P lowered the nation’s grade to AA-, equivalent to the current Moody’s grade, in January, and has the nation under review for a further cut. Fitch Ratings has Japan at AA- with a negative outlook.

Lowest Costs

Even with the deterioration in its ratings, Japan has enjoyed what Moody’s today called the world’s lowest nominal borrowing costs. Yields on Japan’s benchmark 10-year bonds rose for a third day, to 1.01 percent as of 4:11 p.m. in Tokyo at Japan Bond Trading Co., still down from 1.11 percent at the end of last year. Noda said investors continue to have faith in the nation’s government debt market. Moody’s said there were no signs of Europe’s debt woes spilling into Japan’s bond market.

Japan’s “funding cost advantage will be sustained by considerable institutional and structural strengths, which will prevail even with large budget deficits in 2011 and 2012,” Moody’s said. Japan relies on foreigners to buy less than 10 percent of its debt.

The Nikkei 225 (NKY) Stock Average fell 1.1 percent at the 3 p.m. close in Tokyo. The lack of market ructions contrasts with the S&P downgrade of the U.S., which was blasted by the Obama administration for being influenced by faulty accounting.

More at the link...

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Call me old fashioned and simplistic if you like, but why doesn't Japan reaslise the present 'value' of its Dollar reserves by, er, paying off some of the crippling debt that has caused it to be further downgraded?

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Call me old fashioned and simplistic if you like, but why doesn't Japan reaslise the present 'value' of its Dollar reserves by, er, paying off some of the crippling debt that has caused it to be further downgraded?

[Take the following with a pinch of salt]

They've ended up in a bit of a weird situation. Their debts are mostly to Japanese people/banks that would not want dollars, so need to be paid in Yen. If they try to buy Yen with dollars, the Yen goes up further and the dollar down further, which hurts their exports and devalues their foreign reserves, likewise if they pay off their minority dollar debts. If either of these cause more than a 1% shift in the dollar/Yen ratio, it also costs them more than keeping the debt.

The only thing for it (to reduce debt, weaken the yen, and maximise the yield on the dollar holdings), may be Uncle Brown's favourite... printy printy!

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You're right, this could be important. I've been saying that the Japs can continue in one direction for a very long time before suddenly moving off in a completely new direction (See Japanese history...completely closed for 200 years only to modernise in about 30, built a navy strong enough to sink the Russian fleet etc.) I never really believed it would happen though!

So, which direction for the Yen? Maybe up?

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Call me old fashioned and simplistic if you like, but why doesn't Japan reaslise the present 'value' of its Dollar reserves by, er, paying off some of the crippling debt that has caused it to be further downgraded?

Because you have to speculate to accumulate plus if they paid some of it off it wouldn't take them long to run it back up again and this time have no reserves to pay it off with...

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You're right, this could be important. I've been saying that the Japs can continue in one direction for a very long time before suddenly moving off in a completely new direction (See Japanese history...completely closed for 200 years only to modernise in about 30, built a navy strong enough to sink the Russian fleet etc.) I never really believed it would happen though!

So, which direction for the Yen? Maybe up?

I'm not sure about the impact on the Yen. But I could see a big impact on dollar assets, particularly commodity and oil related companies if that's what they are targeting and if it's a long term policy change.

Edited by _w_

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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