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Cheap Money

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It has been said by others that much of the cheap money on the international markets is sourced in Japan, thanks to the Bank of Japan's 0% Ir as it struggled to kick start the deflating Japanese economy.

So with this in mind I found the latest report on the BoJ website.

http://www.boj.or.jp/en/type/press/koen/ko0604a.htm

Specifically, the Bank decided to set the following guideline for money market operations for the intermeeting period: The Bank of Japan will encourage the uncollateralized overnight call rate, which is the operating target of money market operations, to remain at effectively zero percent. Given that the effects of short-term interest rates being zero had already become the main effect of the quantitative easing policy on economic activity and prices, there will be no abrupt change as a result of the policy decision. On the future path of monetary policy, there will be a period in which the overnight call rate is at effectively zero percent, followed by a gradual adjustment in the light of developments in economic activity and prices. In this process, if it is judged that inflationary pressures are restrained as the economy follows a balanced and sustainable growth path, an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time.

That is a complicated way of saying we are going to put rates up, but not quite yet. Here is hoping that the Japanese inflation rate continues to rise.

One thought is that central bankers the world over tend to be rather over cautionous, which mean they can often be a bit late in acting. If Japan moves out of recession quickly the BoJ may be a bit late in reacting, which could mean they have to over do the IR hikes, and do it quite suddenly.

Here is another quote,

On the financial front, the environment for corporate finance is becoming more accommodative on the whole. The lending attitude of private banks is becoming more active and the decline in credit demand in the private sector is coming to a halt. Under these circumstances, the year-on-year rate of increase in the amount outstanding of lending by private banks, after adjusting for the liquidation of loans and loan write-offs, has been accelerating since August 2005 when the year-on-year rate of change turned positive.

In other words the Japanese are borrowing more. Therefore, spending more. If spending comes back into fashion, they will have a lot of saving they could spend, they have been amougst the highest savers in the world for 10 years or so. High spending potential and rise costs (fuel), hmm interesting times.

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The Nikkei might be a safe bet this year. Around 17,563.37 on Friday and was around 40,000 in 1990 which suggests it has a way to go.

http://finance.yahoo.com/q/bc?s=%5EN225&t=my&l=on&z=m&q=l&c=

As Japan holds a huge slice of the world's debt any small rise in rates there will ripple through to us at the retail end. A .25% hike in Japan will not be reflected by a .25% increase in our mortage rates as each bank in the chain will be taking a slice of the action. B o J -- Mitsubishi Bank -- EU/UK/US Clearing Banks -- Retail Banks -- Mortage lenders --- end user.

Thus a small hike originating with the BoJ may end up as a 1% hike in the UK mortgage rate. If BoJ goes to 3% at some point there could be some pain our end. Excruciating pain.

Smart money should already be moving out of IR sensitive assetts.

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What we really need is for the debt 'chain' to get pulled (called) in. If BoJ starts to hike the first in the chain will want to pay back the debt, especially if they are in deep.

They will probably tightening their lending criteria as well, as they could find themselves badly exposed, I hope :angry:

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If the Jap consumers start spending:

http://quote.bloomberg.com/apps/news?pid=1...id=awxBgSKRUv68

William Pesek Jr. is a columnist for Bloomberg News.

Free Money in Japan? Not So Free After All: William Pesek Jr.

Being less compliant would mean
higher bond yields over time and more interest income
to Japanese households. It may just be that rewarding savings with higher rates will do more for Japan's revival than helping corporate executives.

Bottom line: Japan must raise the rates or continue in stagflation.

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Financial markets are asking the same questions:

http://www.thebusinessonline.com/Stories.a...A505C4E9&page=2

The question now for London is that while UK interest rates are set to be kept on hold, with a continuing likelihood of a cut later in the year,
can the equity market be immune from the monetary tightening under way in the US, the euro zone and Japan?
Analysts believe it would be brave to assume international interest rates have peaked.
Oil prices are staying firm and the ascent of gold last week to $600 – a level not seen since 1981 – is a telling global indicator that inflation is an increasing worry. And stock markets do not like inflation.
Edited by Realistbear

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Is this something and nothing?

Wouldn't the carry-traders get spooked before the BOJ raises rates - even just by the threat alone? In which case I would expect them to wind up their positions and pay the Japs back, increasing demand for the Yen, which surely would put a depressive force on Japanese interest rates, or am I thinking wrong here?

:unsure:

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  • 335 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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