Japan Headed Into Recession -- Carry Trade Cancelled

[Realistbear]

http://www.telegraph.co.uk/money/main.jhtm.../cnjapan104.xml

Will Japan be next to feel the fallout of the US crisis?

Last Updated: 6:44am BST 04/09/2007

As the latest weak data hits, optimists are now few and far between, writes Ambrose Evans-Pritchard

Japan's economy has slowed sharply over the summer and may now be on the brink of recession, dampening hopes that Asia will buttress world growth as America battles the sub-prime housing crisis....../

"The economy could suffer a very serious downturn. A sharp reduction in the interest rate, in addition to a vigorous lender-of-last-resort policy, would attenuate that very bad outcome,'' he said at the Jackson Hole, Wyoming, conclave of central bankers at the weekend.

According to Bloomberg reports, the mood at the gathering turned ever blacker as speaker after speaker warned that the economy may be on the cusp of a sudden downward dive.

Ethan Harris, chief economist at Lehman Brothers, said optimists were now few and far between. "There's a pretty strong consensus that this has got a lot more serious," he said....../

Japan is often overlooked in the global equation but it is the world's second-biggest economy by far, and top creditor with overseas assets of nearly $3,000bn (£1,490bn), the mirror image of US external debts. It dwarfs China as an economic power. China is displaying early warning signs of a cyclical peak, with imports turning down from April to June.

...../

The rise of Asian cheap and easy credit has done its work in the US and Europe in the form of massive credit and HPI bubbles. Liquidity is eventualy sucked out of the system as debt becomes the new reality as Merv pointed out some time ago. Recession would appear to be the inescapable consequence of all that irrational exuberance.

Edited September 4, 2007 by Realistbear

[Guest The_Oldie]

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Sept. 4 (Bloomberg) -- Asian stocks fell for the first time in four days, led by Japanese property and construction shares on concern growth will cool in the region's biggest economy.

Mitsui Fudosan Co., Japan's biggest property developer by sales, declined for a second day and homebuilder Sekisui House Ltd. slid to the lowest since December 2005 after a report showed capital spending among real-estate companies dropped.

``With the Japanese economy performing relatively poorly, land prices may be hitting a ceiling and that means lower profitability for the industry,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo......

[nohpc]

I thought Japan slid in and out of recession all the time. Sometimes just for a short spell.

[Confounded]

http://www.telegraph.co.uk/money/main.jhtm.../cnjapan104.xml

According to Bloomberg reports, the mood at the gathering turned ever blacker as speaker after speaker warned that the economy may be on the cusp of a sudden downward dive.

At least the UK economy would have been a bright spark with "robust" housing market and flourishing manufacturing industry http://news.bbc.co.uk/1/hi/business/6976833.stm. At least high performance specialist products which the UK is moving towards now we are knowledge based economy will remain high on the shopping list right next to baked beans if the rest of the world are struggling>

[Realistbear]

I thought Japan slid in and out of recession all the time. Sometimes just for a short spell.

This is partly true. Their HPI bubble of the 80's laid their economy to waste for decades and will undoubtedly pay us the same favour. This time Japan are going down at the same time the US is headed down and with a slowing in China you could say we have the perfect storm on the horizon. With 3 of the world's top 5 economies going into recession there is no hope of Gordon sustaining his HPI-MEW-BTL miracle.

Edited September 4, 2007 by Realistbear

[Goldfinger]

With 3 of the world's top 5 economies going into recession there is no hope of Gordon sustaining his HPI-MEW-BTL miracle.

Maybe when their markets are deteriorating they all want to buy our debt? No?

[Guest wrongmove]

Surely if Japan is headed into recession, it is more likely to cut IRs and hence strengthen the carry trade, not cancel it?

[EmpiricalBear]

Theres not much for them to cut...

If the money borrowed in Yen can't be invested in other currencies at a low enough risk level then there is no point in borrowing the Yen. At some point the risk of default in the non-yen currency surpasses the expected profit from the carry trade. Its all about a balance of risk and return.

Edited September 4, 2007 by 2MeterBear

[Realistbear]

Surely if Japan is headed into recession, it is more likely to cut IRs and hence strengthen the carry trade, not cancel it?

Ordinarily this would be true. But in a world recessionary environment the appetite for debt is usually subdued. Japan may need to call in the loans to keep its own economy afloat thereby sucking even more liquidity out of the system. Defaults will mount and the Japanese may find that some of their loans are irrecoverable. Not exactly confidence boosting for the Japanese.

IR will not rise because of Japan but then again IR tend not to rise when the world goes down into recession. With employment hit hard the demand for more debt will be curtailed no matter what IR are charged.

[Guest wrongmove]

Ordinarily this would be true.

I know.

However, in the extraordinarily "iffy" world of RB......

But in a world recessionary environment the appetite for debt is usually subdued. Japan may need to call in the loans to keep its own economy afloat thereby sucking even more liquidity out of the system. Defaults will mount and the Japanese may find that some of their loans are irrecoverable. Not exactly confidence boosting for the Japanese.

IR will not rise because of Japan but then again IR tend not to rise when the world goes down into recession. With employment hit hard the demand for more debt will be curtailed no matter what IR are charged.

No I get it! If this then maybe that and perhaps something else, plus speculation about this which may lead to that, and, hey presto, black is white!

Cheers

[Realistbear]

I know.

However, in the extraordinarily "iffy" world of RB......

No I get it! If this then maybe that and perhaps something else, plus speculation about this which may lead to that, and, hey presto, black is white!

Cheers

As that famous economist of yore so correctly said:

"The only thing that is certain in life are death and taxes."

The rest is "iffy."

As Alan "Big Al" Greenspan put it about a year ago in relation to the possibility or probability of a recession: in all liklihood a recession will probably occur later this year. Later retracted to say it was just a possibility.

Bottom line: if you are seeking certainty you wil not find it. That's the beauty and thrill of the financial world--It's like a box of chocolates, you never know what you are going to get (as Forest Gump said).

However, that said, despite your hopes the chances of the UK avoiding Great Crash 2 are probably unlikely-despite what the EAs say. A crash is probably the only "iffy" to be a sure thing.

Edited September 4, 2007 by Realistbear

[starsign]

This is partly true. Their HPI bubble of the 80's laid their economy to waste for decades and will undoubtedly pay us the same favour. This time Japan are going down at the same time the US is headed down and with a slowing in China you could say we have the perfect storm on the horizon. With 3 of the world's top 5 economies going into recession there is no hope of Gordon sustaining his HPI-MEW-BTL miracle.

which are the 3 of top 5 economies going into recession? US, Japan + ???

And what are your figures for China slowing, the latest info I saw was that China was growing at an 11 yr high of 11.9% (q2)

[Realistbear]

which are the 3 of top 5 economies going into recession? US, Japan + ???

And what are your figures for China slowing, the latest info I saw was that China was growing at an 11 yr high of 11.9% (q2)

The article only mentions 3 that may be heading into recession, Japan, China and the US:

Japan is often overlooked in the global equation but it is the world's second-biggest economy by far, and top creditor with overseas assets of nearly $3,000bn (£1,490bn), the mirror image of US external debts. It dwarfs China as an economic power.

China is displaying early warning signs

of a cyclical peak, with imports turning down from April to June

.

If these three fall into recession their combined influence in the world could have (will have?) an impact in the miracle economy and Germany.

[nohpc]

Theres not much for them to cut...

Maybe they could go to negative interest rates?

[starsign]

The article only mentions 3 that may be heading into recession, Japan, China and the US:

Japan is often overlooked in the global equation but it is the world's second-biggest economy by far, and top creditor with overseas assets of nearly $3,000bn (£1,490bn), the mirror image of US external debts. It dwarfs China as an economic power.

China is displaying early warning signs

of a cyclical peak, with imports turning down from April to June

.

If these three fall into recession their combined influence in the world could have (will have?) an impact in the miracle economy and Germany.

coming off a cyclical peak does not mean recession though. Growth may slow down (given that it is 11.9% chances are it will) but how do you get from there to your conclusion of a contraction?

[Come On Down]

RB you're getting desperate now. The world is not in a recession. Stocks have stabilised, and interest rates are set to stay as they are.

This is not good news for an imminent HPC.

I think we have a couple more year to wait on this one.

[Realistbear]

coming off a cyclical peak does not mean recession though. Growth may slow down (given that it is 11.9% chances are it will) but how do you get from there to your conclusion of a contraction?

Trend.

Too many years of hypergrowth did not do Japan any good either. Followed by years of deflation.

If the US goes into recession demand in China will drop. China is the world's biggest exporter of tat. Logical really.

Edited September 4, 2007 by Realistbear

[Realistbear]

RB you're getting desperate now. The world is not in a recession. Stocks have stabilised, and interest rates are set to stay as they are.

This is not good news for an imminent HPC.

I think we have a couple more year to wait on this one.

There are no huge house price fall yet either. The crash "is" not fully here yet but that is not to say that which is to come won't.

IR are, as always, irrelavant in miracle economies. Its all to do with cheap credit which the market relies on to buy homes that most of the people cannot afford. Its what this whole subpriome mess is all about. Houses are too high for ordinary prudent lending. Cue: desperation lending-subprime-IO-SI-10x etc.

Edit: just bnoticed your signature--I think you made a mistake with "bear." If you are optimistic about the market you would normally be a Neither (no one admits to being a bull these days). Couple of years away is "never" in this marketplace as everythig goes up and down eventually.

Edited September 4, 2007 by Realistbear

[Confounded]

http://www.advfn.com/news_Credit-markets-s...y_22114592.html

Barclays Credit markets set to recover, but global recession risk is 30 pct - study

LONDON (Thomson Financial) - Global credit markets may recover their poise

this year as investors realise the slowdown in the US housing market has not

crippled the economy, according to a study by Barclays Wealth.

However, the odds of a global recession remain as high as one in three, "as

the impact of dented US consumer confidence caused by the state of the financial

markets in recent weeks takes effect," the study said.

Barclays Wealth said credit markets will likely remain volatile into 2008,

but should see more normal levels of volatility and liquidity following the

extremes of recent weeks.

"It's unlikely any of the major financial institutions will default," said

Michael Dicks, head of research and strategy at Barclays Wealth Investment

Office.

The report said the US and the UK both have a one in three chance of

"sluggish" growth of 1-2 pct this year, while the euro zone should see "solid

economic growth" over the next two years.

For the US specifically, the single most likely outcome is "benign", with

inflation to be close to target and interest rates close to current levels --

although the risk of a downturn has risen to about one in three from one in six.

Looking at financial markets, Barclays Wealth said the pound is more likely

than not to fall "markedly" in the medium term, while fixed-income and money

markets should see continued short-term volatility.

Equity markets, it said, are set to regain their poise -- and could rise by

as much as 15 pct over the next year.

[starsign]

Trend.

Too many years of hypergrowth did not do Japan any good either. Followed by years of deflation.

If the US goes into recession demand in China will drop. China is the world's biggest exporter of tat. Logical really.

You said, "With 3 of the world's top 5 economies going into recession". China is NOT going into recession, it may well do in the future but it certainly is not now. With growth of 11.9% it is a long way from 2 quarters of contraction.

RB, you interpret the info to suit your own beliefs, yet you are the first to shout when you think that VIs are misleading people. This is a shame because you have some interesting points but when you look for evidence to support your theories rather than looking for enlightenment it discredits a lot of what you say.

[Guest d23]

The crash "is" not fully here yet but that is not to say that which is to come won't.

oh, OK

glad thats cleared up then

[nohpc]

oh, OK

glad thats cleared up then

heheheh

[Realistbear]

oh, OK

glad thats cleared up then

Cleared it up?

I would have thought it was blindingly obvious that we are only just at the beginning of the downward cycle for houses.

Edited September 4, 2007 by Realistbear

[Come On Down]

There are no huge house price fall yet either. The crash "is" not fully here yet but that is not to say that which is to come won't.

IR are, as always, irrelavant in miracle economies. Its all to do with cheap credit which the market relies on to buy homes that most of the people cannot afford. Its what this whole subpriome mess is all about. Houses are too high for ordinary prudent lending. Cue: desperation lending-subprime-IO-SI-10x etc.

Edit: just bnoticed your signature--I think you made a mistake with "bear." If you are optimistic about the market you would normally be a Neither (no one admits to being a bull these days). Couple of years away is "never" in this marketplace as everythig goes up and down eventually.

Yes I agree with mosty of what you have said. Apart from the fact that I am a bear. A realistic bear. Not a desperate bear.

The fact is that banks are still lending vast amounts of money to people, and fixed rate mortgages are coming down.

Until money gets more expensive prices will stagnate, not crash.

[Realistbear]

You said, "With 3 of the world's top 5 economies going into recession". China is NOT going into recession, it may well do in the future but it certainly is not now. With growth of 11.9% it is a long way from 2 quarters of contraction.

RB, you interpret the info to suit your own beliefs, yet you are the first to shout when you think that VIs are misleading people. This is a shame because you have some interesting points but when you look for evidence to support your theories rather than looking for enlightenment it discredits a lot of what you say.

"

China is displaying early warning signs of a cyclical peak, with imports turning down from April to June

."

Is that your interpretation? Or are you stating facts? Or are all "facts" really interpretation other than pure mathematical propositions (2 + 2 = 4, for example) ?

If (if) China are about to see their first Q of slowing growth and that is followed by another quarter that is technically a "recession." It is easy to spot a recession from hindsight, the skill comes in predicting it before it happens. Just like Big Al did when he said we were probably likley to go into recession by the end of this year. My bet is that, from hindsight, Al will be 100% correct.

Spotting trends is the key to predicting the future--perhaps the best one there is. For example, Dr. Bubb suggests that the trend in building stocks is an accurate bellwether or lead indicator of what is likely to happen to house prices in the future. It is no point (or fun) "predicting" the future after the event as by that time you have lost your money or failed to make any.