Tuesday, Jul 04, 2006

End of Japan six year zero rate policy imminent

FT: Tankan signals end to Japans zero rate

The Tankan survey of economic sentiment showed sharp upswing in business spending plans and corporate confidence.
Glenn Maguire, economist at Socit Gnrale said, "The underlying details of the Tankan survey were extremely strong and reveal very real indications that the Japanese economy is at risk of overheating....
Maguire also added that interest rates should be raised, "The Bank of Japan is well and truly behind the curve and must start closing that gap.

Posted by denzil @ 10:00 AM (655 views)
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1. harold said...

Although this has been coming for some time, expect to see renewed turbulance on the stock market - like now.

However, for an alternative 'head in the sand' view, you might like to look at this from Anatole Kaletsky:


Tuesday, July 4, 2006 10:19AM Report Comment

2. denzil said...

I have not looked at the markets today.
The US markets interpretation of Bernanke' comments last week were that they were probably at the end of the rate tightening cycle. He actually said more tightening may be required. Give it two more weeks and the Fed will start talking about further increases to base rates and the markets will get the jitters again.
The Fed have been crowing about the end of the rate tightening cycle for ages and have raised every single time.

Tuesday, July 4, 2006 11:47AM Report Comment

3. harold said...

"The Fed have been crowing about the end of the rate tightening cycle for ages and have raised every single time."

...yes, and as a consequence of his soothing words regarding IR the markets don't take him seriously when it comes to inflation - hence the continued weakness of the $ and gold's resurgence. It's a foolish "man speaks with forked-tongue" policy. With the benefit of hindsight, the first thing he should have done on becoming chairman was to raise by at least .5. Painful in the short-term, but more effective in the long.

The problem is no one wants to be the one to pop the asset bubble(s), but everyone knows it's got to happen. It's strange how every economist thinks that they are going to be the first (in history) to deflate things gradually and without causing pain. In this regard Bernanke's motives maybe laudable, but almost certainly doomed. Human beings just don't disassemble asset values in an orderly manner. They panic and run.

Tuesday, July 4, 2006 12:24PM Report Comment

4. inbreda said...

Would it be mad to suggest that US and UK are cooperating in trying two different methods - one raising before Japan, the other keep IR low ? Kind of a controlled test?

Tuesday, July 4, 2006 01:43PM Report Comment

5. Retiredbanker said...


Let me run this suggestion past you and the other posters on this site.

Having watched with some bemusement how the economy of this Country continues to defy the law of gravity,
the thought occurs to me that whilst the UK is involved in Iraq, the international (mainly US) speculators will not
stage a run on Sterling.

This could explain the Governments insouciant attitude to our trade-gap, unjustified strength of the , and the
continuing low base-rate.

Tuesday, July 4, 2006 03:31PM Report Comment

6. talking rot said...


How about this as an alternative suggestion. The Government has an insoucient attitude to our trade gap, unjustified strength of the and the low base rates because they are plain incompetent. Tony Bliar and Crash Gordon fear the alternative - ie a correction - and will try to do everything in their power to stop it. The loss of the feel good factor will do to New Liebour what it did to John Major.

I'm sure I can remember newspaper articles in the mid 1990s stating the Tory Government of the day could not understand the lack of "the feel good factor". At the time I thought it was down to negative equity. Perhaps this is a key driver for our political masters?

I am convinced that our elected representatives and their Civil Servants are either extremely, frighteningly clever or rather dumb. Of course, the dumb ones merely chase the next day's good headline without laying the foundations for a strong economy. Perhaps they are right to do so as the long term is only a whole bunch of short terms clumped together.

Tuesday, July 4, 2006 06:34PM Report Comment

7. inbreda said...

It's a good theory TR.

At the end of the day the responsibility lies with us, the public, for having a very short term 'I'll vote them back in if I have a good feeling today'. You can't then blame the politicians for having a view that is as long and short as the next election. Self serving bstrds

Tuesday, July 4, 2006 07:16PM Report Comment

8. bidin'matime said...

Well, there's an argument for the abolition of democracy and replacement with a benign dictatorship, that would be able to think long-term and not have to court the popular vote.

Tuesday, July 4, 2006 10:39PM Report Comment

9. harold said...

Retiredbanker, your suggestion, although conspiratorial, is plausible. However, I see a problem in that the strength of the is not entirely determined by "international (mainly US) speculators", but also by foreign currency reserve holdings. If things were controlled by international speculators of a US persuasion, then it is doubtful that the $ would have suffered to the extent it has recently. For once, I find myself almost agreeing with TR, but there may be something in what you say - sadly we'll never know.

Tuesday, July 4, 2006 10:40PM Report Comment

10. Retiredbanker said...


The US authorities are deliberately allowing the dollar to devalue, as by so doing they are effectively reducing their
foreign debt, viz:- the enormous holdings of US Treasury Bills by China, Japan, Korea,etc., which have built up due
to America's trade deficit.

They have successfully employed this strategy in the past.

Tuesday, July 4, 2006 10:56PM Report Comment

11. Ticktock said...

if things were controlled by international speculators of a US persuasion, then it is doubtful that the $ would have suffered to the extent it has recently

Surely nobody has a bigger short dollar position than the US? Why would they not want the dollar to fall? (and therefore devalue their debt)

Unfortunately, when you dance with the 'great satan' you must wait for the music to stop. The house always wins,

Wednesday, July 5, 2006 07:48AM Report Comment

12. Waitingfor The Crash said...

i think you are both right to a degree. Mr Blair and Crash Gordon have used every trick to keep the feel good factor and the 's rolling in. This has without a doubt kept them in power - everything else like immigration , insane legislation, EU Laws by stealth have all been ignored.

The public have also been bought into this madness - who wants house prices to drop when you feel rich, and may have borrowed against the equity? So you bury your head in the sand and believe the spin.

The BOE is not independant it talks over Crash Gordon figures. 2.2% CPI is false by any standards. But it serves the purpose as said earlier who wants to be responsible for taking the lid of this one? We came close when rates went to 4.75% and they were soon pushed down again.

Wednesday, July 5, 2006 09:24AM Report Comment

13. harold said...

Retiredbanker, what you say is true, but the policy of currency devaluation also has considerable risk and a downside. The obvious downside is inflationary pressure (accentuated for such a net importer), and the risk is wholesale dumping of $s by China, Japan, Korea, etc. Now you might say that this will never happen and that it is in these countries interests to see a healthy $ to protect their holdings. But nor are these countries foolish enough to believe that the US will ever be in a position to repay its debt - hence their publicly stated aim of currency diversification. In other words, they know that the writing is on the wall for the US and the $ and are therefore leaking $s onto the market. To some extent the US (and its allies) can deal with this - a policy that has, in recent weeks, kept the gold price depressed, but for how long? However, US interest rates are already at 5.25% and rising - in other words, with inflation taking off they have stagflation.

Q. If currency devaluation were desirable for the US, then would not the UK, whose position is not that dissimilar, wish to do this also? In which case the theory stated in posting No.5 doesn't really make sense.

Wednesday, July 5, 2006 10:18AM Report Comment

14. Take Me Back To London said...

The controlled test theory suggested by Inbreda for U.K and U.S interest rates would surely not be much different than Nagasaki having an atom bomb set for ground burst and Hiroshima having an air burst A-bomb, the same result just horrific or even more horrific.

Wednesday, July 5, 2006 07:37PM Report Comment

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