Bank of Japan To Release More Stimulus?

Lior Alkalay - Contributor - Forex

Yep, it's the same old story; once again, Japan is just muddling through. Private consumption is weak and inflation is practically non-existent. And inflation could get worse with the latest plunge in oil prices. And with Japan barely slogging through, investors' call for the BoJ to amp its efforts are on the rise.

So what's the problem? In the eyes of the BoJ, the situation isn't really bad enough to require further intervention.

What The BoJ Sees

So why wouldn't the BoJ want to add any more gunpowder to an already aggressive stimulus plan? The answer comes in two parts.

The first part was covered extensively in my last article and thus needs little elaboration. That is the BoJ wants the Abe government to shoulder some of the burden. It needs to fulfill its own side of the bargain and push forward much needed financial reforms.

And the second part? The BoJ wants to hold some gunpowder in its arsenal... just in case things get worse. With the Chinese stock market meltdown radiating across the world, the BoJ wants to make sure it has enough "weapons" to unleash. But so far, in the eyes of the BoJ, it's not yet bad enough to risk the economy.

Graph of Japanese Annual Inflation
Chart courtesy of The Statistic Bureau of Japan

Let's take a quick look at the latest key data. November's inflation figure (annualized), albeit rather low, still wasn't the textbook definition of deflationary pressures. From a total of 10 various segments, from food to energy to housing, only transportation and energy fell on an annual basis while Housing prices were unchanged at 0%. Despite the dismal numbers, for deflation to be a risk, prices of most items need to fall. And as the chart below shows, that has yet to happen. Continue reading "Bank of Japan To Release More Stimulus?"

Is The Yen Facing Another Meltdown?

Lior Alkalay - Contributor - Forex

It’s spring, and the cherry blossoms are in full bloom in Japan, the “Land of the Rising Sun” and home to the Japanese Yen. While many view spring as a time for new beginnings, from a more practical and economical perspective, it’s also means a new fiscal year in Japan, thus this is an ideal time to review all the data and attempt to gauge the Yen’s next trajectory. Of course, many want to know if the Japanese currency is facing yet another meltdown. While it is a rather straightforward question, with a seemingly straightforward answer, the fact is we must delve deep into complex issues including the mechanics of Quantitative Easing, Japan’s public debt and inflation.

What QE Does?

The intention of Quantitative Easing, or QE as it’s popularly called in the mainstream, is simply to allocate funds to the private sector which, hopefully, will revive growth and inflation. QE is based on one of the key pillars of capitalism, namely that funds are better off in the hands of the private sector if the preservation of growth is the goal. That sounds reasonable, but there is a macroeconomic issue at play, as well. Most of the time, the government (naturally, depending on which government) is deemed a vastly superior borrower to any private company or Continue reading "Is The Yen Facing Another Meltdown?"

Japanese disappointment weighs on global markets

Disappointment that the Bank of Japan did not unveil more measures to boost the economy as well as uncertainty over the course of U.S. monetary policy weighed hard on global markets Tuesday.

There had been expectations that the Bank of Japan, which started a big monetary stimulus this year to get the world's number 3 economy out of a two-decade stagnation, would announce new measures to ease volatility in the Japanese bond market. Instead the bank's policy board merely upgraded its economic assessment.

The disappointment was enough to send Japan's Nikkei stock index down 1.5 percent to close at 13,317.62. However, the retreat was modest in light of the previous day's 4.9 percent advance following an upward revision of first-quarter economic data. In tandem with the fall in equities, the yen made big gains _ the dollar was down 2 percent to 96.87 yen.

"The decision to hold steady prompted a sharp jump in the yen, and is also one factor contributing to weakness in global equities," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank. Continue reading "Japanese disappointment weighs on global markets"

The Next Country To Collapse Isn't In Europe

From Street Authority

Despite the recent market correction threatening the four-year bull market, investors should be partying like it's 2006.

Easy-money programs from the world's central banks and a recovering global economy could push stocks and other assets higher. So why is the comparison to 2006 relevant?

September 2006 was two years before the collapse of Lehman Brothers and a 28% drop in the markets in the span of less than a month. And two years is about the amount of time we may have until the next great market crash.

So what will be the proverbial straw that breaks the market's back? Europe? China? Market contagion from a collapse in commodities prices? Continue reading "The Next Country To Collapse Isn't In Europe"