Thursday, August 12, 2010

Dollar Hits 15-Year Low vs. Yen; Trade Deficit Will Reduce GDP; BOE Trims Forecast; Greek Economy Sinks 1.5%; Australia Commercial Real Estate Bust

It's time for an international roundup including Japan, Australia, Europe, England, and the United States. Let's kick things off with a look at the Yen.

Japanese officials are busy yapping away, hoping to talk down the Yen, which as hit 15-year highs vs. the US dollar.

Bloomberg reports Yen Trades Near 1995 High on Speculation Intervention Unlikely http://noir.bloomberg.com/apps/news?pid ... 4Ch9DBSgMQ

The yen traded near its strongest level against the dollar since July 1995 on speculation Japan is unlikely to try and lower the value of its currency. Japan hasn’t intervened in the currency markets since March 16, 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($173 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

Exporters said they can remain profitable as long as the yen trades at 92.90 per dollar or weaker, according to a Cabinet survey released in February. The breakeven point was 97.33 a year earlier.

Intervention on the Way?

Reuters reports Japan officials step up campaign against yen rise http://www.reuters.com/article/idUSTRE67B0WI20100812

Japan policymakers fired off a volley of comments Thursday to curb yen strength and the central bank checked rates with banks as officials stepped up efforts to prevent the currency from harming a fragile economic recovery.

The yen has risen steadily against the dollar from around 95 yen in early May to a 15-year high Wednesday of 84.72 yen, prompting currency markets to speculate that authorities might intervene.

Government officials have shown increasing alarm in recent weeks at the yen's rise against the dollar. Thursday, both the finance minister and central bank governor Masaaki Shirakawa issued comments simultaneously.

Noda declined to comment on intervention, saying instead: "I'm closely in touch with the prime minister and the chief cabinet secretary with regard to the series of market moves. We will respond appropriately while carefully examining economic trends."

Shirakawa said currency and stock markets are showing big fluctuations caused by uncertainty over the U.S. economic outlook.

"The BOJ will closely watch market fluctuations and their impact on the Japanese economy," he said in a statement.

"Whether Japan will intervene depends on how much global shares and U.S. bond yields will fall. But if the dollar falls to around 82-83 yen, the chance of intervention will rise," said Masafumi Yamamoto, chief FX strategist at Barclays Capital.

A euro zone official Wednesday had said European authorities would not welcome such a move by Tokyo and that joint intervention by major central banks was not on the cards.

Yen Summary

Europe is happy about the rise of the Yen, but Japan is not. Indeed the value of the Yen is above where it needs to be for Japanese exporters to make a profit. Japan is worried that European exporters will capture market share but Europe of course is smiling about such prospects.

Talk is cheap but intervention does not work so the global trade imbalances just simmer, with everyone expecting US consumers to lead the world recovery. Regardless of the increasing trade deficit, I highly doubt that is going to happen.

European Industrial Production Unexpectedly Declines

One of the reasons the Euro has plunged over the past two days is European Industrial Production Unexpectedly Declines http://noir.bloomberg.com/apps/news?pid ... W7nftCtgqA

European industrial production unexpectedly declined in June, led by a drop in durable consumer goods such as furniture and home appliances.

Output in the economy of the 16 nations that use the euro dropped 0.1 percent from May, when it increased 1.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had projected a gain of 0.6 percent, the median of 32 forecasts in a Bloomberg survey showed. From a year earlier, June output gained 8.2 percent.

Europe’s economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Factory orders in the U.S., the world’s biggest economy, fell more than economists forecast in June, while China’s industrial output rose the least in 11 months. Still, European economic confidence rose to a two- year high in July and manufacturing growth accelerated.

“It’s definitely too soon to declare the euro-zone manufacturing boom over,â€