90 seconds at 9 am: Japan prints more

90 seconds at 9 am: Bank of Japan increases money printing plan to US$1 trln, but not enough to push down yen; NZ$ firm vs A$, US$, yen; Oil price falls 3.5%; NZ GDP seen up 0.4%

20th Sep 12, 9:01am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Bank of Japan increased its money printing and bond buying plan by 10 trillion yen to 80 trillion yen (US$1 trillion) to try to bring down its yen to help its exporters.

However, the yen only fell briefly and after a few hours had recovered to its levels before the announcement. The Bank of Japan's money printing programme has a limit, while the European Central Bank's bond buying is unlimited, as is the US Federal Reserve's plan.

The Bank of Japan also removed its floor target for bond purchases of 0.1%. See more here at Reuters.

The New Zealand dollar initially rose to 65.6 yen after the announcement in Wednesday afternoon trade, but fell back to its pre-announcement levels of 65 yen overnight. The Kiwi dollar remains firm against the US dollar, the Australian dollar and euro.

Meanwhile, oil prices fell around 3.5% overnight after US oil inventories rose and talk grew that Saudi Arabia may increase oil supply to try to bring down prices. Brent crude fell US$4 a barrel to US$108 a barrel. See more here at Bloomberg.

Gold rose 50 USc to US$1,771/oz and has risen 13% this year in US dollar terms on expectations of mass printing across the Northern Hemisphere, although it has only risen 6% in New Zealand dollar terms. See more here at Bloomberg.

US stocks rose 0.2% overnight after the fresh Japanese stimulus and after data on US sales of existing homes was better than expected. See more here at Bloomberg.

Closer to home, data released at 10.45 am is expected to show NZ GDP grew 0.4% in the June quarter and we're also expecting Finance Minister Bill English to release a slightly tweaked Policy Targets Agreement with incoming Reserve Bank Governor Graeme Wheeler. See Alex Tarrant's preview here.

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(Updated with more detail)

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19 Comments

by Andrewj | 20th Sep 12, 9:02am 1348088575

China, Japan and the world’s Agadir Crisis (1911)

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100020173/c…

by Christov | 20th Sep 12, 10:09am 1348092590

Good article A.J.....he has a fairly balanced view overall , but concedes at the end appeasing China is his preferred option.

There are a number of permutations here though, while the tactic may be useful to China as a means to distract locals from their day to day plight and somehow bolster party support though Nationalistic rhetoric, the inevitable consequence of confrontation looms.

The U.S. I'm sure, could satisfy certain financial arrangements with Japan , assuring support for their safety by U.S. involvement similar to the Cuban blockade, untill strategic financial investments by China could be equaly assured.

If this is about China flexing muscle, without expectations of interference by the U.S. and allied forces, then China would have miscalculated their position, I doubt they have ,and are really grinding out a significant increase in their input to Global financial affairs.

Hard for them to grasp being the worlds second largest economy and not getting the respect at the roundtable they feel they deserve....

What you can bet on.......While the U.S. won't like the idea of being dragged in one bit , they will already be looking for ways to capitalise.

To the Japanese ,a loss of face is a cause worth dying to prevent (or amend) ingrained in their psyche, so capitulation by Japan on the matter would be unthinkable.

China, if it's a bluff ,will have considered engagement as a very real possibility, while not necessarily wanting it, may see benifit in reconfirming Communist Control in what has become a runnaway freemarket....maybe , just maybe, the military and those loyal to the doctrine are feeling it has gone a little to far already in the freemarket sense.

As a footnote......it may not be a good day for a Jubilee, but hey it's the next best thing on scale.

by Gummy Bear Hero | 20th Sep 12, 9:23am 1348089836

The US housing market achieved a sweet trifecta of improved existing home sales in August , increased levels of new home starts , and confidence indicators within the building industry at a 5 year high .....

...... insiders feel that house starts will take 2 - 4 years to get back to usual figggers of 1.6 to 1.7 per year .....

by Kunst | 20th Sep 12, 9:36am 1348090582

Some other good news Gummy – it rains along the east- coast.

by notaneconomist | 20th Sep 12, 10:17am 1348093020

GBH - Wealth Daily had a good report on this earlier in the week and buying has apparently become cheaper than renting with low interest rates, tax advantages on the interest component etc seem to be contributing to the confidence.

by Kunst | 20th Sep 12, 9:32am 1348090370

More info’s China vs Japan

http://www.jcie.org/researchpdfs/RiseofChina/RiseChina_Ohashi.pdf

by rp | 20th Sep 12, 9:57am 1348091822

It's a smokescreen thrown up by China to deflect attention from their economic and political troubles which are peaking. Although there is long standing emnity from China toward Japan becasue of 1930s and 1940s outrages, I don't believe they're seriously contemplating war. They know it would bring in the US who still have a big presence in Okinawa (Southern Japan). China are too weak at this stage to risk that kind of real confrontation militarily. In the meantime this'll be like morhphine for the populus deflecting their anger and fears toward Japan away from the corrupt regime running China

by Stephen L | 20th Sep 12, 11:14am 1348096453

On Japan, I wonder how they will channel this money printing. They have a current account surplus of roughly US$100 billion; but a fiscal deficit of approximately US$600 billion. They are printing $1 trillion, which it seems to me, fixes their fiscal deficit for a year and a half, so very sensible from that point of view. Largely that effect may stay domestic, albeit no doubt keep the yen considerably lower than it otherwise would be.

The current account surplus will be trying to send the yen higher, all else being equal. They have an unemployment rate of 4.3%.

In USD terms, their GDP has gone from US4.35 Trillion in 2007; to US$5.86 Trillion in 2011, a 34% increase in 4 years, despite a GFC, and an earthquake.

I would actually rather have their problems than ours.

by powerdownkiwi | 20th Sep 12, 8:06pm 1348128375

Stephen L - I wouldn't.

GDP is a nonsense. 'Rebuilding Chch' will add to GDP, indeed it may be all that keeps it out of the red. What will happen in reality, is that Chch will get back to where it was before, after a lot of effort, and other things will be displaced meantime. That's not 'growth', that's getting back to where you were.

If Japan counts their rebuild in similar manner, their GDP will look really good. The reality is that they must wish the Tsunami never happened - and it'll be a long time before they get back to where they were.

Why do so many folk hang on GDP? Why do they avoid reality?

by martinv | 20th Sep 12, 10:07pm 1348135677

I agree, GDP is rubbish. When military spending contributes positively to GDP you just know it's a useless metric. It would be interesting to see a graph of production over time for stuff produced in New Zealand. Things like sheep, wool, milk powder, beef, light bulbs, electronics (like TVs, radios, amplifiers), boats, cars, trailers, trucks, textiles, clothing (shirts, pants, gloves, socks etc.), that kind of stuff. I wonder what kind of growth in units it would show.

by iconoclast | 20th Sep 12, 11:23pm 1348140226

A simple sensitivity test - power consumption - reported monthly - broken down into

Industrial
Commercial
Residential

by martinv | 21st Sep 12, 8:47am 1348174058

This is certainly an easy to measure metric, though I'm not sure how valuable it is. Think of the improvements in efficiencies. For example in residential, swapping element heaters and incandescent light bulbs for heat pumps and compact fluorescent - same output but a dramatic drop in electricity consumption. For commercial, think of all the PCs and monitors, particularly monitors that used to consume 100W+ while the latest LED ones are about 13W or less.

Unfortunately as many will point out the efficiency gains only go so far though. Once you have LED screens, heat pumps and CFL/LED lighting there are no further improvements available at presentl and because they're all very efficient the amount of improvement theoretically possible from this point on is dramatically less.

It would be interesting to see though what portion of electricity is used for what.

by Justice | 22nd Sep 12, 8:46pm 1348303587

exactly!

by Stephen L | 20th Sep 12, 8:34pm 1348130089

pdk,

In reality, I mostly agree with you. I would much prefer to be in NZ, which despite my frequent carping, still has a great lifestyle.

Nevertheless Japan is often touted as a basket case economically; "lost decades", "unmeetable government debt", and "demographic timebomb" are the three main themes. There are credible reasons why all of these three will end well enough in the end. It seems to me their current account position in particular gives them very good protection against any shocks; while very low unemployment should help social cohesion considerably. Nothing like high unemployment to distress both the unemployed; and the employed who pay for them.

by powerdownkiwi | 20th Sep 12, 8:39pm 1348130356

There will be lots more work for everyone in the future - just for less and less income....

by Gummy Bear Hero | 20th Sep 12, 8:48pm 1348130900

..... hewing the oak , tilling the fields , picking cotton , slapping mud on the adobe & on the wife .....

Lawdy lawdy master ...... bring back dem good old days of yore ........

by martinv | 21st Sep 12, 8:48am 1348174135

Woohoo, 0% unemployment! :-)

by Wolly | 21st Sep 12, 5:33am 1348162433

Read into this what you will....!

The International Monetary Fund (IMF) says Australia’s banking system is well placed to withstand a US-style housing crisis.

IMF monetary and capital markets division chief Cheng Hoon Lim says so-called ’'stress tests’' had been carried out to see how Australia’s banks could cope with a housing collapse like that which hit the US and UK in the past five years.

‘‘Even in the most extreme scenario the banking system fared pretty well,’’ she said.

Dr Cheng said the stress tests conducted by the IMF showed Australia’s banks would hold up even in the event of a 5 per cent drop in GDP and 35 per cent fall in house prices.

by Andrewj | 21st Sep 12, 6:12am 1348164721

Wally, why are you up so early? Looks like Obama going to be joing JK in Hawaii, at least they side stepped the sounds or you would have had to move, after you surrended all your guns ofcourse.

http://www.wnd.com/2012/09/secret-retirement-plans-does-obama-expect-to…