Asian News

[Ichiro]

From Japan Times---28 Jan 06


Annual retail sales record first increase in nine years in Japan.

Retail sales rose 1.1 percent in 2005 to 129.52 trillion yen, chalking up their first year-on-year rise in nine years, due largely to soaring fuel prices and robust clothing sales, the government said Friday.

The strong clothing sales were attributed to the "Cool Biz" casual dress campaign pushed by the government during the summer and a cold spell.

Sales by wholesalers rose 3.1 percent to 424.32 trillion yen in 2005 for the second yearly increase, pushing combined sales by retailers and wholesalers in the reporting year up 2.6 percent from 2004 to 553.84 trillion yen, up for the second year in a row, the Ministry of Economy, Trade and Industry said.

The data suggest an uptrend in personal spending, saying that in areas other than fuel and clothing, auto sales were generally strong and sales at drugstores and do-it-yourself stores were also firm in the reporting year, a METI official said.

Japanese retailers posted their last year-on-year gain in 1996, when sales rose 1.0 percent, he said.

When broken down, sales by large retailers -- supermarkets and department stores -- fell 0.6 percent to 21.33 trillion yen for the eighth straight yearly fall.

Supermarket sales dipped 0.4 percent to 12.56 trillion yen for the fourth consecutive yearly fall, and department store sales shrank 0.9 percent to 8.77 trillion yen for the eighth yearly slip in a row, the ministry said.

But convenience stores expanded sales 1.0 percent in 2005 to 7.36 trillion yen for the seventh straight yearly gain.

In December, overall retail sales grew 1.2 percent from a year earlier to 12.83 trillion yen for the second monthly rise, aided by brisk demand for fuel, including kerosene, heaters and winter clothing amid severe winter weather, the official said.

The average temperature of eight major cities in December was 4.1 degrees lower than in the same month in 2004 and 2.6 lower than in the average year, he added.

Despite upbeat moves in sales stimulated by cold weather, METI left unchanged its basic assessment on the country's retail sales.

The Japan Times: Jan. 28, 2006
(C) All rights reserved

[Ichiro]

Japan's import is increasing due to the high cost of imported petro.

China's trade surplus bigger than Japan's for 1st time.

From The Yomiuri Shimbun-27 Jan 06.

China's trade surplus exceeded Japan's on a U.S. dollar basis in 2005 for the first time since comparable data became available, according to the Finance Ministry's preliminary trade statistics released Thursday.

The trade surplus last year declined 26.5 percent from the previous year to 8.79 trillion yen on a customs-clearance basis, the first decrease in four years.

The figure is equivalent to 80.1 billion dollars, far lower than China's 101.9 billion dollars.

Though the value of Japan's exports was the highest ever, the value of imports also hit a record high. The eclipse of export value by import value has been attributed primarily to the cost of imported petroleum products, which ballooned due to recent high crude oil prices.

Chinese exports of textiles, mainly to Europe and the United States, surged, helping the nation to achieve a more than threefold jump in its trade surplus from a year ago on a customs-clearance basis.

The value of Japan's import and export trade with China, including Hong Kong, increased 12.4 percent froma year ago to 24.95 trillion yen.

The Japan-China trade figure was larger than 21.88 trillion yen worth of trade Japan conducted with the United States. It was the second year in a row that trade value with China had exceeded that with the United States. It means Japan's largest trading partner is now China.

Economists said trade statistics soon to be released likely will show that Germany is the world's top trade surplus holder.
(Jan. 27, 2006)
Business
go

[Ichiro]

From Moneynews--28 Jan 06.

Falling Dollar, Striking Gold

The American dollar kicked off the week in a foul mood losing 2 percent to start the week.

That's no surprise to your currency. However, the catalyst this week was not a weakening of the American economy, rather it was a double-whammy of comments from two leading members at the European Central Bank (ECB).

Some weeks ago Jean Claude Trichet, president of the European Central Bank claimed that the rising price of oil would cause a slowing of the European economy.

That dashed euro bull hopes for a 2006 rally against the dollar. Until that point this was the widely held theory: rising interest rates would support the euro especially now that there's a clear end in sight to rate hikes from the Federal Reserve.

Then, into the fray jumped Messers Issing and Noyer, both ECB members. They told reporters over the weekend that the rising price of oil would likely raise more of a threat to inflation than it would impinge upon growth.

If that turned out to be the case then the ECB would definitely continue to raise interest rates. And the reaction to those comments from currency investors was to stockpile the euro, the yen and the pound.

As I'd commented some weeks ago in this very column, the euro is likely to be the currency of choice this year. My expectation is for a run back at the 2004 lows for the dollar at $1.36 and beyond. As such SectorTrade readers are already in the pole position for such an advance.

But apart from sending the dollar lower on the $1.9 trillion per day foreign exchanges, the move had repercussions on the commodities markets. Not least the weaker dollar helped push up the price of gold one again.

Gold has been on a tear over the last several years bolstered by under investment in mining activity and booming fundamental demand.

You see global demand for gold ranging from Arabic, Indian and Chinese demand for jewelry has risen.

Gold, well known for its protective qualities as a hedge against the falling value of printed government money (a.k.a. local currency), is becoming increasingly sought after as an asset by investors all over the globe.

Take a look at today's chart, which shows the percentage change in the value of gold as priced in five major currencies. Apart from the dollar, I have priced gold in terms of the Swiss franc, British pound, Japanese yen and the euro currency.

While the price of gold as measured in dollars is the clear winner, having risen roughly 35 percent since the February nadir in gold, Japanese investors are up 10 percent, while everyone else is up around 4 percent.

With international equity markets posting gains in 2005 of anywhere from 16 percent (U.K.) to 40 percent (Japan)it's entirely possible that investors might benefit from this established down trend in the dollar hitched at the hip with a rising price of gold.

Foreign equities might continue their ascent this year, but I'd be more willing to wager that gold will fare better in 2006.

[Ichiro]

The dollar is higher on 27 Jan 06 due to the reasons below plus the expected Federal Reserve increase in the interest rate. However, in a few days it will drift lower.



Dollar higher in late trade Friday
Strong homes sales figures also support the dollar
By Leslie Wines, MarketWatch
Last Update: 3:53 PM ET Jan. 27, 2006


NEW YORK (MarketWatch) -- The dollar perched at a three-week high against the yen late in Friday's session, benefiting from apparent Asian demand and indications that the housing market remains robust.
MARKETWATCH TOP NEWS
Data, especially jobs, should be strong
Davos forum concludes on serious note
Fed set to hike again, but it will be mum about March
Stocks seen gaining as Fed meets

The euro late in the day was down 0.1% at $1.2106 as the dollar rose 0.8% to 117.23 yen, its strongest level since January 2.

The dollar threw off initial weakness in late morning amid apparent demand from Asian central banks, according to Craig Russell, senior foreign exchange dealer at Alaron.

The Bank of China often bids the dollar higher in order to protect the value of its large Treasury holdings, he said.

The dollar began the day under pressure after a much weaker-than-expected fourth-quarter gross domestic product report startled the market.

The Commerce Department said economic growth slowed to a 1.1% annual rate in the fourth quarter, the weakest in three years. See full story.

The slowdown in real gross domestic product from 4.1% in the third quarter to 1.1% in the fourth quarter was largely due to weak auto sales, slower business investment, a rise in imports and a large drop in federal spending. Read the full report.

Economists were expecting growth to slow to 2.7% in the quarter, according to a survey conducted by MarketWatch. See Economic Calendar.

Action Economics said the forecasting discrepancy appeared to stem from the difficulty of gauging government and private spending on hurricane recovery.

The dollar later drew support from news from the Commerce Department that sales of new homes increased a surprising 2.9% in December to a seasonally adjusted annual rate of 1.269 million.

Economists surveyed by MarketWatch were expecting sales to fall slightly to a 1.23 million rate.

Foreign exchange market participants in recent weeks have been parsing data carefully because of uncertainty about whether the Federal Reserve is likely to keep lifting rates this year.

The weak GDP report subtracted from the case for the Federal Reserve to continue lifting rates, but the indication that residential real estate, a key driver of the economy, remains robust supports the argument for more increases.

Currently higher U.S. rates make the dollar a more attractive investment than the lower-yielding euro and yen.

[Master]

Thanks, Ichiro. I am 100% in the I fund and most of my other IRA funds are in the international market. I truly expect that they are going to outperform our US markets this year. Take a look my Fidelity portafolios:

http://www.tsptalk.com/mb/showthread.php?t=2559

http://www.tsptalk.com/mb/showthread.php?t=2450

[Ichiro]

The world economic powers need to find an alternative source of energy because the creeping price increase of petro will increase inflation and hurt the economies of the Asian countries. I still remember what effect the oil shock had on the world stock market many decades ago.

SAN FRANCISCO (MarketWatch) -- Crude futures climbed above $68 a barrel Monday to their highest level in a week, supported by concerns over output risks in the Middle East and Nigeria ahead of an expected decision by key oil producers to keep oil output quotas unchanged. When it gathers in Vienna on Tuesday, the Organization of the Petroleum Exporting Countries "is expected to do nothing as oil prices are strong ahead of the meeting," said Phil Flynn, a senior analyst at Alaron Trading.
"Of course doing nothing must be bullish as oil continues to head higher," he said.
Crude-oil futures for March delivery were recently up 29 cents at $68.05 a barrel on the New York Mercantile Exchange after climbing as high as $68.20, its highest since Jan. 23. Prices are trading close to their record of $70.85, set in late August.
February unleaded gasoline climbed 3.56 cents to $1.772 a gallon and February heating oil traded at $1.838 a gallon, up 3.11 cents.
"As long as oil prices continue to rise and China continues to industrialize, OPEC will be content to sit around and keep production status quo," said Emanuel Balarie, senior market strategist at Wisdom Financial.
He sees the gathering "as more of a marketing meeting for higher oil prices rather than a meeting that discusses production levels."
OPEC musings
The oil market expects the group on Tuesday to make a formal decision to keep its production quota of 28 million barrels of oil a day because of recent strength in prices. Still, some members want a production cut.
"We believe that OPEC has to be ready to cut (production), maybe now at this meeting, maybe at the next meeting," said Venezuelan Energy Minister Rafael Ramirez, according to an Agence France-Presse report.
For now, that appears to be a minority view.
Saudi Prince Alwaleed bin Talal bin Abdulaziz Alsaud said in an interview with CNBC that Saudi Arabia does not intend to cut oil production and reiterated his position that oil prices are too high.
Libya Oil Minister Fathi bin Shtawan said OPEC doesn't need to cut output as long as crude prices exceed $50 a barrel, Dow Jones Newswires reported.
"There is a consensus with the member countries to maintain the current quota as there is enough oil in the market," added Algerian Oil Minister Chakib Khelil at a news conference Saturday in Algiers.
Overseas risk
Oil prices of late have been buffeted by concern about Iran's nuclear research, which has triggered worldwide condemnation and led to speculation about a possible military attack on the world's second-largest oil exporter.
Attacks on oil facilities in Nigeria have also boosted prices, though news reports emerged Monday that militants have released four foreign oil workers that had been kidnapped on Jan. 11.
Michael Wittner, global head of energy market research at Calyon, noted that the cut from Nigerian output losses pales compared with the losses from last year's hurricane disruptions, but crude prices remain at similar levels.
"The answer, of course, is that a huge wave of financial investment is entering the commodity space, and events in Iran and Nigeria are underscoring the geopolitical risks to oil supply," he said.
He estimates that a geopolitical risk premium of $5 a barrel is built into prices.
Looking ahead, "oil prices will continue to head higher, especially if China's economy keeps on growing at a record pace," said Wisdom's Balarie.

"Investors should also be aware that the inflation-adjusted all-time high for oil is closer to $100 barrel," he said, so "as it stands, oil is still cheap at these levels."

Natural gas gains
Elsewhere in the energy complex, the March contract for natural-gas futures climbed Monday -- its first full trading session as a front-month contract. February natural gas lost 9.5% last week.
In the latest dealings, March natural gas rose 66.3 cents, or 7.8%, to trade at $9.17 per million British thermal units. It climbed as high as $9.21, its highest since Jan. 20.
"The natural-gas market is on a completely different page now, with profit taking on short positions pushing prices higher, despite what are still impressively bearish prospects," said Tim Evans, an analyst at IFR Markets. "This week will be warmer than last week, limiting the extend to which storage might be drawn down."
Potential price support does exist. "There could be upward spikes if a sustained bout of cold hits and the 17% of Gulf production that remains off-line becomes a factor," said Michael Fitzpatrick, an analyst at Fimat USA.
"But for the moment, that looks unlikely. If these same conditions persist through February, current lows could be easily broken," he said.
In energy equities Monday, benchmarks tracking the oil and gas sectors were higher, with the Oil Service Index

[Ichiro]

From Mainichi Daily--31 Jan 06.


Japanese stocks rise for sixth straight session, led by banks, oil companies

Japanese stocks rose Tuesday morning for a sixth straight day, buoyed by strong earnings results and led by banks and oil companies. The dollar was little changed against the yen.

The benchmark Nikkei 225 index gained 140.06 points, or 0.85 percent, to wrap up the morning session on the Tokyo Stock Exchange at 16,691.29 points.

Since it last fell on Jan. 23, the Nikkei has surged 8.7 percent, more than recouping losses from the mid-month sell-off triggered by the investigation into Internet startup Livedoor Co.

Although the index continued to gain ground Tuesday, the pace of gains was starting to slow at the morning session's end.

Higher oil prices lifted oil stocks, with Nippon Oil Corp. up 2.73 percent to 938 yen (US$7.97).

Financial companies chalked up gains as attention shifted to banks and brokerages away from technology issues. Mizuho Financial Group rose 2.54 percent to 966,000 yen (US$8,210).

Strong earnings from electronic components maker Kyocera Corp. lifted that company's stock nearly 8 percent to 10,300 yen (US$87.50). The company said its group net profit jumped 76.4 percent to 25.78 billion yen (US$219 million) in the October-December quarter.

The broader Topix index, which includes Japan's largest companies, rose 13.69 points, or 0.80 percent, to 1,717.97 Tuesday morning. Gainers beat losers 928 to 607 on the broader first section of the Tokyo exchange.

In currencies, the U.S. dollar was trading at 117.66 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Tuesday, up 0.05 yen from late Monday in New York.

The euro rose to US$1.2098 from US$1.2086 late Monday.

The yield on the 10-year Japanese government bond rose to 1.5600 percent from Monday's finish of 1.5550 percent. Its price slipped 0.04 point to 98.63.

January 31, 2006

[Ichiro]

From Mainichi Daily:

Japan's economy is picking up steam!

Japan's unemployment rate falls to 4.4 percent in December

Japan's unemployment rate fell to 4.4 percent in December and averaged the same rate for the rest of 2005, marking the third straight year of improvement for the Japanese labor market.

The December jobless rate, announced by the Internal Affairs and Communications Ministry, was down 0.2 percentage points from the 4.6 percent reported for November and was slightly better than analysts' forecast of 4.5 percent.

The decline was an encouraging sign because the jobless rate had risen in previous months after falling as low as 4.1 percent last June _ the lowest in seven years.

Chief Cabinet Secretary Shinzo Abe said the drop was due to "the government carrying out delicate reforms and policies."

"The economy is revitalizing through the reforms," Abe said, adding that there is regional disparity that needs to be addressed.

After more than a decade of stagnation, the world's second largest economy has been slowly making a turnaround due to stronger exports and consumer spending, while companies have cut costs and boosted profits.

Japan's seasonally adjusted unemployment rate averaged 4.4 percent in 2005, down from 4.7 percent in 2004, and falling for the third straight year.

The ministry also said the total number of jobless was 2.65 million. It was the first drop in two months, down 50,000 from the same month a year earlier.

The jobless rate hit 5.5 percent in 2002 and 2003, the highest rate since the government began keeping such records in the 1950s.

January 31, 2006

[Fivetears]

Great input!
Further justifies "Why the I."
Any good info on China Markets?

[Ichiro]

I sure wished that both the China and the India stock markets were represented more heavily in our I index because that is where the grow will be in the future. The Indian stock market should do well because of all the outsourcing business they are getting due to the highly educated engineers they are producing every year and their growing middle class. But, i sure like investing in the ETFs (VPL and EFA) where you could trade like a regular stock. It beats investing in individual stocks since it is less risky and not restrictive like a mutual fund where they discourage active traders. Actually, I have done well with my regular stocks as compared to my IRAs since i dont trade much since I have to pay tax whenever I sell my money making stocks. I have a stock which I have not sold for 21 years and it is a 100 baggers. This company keeps on increasing their dividends annually. This year they will increase by 18% and I am getting about 80% dividend return on my initial shares in this company. It is like rolling a snowball down the mountain where it gets bigger and bigger as it reaches the bottom of the mountain. Those dividend reinvestment programs are great!!

But, the big question for the I fund is the foreign exchange rate. Both the USD and the Euros will drop due to the increase of the interest rate by the FEDs. But, this will be only be temporary since further increase will have a major impact on the US housing market. It will be a very exciting year for the I fund investors.

[Ichiro]

Overseas M & A activities:


The M&A activities will only increase overseas because the overseas stocks are undervalued as compared to the US market. Also, with the drop of the US $$ in the near future due to the slowdown in the interest rate increase by the Federal Reserve, overseas M & As will use their strong currency (euros and yen) to buy US companies at discount prices. The level of the M&A is increasing quite rapidly here in Japan where the companies would have to increase their stock value or else be taken over by M&A activities.

Last year, the appreciation of the dollar hurt our returns on the I fund but this year it will benefit us.

[Ichiro]

Global growth seen weathering through
Energy prices, slowdown in U.S. spending are key risks


By Aude Lagorce, MarketWatch

Last Update: 2:00 PM ET DAVOS (MarketWatch) -- The global economy is expected to pull through again in 2006 with steady but not spectacular growth, despite the ballooning U.S. budget deficit, tightening interest rates, and the specter of higher energy prices, said economists at the annual meeting of the World Economic Forum in Davos.

"It will be another Goldilocks kind of year" said Laura Tyson, dean of the London Business School and a participant in Wednesday's conference on the "Outlook for the Global Economy."
The onset of a new year customarily brings dire warnings about the state of the world economy. In 2005, observers worried that massive global imbalances and rising energy prices would cause a slowdown in the U.S., a collapse in the dollar and possibly a global recession.
Instead, the global economy brushed off a spike in oil prices and, boosted by record growth in China and a recovery in Europe and Japan, grew at a robust 3.1%.
"The fact that some dire predictions didn't materialize mainly reflects the robustness of the U.S. economy. 2005 has showed us that it is able to absorb more shocks than previously thought," said Jacob Frenkel, vice chairman of AIG.
Barring a hard landing in Beijing or major disruptions to oil supplies, 2006 should bring more of the same.
"I see risks but no reason for a major crash in 2006," said Colin Bradford of the Global Economy and Development Center at the Brookings Institution.
Forecasters at the Centre for Economics and Business Research expect growth of 4.1% this year, down from 4.3% in 2005. The real harm, they say, won't happen until 2007, when they predict growth will weaken to 3.5% as France and Germany screech to a halt and Chinese growth cools down.
New Fed Chairman, housing bubble risk in the U.S.
The first major event of the year on the global markets scene will be the departure at the end of this month of Federal Reserve Chief Alan Greenspan after 18 years at the helm.
"When he leaves ... he will take away 18 years of confidence the markets have invested in him," said Stephen Roach, chief economist at Morgan Stanley.
Although his successor, Ben Bernanke, is inheriting a domestic economy in decent shape, his first test will come quickly. He must steer the housing market to a soft landing to avoid a sharp slowdown in consumer spending.
A U.S. housing market bust, combined with at least two expected interest rate hikes, would cause Americans to rein in spending, with a major impact on the global economy. Much of the spending of recent years has been on the back of higher house prices, as U.S. consumers have remortgaged their homes to release equity.
"There's a little bit of a sign of rust but no sign of bust in the U.S. property market. The weakest link of the global economy in 2006 is the U.S. consumer," said Morgan Stanley's Roach.
Outside of the U.S., the global housing boom of the last three years is also expected to slow down as the European and Japan central banks raise rates in an effort to mop up the easy money that has fueled the property bubble.
After nearly five years of zero percent interest rates, Bank of Japan is seen tightening its policy -- not necessarily by raising rates, but by cutting back on its purchase of government bonds from Japanese banks, which pumps yen into the market.
In the U.S., the threat of a property bust combined with higher interest rates and continuing high oil prices suggest the economy likely won't be able to maintain the same momentum as in 2005, when it grew around 4%.
"The major risk to the global economy is complacency. We cannot keep thinking that we can shrug off the deficit and the property bubble," said Roach.
Tyson of the London Business School agreed, but argued that the biggest risk to the global economy in 2006 is that of an energy supply shock and energy prices reaching new highs.
The World Bank forecasts that a supply shock that reduced oil deliveries by 2 million barrels a day could push prices to more than $90 a barrel for more than a year and reduce growth by 1.5% the following year.
Despite these concerns, observers say U.S. growth of 3% still looks possible, which would be one of the strongest rates managed anywhere in the world -- except in China and India.



China powers ahead, window of opportunity in Europe
The Chinese superpower is expected to continue its rise in the charts after growth of close to 10% helped it become the world's fifth-largest economy in 2005.
New data released Wednesday indicates that China has risen even further in the rankings and may have taken over G7 members France and Britain in its economic output.
The OECD predicts China's economy will grow by 9.4% in 2006 and 9.5% in 2007. And although there are signs of overheating in India, the world's largest democracy should see growth in the range of 6% to 7% in 2006.
Analysts say 2006 should be the year when domestic consumption replaces investment as the driver of growth in China. Changes are beginning to happen, said Min Zhu, executive assistant president at the Bank of China at the conference. He noted that foreign direct investment is now down to 40% of GDP compared to 46% in 2004 and that the government is aware of the need to boost domestic growth and get rid of excess capacity is sectors like steel and aluminium.
Despite issues of overcapacity and the increasing disparity between the fast-developing east coast of China and the rest of the country, he believes strong growth will continue and will become less based on exports and foreign investment and more on the service sector and domestic demand.
"There are signs that China's export growth is weakening and that domestic demand and imports are picking up," said World Bank Chief Economist Francois Bourgignon.
In the currency markets, the question of whether China will allow the yuan to revaluate further will be a key preoccupation.
But AIG's Frenkel said the exchange rate reform in China won't solve the U.S. trade imbalance. Frenkel said for the U.S. deficit to decline, the country needs to start saving more. The national U.S. savings rate hovers around 10% compared to 45% in China.
Tyson summed up the situation by saying that the U.S. needs to consume less and save more while China must do the exact contrary.
Europe's recovery to gather steam
Turning to Europe, economists said it will lag behind, even as the recovery there appears to be on firmer ground.
Marc Touati, chief strategist at Paris-based Natexis Banques Populaires, believes growth will gather steam in the euro zone unless the European Central Bank raises interest rates too fast, provoking a rise of the euro against the dollar.
"2006 is a window of opportunity for Europe before the French and Italian elections and the VAT hike in Germany take a toll on growth again," Touati added.
David Owen, European economist for Dresdner Kleinwort Wasserstein, says the euroland recovery has been driven by strong export growth, facilitated by a weaker euro, and a surge in investment, but he warns that a pick up in consumer spending will be needed in the second half for the growth to be sustained.
Even then, forecasts are unanimously cautious. Touati sees growth of about 2%, an improvement from the 1.3% of 2005, but "still nothing to boast about."

[Ichiro]

M&A in Europe.

M&A buzz lifts FTSE out of the mire; Lloyds rises
Wed Feb 1, 2006 6:14 AM ET

By Louise Heavens

LONDON,, Feb 1 (Reuters) - Top British shares rallied on Wednesday, lifted by gains in bank Lloyds TSB (LLOY.L: Quote, Profile, Research) and consumer products group Unilever (ULVR.L: Quote, Profile, Research) in the wake of takeover speculation.
FACT BOX
LLOY.L (Lloyds TSB Group)
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Change: +41.00
Up/Down: +8.05%
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News for LLOY.L
GLOBAL MARKETS-Dlr firm, shares mixed as Fed keeps options open
M&A buzz lifts FTSE out of the mire; Lloyds rises
UPDATE 3-Market Chatter -- Corporate finance press digest

By 1056 GMT, the FTSE 100 <.FTSE> share index was up 37.5 points, or 0.6 percent, at 5,796.7. The move resisted the pull of an anticipated steep fall on Wall Street later after Google missed analyst profit targets for the first time.

Dealers said the Federal Reserve's decision to raise U.S. interest rates a 14th straight time was also likely to continue to weigh on U.S. stocks.

"The 6,000 level could be as quick as the end of the first half," Steven Hopwood at Panmure Gordon said of the FTSE. "Dividend cover and yields are alright and there should be more new money coming into the market in the first quarter."

But shares in Cable & Wireless (CW.L: Quote, Profile, Research) extended their fall, shedding a further 5 percent after analysts weighed in with downgrades following Tuesday's profit warning.

"It can't break itself up, we can't think who would want to buy it. Frankly we're not interested in the stock any more," said one trader.

Other telecoms stocks remained on the back foot, with C&W rival BT Group (BT.L: Quote, Profile, Research) down 0.7 percent.

But shares in BSkyB (BSY.L: Quote, Profile, Research) more than 1.8 percent to lead the list of FTSE 100 risers after saying it had added a more-than-expected 215,000 customers to its pay-TV service in the second quarter. "They were good figures and expectations had not been high," said one trader.

SPANISH ACQUISITION?

Shares in UK bank group Lloyds TSB (LLOY.L: Quote, Profile, Research) topped the list of blue-chip rises, gaining 4.4 percent after fresh bid talk identified Spain's Banco Bilbao Vizcaya Agentaria (BBVA.MC: Quote, Profile, Research) as a possible predator.

Britain's fifth biggest bank by market value has long been seen as a bid target, with names such as Wells Fargo (WFC.N: Quote, Profile, Research) and Bank of America (BAC.N: Quote, Profile, Research) mentioned as potential suitors.

Lloyds TSB and BBVA both declined to comment.

Anglo-Dutch company Unilever (ULVR.L: Quote, Profile, Research) added 1.9 percent after the Independent newspaper reported market speculation that a private equity was eyeing a possible takeover of the consumer products group.

Shares in Centrica (CNA.L: Quote, Profile, Research) rose 1 percent after Citigroup raised its stance on the utility, a long-running bid target, to buy, dealers said.

Online gaming stocks PartyGaming (PRTY.L: Quote, Profile, Research) and 888 Holdings (888.L: Quote, Profile, Research) both rose, with PartyGaming's recovery from a recent fall aided by a target price increase from Commerzbank. Dealers said there was optimism in the sector prior to 888's trading statement due on Thursday.

(Additional reporting by Keiron Henderson and Friedel Rother)

[Fivetears]

Nice input Ichiro. Always great to read your finds.:)

[Ichiro]

Both the Nikkei and the European markets are doing quite well during this time but the strength of the US dollar is bringing down the I fund.

I guess the market is reading that there will be several more interest rate increase after March. I just have the feeling that the new Federal Reserve Chairman is going to raise it too much and cause a real estate market panic.

Info from Marketwatch.

Nikkei stages rebound on strong dollar
By Chris Oliver, MarketWatch
ET Feb. 1, 2006

HONG KONG (MarketWatch) -- Asian markets mostly rose on Thursday, lifted by strong gains in New York Wednesday and strength in the U.S. dollar following the Fed's quarter-point rate hike, which translates into a bonus for Asia's export-oriented economies.



In currencies, the dollar bought 118.24 yen mid-morning in Tokyo, a gain of 0.28 yen for the session, and extending the greenback's 0.5% gain in New York Wednesday, where the dollar ended at 117.96 yen.
A weaker yen is a boon for Asia's corporate sector because it boosts profits when dollar-denominated earnings are repatriated.
In Tokyo, the Nikkei 225 gained as much as 1.05% at 16,653.23, while the broader Topix index of all first section issues gained as much as 15.97 points to 1,710.21.
South Korea's Kospi Index extended Wednesday's slide, declining as much as 0.89% to 1,363.73. Singapore's Straits Times Index, the region's top performing market Wednesday, rose as much as 0.42% to 2,442.00.
New Zealand's Gross 50 Index rose as much as 1.05% to 3,200.316, while Australia's All Ordinaries nudged higher as much as 0.21% to 4,914.400.

Markets in China and Taiwan are closed for the Lunar New Year holiday.

TM103.80, +0.09, +0.1%) announced it will establish a Chinese research and development joint venture with its established business partner China FAW Group Corp, according to reports from the Nihon Keizai Shimbun. The venture will focus on product design tailored to Chinese consumers.
Shares of consumer electronics companies led the advance in Tokyo, boosted by the weaker yen and a string of positive earnings results in the sector recently.
Shares of Sony rose as much as 3.23%. The gains follow an announcement the companies would pool their technological expertise and development costs by working together to develop cutting-edge microchips.

Hong Kong-listed Wumart Stores Inc (HK:8277: news, chart, profile) , the largest retailer in the Beijing area, jumped as much as 11.11% after the company said it was paying about HK$359 million ($46 million) for a 75% stake in Chinese supermarket chain Beijing MerryMart Chainstores.
MerryMart owns 23 supermarkets in Beijing and ranks among the top five retail chains on the mainland.
A spokesman for Wumart said the acquisition "will positively consolidate the company's leading position in the retail market in of Beijing."

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

[Ichiro]

Europe markets open higher
Alcatel, Rio Tinto provide lift; Shell lower
By Steve Goldstein, MarketWatch
Last Update: 3:37 AM ET Feb. 2, 2006

LONDON (MarketWatch) -- European stock markets opened higher Thursday, helped by some upbeat earnings from European companies including Alcatel and Rio Tinto and a positive session on Wall Street.

EARNINGSWATCH
Alcatel back to paying dividends after four year wait. European markets higher as Alcatel, Rio Tinto rise. Shell quarterly profit slips 3% on hurricanes hit. Vedior quarterly profit climbs 31%, seeks acquisitions

The German DAX Xetra 30 index rose 0.39% at 5,748, the French CAC 40 index gained 0.20% at 5,009, and the U.K. FTSE 100 index added 0.06% at 5,804, with the main French index reaching the 5,000 level for the first time since August 2001.

The pan-European Dow Jones Stoxx 600 rose 0.23% at 325.22.

U.S. markets finished higher than where they were on the European close, as traders focused more on upbeat results from plane maker Boeing than the earnings miss from Internet search engine Google Inc.

The euro was nearly flat against the U.S. dollar at $1.2059 ahead of a European Central Bank interest rate decision. Most observers see the ECB keeping rates at 2.25% at this meeting before hiking rates in March.

Of companies in focus, French telecommunications equipment maker Alcatel .
ALA13.65, +0.25, +1.9%) surged 4.2% after it said fourth-quarter net income surged to 344 million euros from 7 million euros and resumed dividend payouts for the first time in four years.

Rio Tinto, 207.76+2.75+1.34%

RTP(207.76, +2.75, +1.3%) rose 2.1% after saying it will give back $4 billion to shareholders and reporting a 58% rise in net profit.

V31.93, +0.62, +2.0%) rose 0.4% after saying it's agreed to pay $1.154 billion to Matsushita Electric Industrial Co. for its 7.66% stake in Universal Studios Holdings. Vivendi said the deal is immediately earnings enhancing, and will lift 2006 earnings by at least $30 million after transaction costs. The deal will also simplify tax and legal treatment and "substantially" reduce currency management costs.

[Ichiro]

Experts: ECB Not Likely to Raise Rates
Thursday February 2, 2:36 am ET
By Matt Moore, AP Business Writer
Economists Expect European Central Bank to Raise Interest Rates, Just Not on Thursday

FRANKFURT, Germany (AP) -- Economists expect the European Central Bank to raise interest rates as Europe's economy picks up -- just not at Thursday's meeting of the bank's governing council.

The bank will likely hold off until March before hiking the key refinancing rate, at 2.25 percent since a quarter-point increase in December, many think.

ADVERTISEMENT
Fully 43 of 48 economists polled by Dow Jones Newswires saw no change Thursday, but 46 of 48 predicted a March increase of another quarter point.

The post-meeting press conference with bank President Jean-Claude Trichet will be closely watched for further clues to the bank's direction.

"The probability of a February hike looks very small, but that of a tightening in March remains high in our view," said Lorenzo Codogno, co-head of European economics at the Bank of America in London.

The bank will then raise the refinancing rate gradually to 3 percent by September, he forecast.

Optimism about growth is running high in Europe, with German consumers the most upbeat in five years and business confidence in France up for the first time in four months.

The bank predicts that inflation -- its chief concern -- will remain above 2 percent this year because of stronger economic growth, high oil prices and worker demands for increased wages. With growth now strong enough to take the sour anti-inflation medicine of a rate increase, most observers feel the bank will act soon.

The 12-nation euro zone's economy is forecast to grow 1.9 percent this year, up from 1.4 percent in 2005, the ECB has said.

That rising growth, and wage demands -- Germany's IG Metall is seeking a 5 percent increase for its 3.4 million members -- means the bank is waiting for the right moment to carry out a rate increase, said Joerg Kraemer, chief economist for the HVB Group in Munich, Germany.

Otmar Issing, the ECB's chief economist, said Jan. 19 that risks to the euro-zone economy had "clearly diminished. Almost all data show that the upswing is continuing and strengthening."

Business sentiment in Germany, Europe's biggest economy, rose to a surprising two-year high Wednesday as the Ifo institute survey index hit to 102.0, surpassing expectations of 99.7.

In Italy, January business confidence rose to 92.7, up from 91.3, while in France, the statistics office Insee said French consumer confidence rose to minus 30 from minus 33, its first gain in four months.

Standard & Poor's predicted this week that economic recovery in Europe should remain on track, given efforts by Germany, France, Italy and Spain to cut unemployment.

http://www.ecb.int

[Ichiro]

The effect of interest rate hike:

PIMCO Managing Director Bill Gross thinks the effects of Alan Greenspan's rate hikes have yet to be felt -- and that the economy will suffer this year as a result. The housing is coming down because of increase in the interest rate which was the important provider of consumption, spending power, over the past several years. Once that begins to dissipate the growth rate will drop to the 1 to 2 percent, the US stock market will adjust accordingly and will be a great time to buy those fat dividend paying stocks.



CNBC Market Dispatches
Selling contagious; Dow slammed

2 p.m. ET. The government reports a surprise fall in fourth-quarter productivity. Energy stocks and prices fall on bearish natural gas inventory numbers. Bill Gross says recent rate hikes have yet to really hit the economy.


Stocks fell sharply at midday as early-morning weakness on inflation concerns was exacerbated by a fall in market-leading stocks like energy and semiconductor companies.

At 2 p.m. ET, the Dow Jones industrials was down about 104 points, or 0.96%, to 10,849, with only Boeing (BA, news, msgs) able to eke out a small gain. The Nasdaq Composite fell more than 27 points, 1.2%, to 2,283. And the Standard & Poor's 500 index lost more than 12.7, or 1%, to 1,269.

Energy stocks tumbled as energy prices fell for the second-straight day. Natural gas supplies fell last week, according to a government report, but not more than analysts expected. And supplies are still well above their average for this time of year, thanks to warm weather in the Northeast, giving traders little reason to buy natural gas futures.

Natural gas futures fell 49.3 cents to $8.23 per million British thermal units. Crude oil futures dropped $1.66 to $64.90 per barrel.

"(Natural gas) storage levels are almost 30% above the five-year average and about 15% above last year," Paul Fleming, a senior analyst at ESAI, told CNBC's "Morning Call." "Overall, the bearish sentiment is probably going to prevail through March."

U.S. productivity finally stumbles

U.S. productivity, one of the stalwarts of the recent economic expansion, fell 0.6% in the fourth quarter, compared to a downwardly revised 4.5% gain in the third quarter, the Labor Department reported. Economists expected productivity to have risen 1% in the last three months of 2005.

At the same time, labor costs rose 2.4%, which is the biggest rise since 2000, the Associated Press reported.

High worker productivity has enabled companies to avoid big hiring, but if that trend ends the labor market will become more competitive and wages will rise. Today's numbers are bound to alert the Federal Reserve, since wages are a big component in inflation.

PIMCO's Gross sees 2% GDP growth

While some on Wall Street are worrying that the Federal Reserve will continue to raise interest rates, PIMCO Managing Director Bill Gross thinks the effects of Alan Greenspan's rate hikes have yet to be felt -- and that the economy will suffer this year as a result.

MSN Money Insurance
"Fed policy works with a lag," Gross told CNBC's "Squawk Box." "Housing is coming down and that's been the important provider of consumption, spending power, over the past several years. Once that begins to dissipate … you're going to see a consumer in the 1% to 2% growth area. You're going to see real wages continuing to be weak, and a 2% GDP number in my view."

"It's fair to say that the Fed has been on a March here for almost 20 months and 350 basis points," Gross said. "And so we're going to be seeing the effects of what the Fed has done for a long time to come, for 2006 and 2007."

As for incoming Federal Reserve Chairman Ben Bernanke, Gross feels the new chief won't be as hawkish on inflation, under current circumstances, as his predecessor, citing a speech Bernanke gave in March 2005 talking about the importance of a normal yield curve.

Right now the yield curve is flat, with small differences between long-term and short-term interest rates.


-- Kim Khan

[Ichiro]

Asian news from Mainichi Daily:

Japanese stocks fall following Wall Street's decline, dollar little changed against yen

Japanese stocks fell Friday morning following Wall Street's overnight drop while some investors took profits in reaction to the previous day's rally. The dollar was little changed against the yen.

The benchmark Nikkei 225 index shed 88.63 points, or 0.53 percent, to 16,621.92 points at the end of morning trading on the Tokyo Stock Exchange. The index on Thursday rose to a five-year high, gaining 230.46 points, or 1.40 percent, to close at 16,710.55 point -- the highest since Sept. 1, 2000.

Prices moved lower as investors took profits from Thursday's gains following falls on Wall Street overnight, triggered by investor concerns about inflation after a surprise jump in U.S. labor costs. The Dow Jones industrial average fell 101.97, or 0.93 percent, to 10,851.98.

Among morning losers were banks and auto issues. They include Mizuho Financial Group Inc., Honda Motor Co., Toyota Motor Corp. Select technology stocks also fell, with Canon Inc., Sharp Corp. and Kyocera Corp. among them.

Investors also awaited the release of the U.S. payrolls data due out later Friday in Washington.

The broader Topix index, which includes Japan's largest companies, was down 5.33 points, or 0.31 percent, at 1,705.69. The Topix rose 16.78 points, or 0.99 percent, the day before.

In currencies, the dollar bought 118.40 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Friday, down 0.05 yen from late Thursday in New York. The euro rose to US$1.2092 from US$1.2042.

The yield on the 10-year Japanese government bond rose to 1.5650 percent from Thursday's finish of 1.5450 percent. Its price fell 0.17 point to 100.29.

February 3, 2006

[Ichiro]

From Moneynews:

1. Greenspan Drops Dollars, Puts on Pounds

Having given up managing the U.S. dollar, former Federal Reserve Chairman Alan Greenspan will now try to guide Britain's currency through the rocks and shoals of the international economy.

According to Forbes, after 19 years at the helm of the Fed, Greenspan has agreed to become an honorary adviser to Britain's Treasury. Greenspan will also serve as a consultant to his former opposite number in the money game, Gordon Brown, the United Kingdom's chancellor of the Exchequer, which is the United Kingdom's Treasury Department.

Brown was delighted by the news, calling Greenspan's willingness to team up with him "good news for us." Brown said Greenspan will be a valuable ally in areas relating to global economic change.

Best of all, Brown - and the U.K. population - will get Greenspan's advice for free, as he has agreed to be an unpaid adviser.

The two should hit it off well, having formed a trans-Atlantic mutual admiration society. Forbes recalled that Brown has called Greenspan "the world's greatest economic leader of our generation" and Greenspan once said that Gordon Brown is "without peer amongst the world's economic policymakers."

Also of note, Greenspan is now Sir Alan, having received an honorary knighthood - a distinction he shares with fellow Americans, former New York Mayor Rudy Giuliani and Microsoft founder Bill Gates.

[Ichiro]

From Money:--2 Feb 06


Bush Pushes Fed to the Right

While newly minted U.S. Supreme Court Justice Samuel Alito has earned the bulk of media coverage, new Federal Reserve Chairman Ben Bernanke is now ensconced at the Fed, operating under the radar so far.

But it's the Fed, and not just the Supreme Court, that is tilting more to the political right these days, argues Larry Kudlow, writing in National Review Online.

"President Bush has famously changed the composition of the Supreme Court with the appointments of judges John Roberts and Samuel Alito, two big conservative victories," writes Kudlow.

"But equally interesting is the president's overhaul of the Federal Reserve, which becomes the 'Bernanke Fed' with the retirement of Alan Greenspan this week. While the Supreme Court has loudly gone right, our central bank is quietly doing the same."

Kudlow points to a pair of new central bank appointments made by President Bush last week. Kevin Warsh and Randall Kroszner were tapped to fill two vacancies on the Fed's Board of Governors.

"Warsh is a current White House economic adviser and a former Morgan Stanley investment banker,"


says Kudlow. "Kroszner is the University of Chicago economics professor who served on the Council of Economic Advisers during Bush's first term. The two nominees are tried and true free-market, low-tax, deregulation-inclined policy advisers."

Two previous Bush appointees to the Fed - Susan Bies, a former Tennessee banker, and Mark Olson, formerly with Ernst & Young and U.S. Bancorp and a legislative assistant to former Republican congressman Bill Frenzel of Minnesota - have pushed the Fed further to the right, adds Kudlow.

"All told, Bush has appointed six of the seven current board members - an incredible turnover. While they are not all supply-siders (Donald Kohn is more of a traditional Washington Keynesian, while Roger Ferguson is a Clinton-era carryover), I would say this Fed board is at the margin much more supply-side - in terms of an allegiance to low taxes and regulations - than prior boards."

Kudlow continues: "Adding together the shifts to the Supreme Court and the Federal Reserve, it could be argued that the policy organs that hold sway over the judicial and monetary influences on business are more free-market, Reaganesque and pro-growth than anything we've seen in a long time."

That should create a Federal Reserve that will be more open to free-enterprise growth and less biased toward higher taxes and stricter economic regulations.

"With a firm monetary foundation, Reagan-like policies of low tax rates and free-market deregulation will afford American entrepreneurs the freedom and rewards that are necessary to maximize economic growth," concludes Kudlow.

"Without question, the private sector must be liberated so it can effectively function as the engine of prosperity. This capitalist model was restored and rejuvenated by President Reagan 25 years ago and its success has been copied worldwide. Bush's appointments to the Fed and the Supreme Court are the latest testament to this."

[Ichiro]

Good news! The European Central bank (ECB) laid the groundwork for a rise in interest rates as early as next month. This is good because it will offset the increase by the anticipated rate increase by the FED in March. Without this increase by ECB, it will only increase the demand of the US dollars and lower our I fund return. I think that in another six months or so the Japanese monetary officials will be raising their interest rates to reduce inflation.


AP
Euro Down Slightly Against Dollar
Friday February 3, 7:31 am ET
Euro Down Slightly Against Dollar After European Interest Rate Decision

FRANKFURT, Germany (AP) -- The euro dropped slightly against the dollar on Friday with some analysts predicting a strong report on U.S. job creation.

In morning European trading, the 12-nation currency bought $1.2071, down from $1.2096 in New York trading the night before, when it rose after the European Central Bank laid the groundwork for a rise in interest rates as early as next month.

The ECB left its interest rate unchanged at 2.25 percent during its meeting Thursday, but President Jean-Claude Trichet said he would adjust rates as necessary to keep prices stable.

"In the shorter period of time we will continue to do whatever is needed in delivery of price stability," Trichet said. "But I won't say anything about what we will decide afterward."

Most analysts are convinced the bank will move to increase the rates in March. Higher interest rates usually bolster a currency by attracting international investors.

On Wednesday, the U.S. Federal Reserve raised interest rates to 4.5 percent in a widely expected move.

The British pound was down to $1.7769 Friday from $1.7796 the night before.

The dollar bought 118.49 Japanese yen, up slightly from 118.45, setting six-week highs in part on speculation that Friday's U.S. payrolls data for January will reinforce confidence in the strength of the U.S. economy.

[Ichiro]

Very interesting!!!!

Friday February 3, 5:46 PM
SE Asia Stocks-S'pore off 6-yr highs on rate worries
SINGAPORE, Feb 3 (Reuters) - Singapore shares snapped a six-session rally on Friday, as worries that short-term interest rates may rise higher than expected hit banks and property stocks.

Asian markets were spooked by U.S. data released on Thursday showing higher labour costs and lower business productivity; That could be an early sign of inflation pressure building in the world's largest economy.

The threat of higher inflation could prompt the U.S. Federal Reserve to keep raising interest rates, which would cut into corporate profits and hurt consumer spending.

Singapore's Straits Times Index ended 0.4 percent off Thursday's six-year closing high, led by losses in United Overseas Bank , down 0.7 percent, and CapitaLand Ltd. which fell by almost 2 percent.

Eddie Wong, chief Asian strategist at ABN AMRO, said a lot of capital in recent months has flowed into Asian markets from the U.S. bond market, where long-term bond yields have not matched the rise in short-term bond yields, offering little premium to investors.

He warned that inflationary expectations might reverse the trend and start lifting long-term Treasury yields.


"That could potentially reverse the fund flow back to the bond market," Wong said.

Higher long-term yields also dampen foreign portfolio investors' appetite for high-risk emerging market assets.

Singapore Airlines fell 2.9 percent, a day after the world's second-most valuable airline posted its fourth straight quarter of declining earnings and said the high price of jet fuel was its biggest worry.

Elsewhere in the region, the Philippine index closed 0.96 percent lower while Indonesian stocks ended just 0.06 percent higher aided by mobile phone operator Bakrie Telecom's strong trading debut.

The medium-sized company, a relatively new entrant to the rapidly growing mobile telecoms sector in the region's largest economy, opened 45 percent above its initial offer price.

Malaysian shares resumed trade after a break of almost a week, rising 1.51 percent -- the biggest single-day rise in about seven months -- to hit a 3-½ month high, aided by a 9.5 percent rise in plantation firm IOI Corp. .

IOI had announced a 30 sen interim dividend on January 27, the last day of trade before the holidays.

"We are overweight on the plantation sector for its defensive earnings, strong growth prospects due to rising CPO (crude palm oil) price and good dividend yields," said CIMB analyst Ivy Ng in Kuala Lumpur.

By 0908 GMT, Thai stocks had risen 0.83 percent, recovering from a two-week closing low, led by a 4.7 percent rise in Thai Petrochemical Industry .

However, the market's upside was capped by worries ahead of an anti-government rally planned for the weekend, dealers said.

Thai Prime Minister Thaksin Shinawatra has faced several such rallies in recent months; his family's decision to sell its stake in Shin Corp for $1.9 billion last month attracted criticism and has been investigated by Thai regulators.

The stock regulators said Thaksin's son probably broke stock disclosure laws by failing to report shares in the telecoms empire his father founded and which his son held offshore.

[Ichiro]

From Moneynews---4 Feb 06. (invest in overseas stock index using ETFs (EFA and VPL).



Exchange Traded Funds

Got an ETF in your investment portfolio yet?

Chances are, you might. According to a September estimate by Boston-based Financial Research Corp., total assets committed to exchange-traded funds could rise 29% to $1 trillion by 2010.

In 1993 the first ETF (known as the Spider) was launched to track the S&P 500 index. Today there are 201 funds, with 50 new ones added in 2005.

The flow of investments into ETFs totaled $53.9 billion last year, causing the total value to surge to $296 billion, according to the Investment Company Institute.

ETFs seem to be a more popular tool among institutions.

Because of the liquidity of the ETF market, when a portfolio manager takes in fresh money, with a single stroke they can put the cash to work with a sector or index ETF. That keeps the money fully invested until the manager decides which individual shares he wants to commit the money to.

Since ETFs are passive rather than actively managed, the lower fees tend to get passed on to clients.

For example, on a $10,000 investment, an ETF investor can expect to pay $36 annually in fees, compared to $147 for actively managed funds.

Similarly, internationally devised ETFs command just $55 in fees per year as opposed to the $174 fee on actively managed funds.

Investors by and large have warmed to the ETF revolution with one key feature being that the divide between professional and small investors has narrowed.

The ability to invest in a single share of an index, sector or single commodity (such as gold) has made for smarter investing by the army of small investors.

Investors have poured $6.1 billion into the StreetTracks Gold Trust since it began trading in November 2004. It makes me wonder whether that money would otherwise have been put into individual gold-mining stocks, which are clearly riskier.

[Ichiro]

Info on foreign exchange rate. The USdollar is strengthening due to possible increase in federal interest rate in March 06.

Dollar Gains for Week as Jobs, ISM Boost March Rate Prospects

Feb. 4 (Bloomberg) -- The dollar rose for a fourth straight week against the euro and a third versus the yen as reports showing U.S. economic growth bolstered expectations the Federal Reserve will lift interest rates again in March.

The currency climbed to the highest since Jan. 3 versus the euro and erased losses from last month against the yen as the Fed lifted its benchmark rate a 14th straight time to 4.5 percent. Traders increased bets the central bank will raise borrowing costs again after reports showed manufacturing expanded and the unemployment rate fell to the lowest since July 2001.

``Dollar bullishness is relatively strong,'' said Kathy Lien, a currency strategist in New York at Forex Capital Markets LLC. ``Right now the market is thinking the March decision is pretty much intact.''

For the week, the dollar strengthened 0.6 percent to $1.2024 per euro at 5 p.m. yesterday in New York. The currency has pared about half its 2.5 percent decline from the first week of the year. It reached $1.1969 yesterday, the highest in a month.

Versus the yen, the U.S. currency climbed 1.4 percent to 118.94, touching 119.40 yesterday, the highest since Dec. 14. It is up 1 percent against the Japanese currency for the year after falling 2.8 percent the first week of January.

``The dollar still hasn't finished its move upward,'' James McCormick, head of global currency in London at Lehman Brothers Holdings Inc., wrote in a note to clients Feb. 2. Lehman advised clients bet the dollar will gain further versus the euro because a ``mildly hawkish'' Fed will raise rates further, he wrote.

`Solid' Growth

U.S. policy makers raised the overnight lending rate between banks to 4.5 percent on Jan. 31. The Fed said it will ``respond to changes in economic prospects'' when making future decisions. It said the U.S. expansion ``appears solid.''

The Labor Department said U.S. employers added 193,000 jobs last month from a revised 140,000 in December. The jobless rate slid to 4.7 percent from 4.9 percent. Economists expected 250,000 new jobs in January and an unemployment rate of 4.9 percent, based on a Bloomberg News survey.

The Institute for Supply Management's factory index was 54.8 in January, from a revised 55.6 in December, a report showed on Feb. 1. Readings above 50 indicate expansion.

``The longer-term trend for the dollar is higher for the balance of the year,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products Corp. in Wilton, Connecticut. ``The economy is doing fine.''

`Sell Some Yen'

The dollar gained more than 14 percent versus the euro and yen last year as the European Central Bank raised rates only once and the Bank of Japan kept rates near zero percent, where they have been since 2001. BOJ Deputy Governor Toshiro Muto said on Feb. 2 it's too early to reverse the bank's zero-rate policy.

The dollar's recovery versus the yen has been stronger as investors have been adding to bets that the Japanese currency will fall versus higher-yielding currencies. Traders will often borrow in lower-yielding currencies such as the yen and invest the funds in currencies where returns are higher, a strategy known as a carry trade.

``No matter how good the situation in Japan gets, they're not going to raise interest rates soon,'' said Brian Rose, a currency strategist in New York at Bank of Tokyo-Mitsubishi UFJ. ``As long as rates are zero, you might as well sell some yen.''

The yield on federal fund futures for April delivery rose 2 basis points, or 0.02 percentage point this week, to 4.72 percent at the Chicago Board of Trade. The level signals traders see about a 90 percent chance of an increase to 4.75 percent rate at the Fed's March 28 meeting, up from 80 percent on Jan. 27.

Rate Gap

The gap between two-year U.S. Treasuries and Japanese debt widened to 4.28 percentage points this week, the most since May 2001. The yield premium offered by two-year notes over German debt is about 1.64 percentage points. The difference, or spread, has averaged 0.84 percentage points in the past decade.

The dollar's gain this week was predicted by Bloomberg's weekly currency survey published Jan. 30. Sixty-four percent of the 50 traders, strategists and investors surveyed Jan. 27 from Sydney to New York advised buying the dollar against the yen.

The U.S. currency posted its biggest weekly in decline in three years during the first week of January, after the Fed released minutes from its December meeting that said additional rate increases ``probably would not be large.''

ECB President Jean-Claude Trichet said on Feb. 2 that market wagers on an increase next month were ``reasonable.'' He spoke after policy makers kept the refinancing rate at 2.25 percent.

Some investors who are forecasting the dollar will resume a decline said the recent rally provided an opportunity to purchase the euro at lower levels.

``The dollar will weaken,'' said Adnan Akant, head of foreign exchange in New York at money manager Fischer Francis Trees & Watts, with $37 billion in assets. ``We bought some euros below $1.20. We took advantage of the dip in the euro.''

[Birchtree]

Ichiro,

Thanks a lot for your posts - you really save me some time by providing this information. And with your comprehensive format I'm better informed. Just wanted to let you know your efforts are appreciated. Thanx again.

Dennis

[Ichiro]

Its M&A again! Once the US dollar dips lower as compared to the Yen and the euros in the near future, the European and the Japanese companies will be buying US companies at a discount.


Toshiba to buy 100% of Westinghouse for $5.4 bln

Last Update: 6:08 AM ET Feb. 6, 2006


LONDON (MarketWatch) -- Japan's Toshiba Corp. (6502.TO) President and Chief Executive Atsutoshi Nishida said Monday the company will buy 100% of Westinghouse for $5.4 billion and retain a 51% stake in the company.

MARKETWATCH TOP NEWS
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Is something wrong with General Electric?


"We have completed our due diligence and are satisfied that this purchase is the right move for our business and our shareholders," Nishida said. "With Westinghouse, Toshiba will be a global nuclear power business organization."

Mike Parker, chief executive of British Nuclear Fuels Ltd. (BNF.YY), which owned Westinghouse, said the deal "will provide Westinghouse with (the ability) to compete more effectively for new U.S. customers."

Upon completion of the acquisition, Toshiba expects its nuclear power business to expand to three times the current level by 2015 as a result of operational and technological synergies, Toshiba said in a statement.

The company said it decided to acquire Westinghouse "in order to take an early lead in the promising global nuclear power plant industry."

[Ichiro]

MOneynews---6 Feb 06

1. Dallas Fed Chief: Expect Solid Q4 Growth

The mainstream media seems intent on trumpeting economic news that makes President Bush look politically vulnerable.

Consider recent coverage of U.S. economic growth for the fourth quarter.

At 1.1%, it was nothing to write home about. But papers like The New York Times and Washington Post, and all three major broadcast networks played up the sluggish Q4 economic performance.

This was after months of minimal coverage of the economy's booming economic growth and the continued downward slide in the U.S. unemployment rate. Reuters' jobs number headline called job growth "disappointing" despite the addition of 193,000 jobs and a reduction in the unemployment rate to 4.7%.

Now the Federal Reserve is already saying that the Q4 numbers will likely be revised upward.

"I would not be surprised if GDP were revised upward when we take a more definitive look at the fourth quarter," Dallas Federal Reserve President Richard Fisher said in a speech to the London-based Institute of Economic Affairs on Monday.

Fisher also had a decidedly bullish tone on the future prospects of the American economy. He told the London audience that the economy would grow at a solid pace, especially if the Fed could tame inflation and trade faced few barriers.

"As long as the Federal Reserve does its job of holding inflation at bay, and as long as our political leaders resist protectionism and other forms of interference with creative destruction, we will remain a productive economic machine," he said.

Fisher was also less worried about the U.S. housing market, which some economists say is in peril after a drop in consumer spending during the past few months. A slow-growth home-sales market would further crimp consumer spending, economists say.

But Fisher told the audience that the high number of American homeowners who have fixed-rate mortgages would cushion any damage inflicted upon the housing market by rising interest rates. He also said that riskier variable-rate mortgages were only a "small fraction" of the U.S. consumer home loan market.

"It is not unreasonable to think the (housing) situation is manageable, albeit worth watching closely," he said.

[Birchtree]

Ichiro,

Unfortunately, you have stumbled onto an emotional hot button. The media in this country is overwhelming to the left. They would rather perpetrate the views of multiculturalism and communism instead of the values that made this country great. I never listen to National Public Radio unless I have bread in the area to use as a strainer. I get nauseous when I hear the name Howard Dean mentioned. OK I'll stop while I still have my skin.

Dennis

[Dave M]

Surely you meant nauseated. D

[Birchtree]

DaveM,

Nope - ment just like it was written - there are also a few others that affect me the same way. Let's have a good day tomorrow - I actually do better in my accounts on a low Dow industrial gain. Take care.

Dennis

[Ichiro]

Tuesday February 7, 1:46 PM, Reuters by Ovais Subhani
SE Asia Stocks-S'pore hits 6-yr high, other mkts mixed


SINGAPORE, Feb 7 (Reuters) - Singapore's benchmark index edged up on Tuesday, hitting an intraday six-year high, as recently battered banks and transport stocks recovered, taking cue from a retreat in oil prices to below $65 a barrel.

The Straits Times Index had edged up 0.31 percent by the midday break, above a six-year closing high hit last week.

Top lender DBS Group gained 0.6 percent and United Overseas Bank was 0.7 percent higher, after taking a beating on Monday when oil prices rose to above $66 a barrel.

Singapore Airlines (SIA) rose as much as 0.8 percent, a day after falling 1.5 percent. The airline last week posted its fourth straight quarter of declining earnings and had said that the high price of jet fuel was its biggest worry.

"Fuel expense is likely to increase as current spot price is higher than the average in the last quarter," said Kim Eng head of research Seah Hiang Hong.

Still, Seah said investors should look at SIA as the city-state's "prime restructuring play", given the potential sale of its stakes in Singapore Airport Terminal Services and SIA Engineering . The move could result in return of surplus cash to investors or payment of a special dividend.

Hotel and resorts firm BIL International rose 6.1 percent to become the top percentage gainer after the company announced that British authorities had approved its subsidiary, BIL Gaming Operations UK Ltd., to be a licensed casino operator.

BIL, which announced its move into Britain's casino scene in August last year, said it will proceed to formally apply for licences for 16 casino locations in Britain.

Elsewhere, Indonesian stocks rose 0.77 percent on gains in energy firms such as natural gas distributor P Gas Negara , up 7.1 percent, and oil and gas exploration firm Energi Mega Persada which rose 4.8 percent.

Dealers in Jakarta said speculation over a possible rise in natural gas prices has pushed the stocks higher.

Malaysian stocks fell 0.81 percent, a day after closing at their highest in about six months, and the Philippine index ended down 1.68 percent.

By 0518 GMT, Thai stocks were flat, just 0.10 percent lower, amid lingering political concerns and selling by foreign investors, dealers in Bangkok said.

Over the weekend, a second minister resigned from Prime Minister Thaksin Shinawatra's cabinet and a big anti-government rally was held.

Thaksin has faced several such rallies in recent months; his family's decision to sell its stake in Shin Corp for $1.9 billion last month attracted criticism and has been investigated by Thai regulators.

[Ichiro]

Marketwatch, 6 Feb 06--By Myra P. Seafong

Oil taps $66 then falls; market weighs Iran
Natural-gas supplies deemed ample, futures sink 7%


SAN FRANCISCO (MarketWatch) -- Crude-oil futures climbed over $66 a barrel Monday, then ended lower for the session as traders weighed the possibility of sanctions against Iran, the world's fourth-largest oil exporter.

MARKETWATCH TOP NEWS:
Disney income rises, beats estimates
U.S. stocks end mixed; Middle East tensions weigh
GM names Kerkorian's aide to board
Talbots to buy J. Jill Group, trumping Liz Claiborne


The International Atomic Energy Agency over the weekend voted to refer Iran to the Security Council, opening the way for international punishment against the country, on an "absence of confidence" that Iran is using its nuclear program for strictly peaceful means. See story.

"Things got really heated up over this Iran thing, and traders hate leaving such big profits on the table for news that could change at any moment," said commodities trader Kevin Kerr.

Against this backdrop, crude oil for March delivery climbed as high as $66.25 a barrel on the New York Mercantile Exchange. But it closed 26 cents lower at $65.11 a barrel.

"Iran's oil minister has said that oil exports would not be used as a bargaining chip, but that possibility must be considered, particularly if tensions escalate," said Michael Fitzpatrick, an analyst at Fimat USA.

He called the potential for supply disruptions "very real," growing out of either Iran restricting oil to western consuming nations or by the U.N. placing "sanctions or an outright embargo" on Iranian oil.

Along with ranking fourth overall, Iran's the second-largest exporter belonging to the Organization of the Petroleum Exporting Countries, following only Saudi Arabia, according to Phil Flynn, a senior analyst at Alaron Trading. The country is also home to more than 132 billion barrels of proven crude reserves and produces 3.8 million barrels per day, according to OPEC data.

At the IAEA conference, German Chancellor Angela Merkel used particularly tough language, likening Iran's nuclear threat to the early days of the Nazi regime.

'Saber rattling'

The concerns over Iran lifted oil above $66 for a spell Monday, and prices for other commodities, as markets prepared for increasing tensions.

"A serious war is becoming increasingly likely, and war has historically always resulted in soaring inflation and soaring commodity prices, with base metals in strong demand," said Martin Hennecke, a financial adviser with Hong Kong brokerage Bridgewater.

For now, "European leaders are pressing Iran to step back their 'saber rattling' threats over nuclear developments," said John Person, president of National Futures Advisory Service.

"This situation was priced in the market last week -- and as traders returned back to work and focused on the current fundamental supply situation -- prices backed down off the highs," he said.

"Granted, prices have backed off the highs, but we are still well above $60 per barrel," he said, noting that this "could be the mid point or low end of a steady trend in prices this spring."

Supply watch

Adding to crude's retreat Monday, markets looked to recent supply data seen as bearish for oil prices.

"Inventories are well above normal levels regardless of the weather or other disruptions," said Serge Laureau, a trader with Saxo Bank.

Indeed, "absent the geopolitical uncertainty, prices should be moving lower, with all three elements of the complex [crude, gasoline and distillate supplies] showing a surplus against last year at this time," said Fitzpatrick.

March gasoline futures closed down 3.75 cents at $1.6442 a gallon and March heating oil lost 1.88 cents to finish at $1.7628 a gallon.

Indeed, expectations for strong U.S. supply numbers this Wednesday contributed to the late-session price retreat, said commodities trader Kerr, who also edits Global Resources Trader, a newsletter service of MarketWatch, the publisher of this report.

Analysts at Wachovia Corp. expect the Energy Department to report a climb of 1.5 million barrels in crude supplies for the week ended Feb. 3. IFR Markets expect supplies to be unchanged or up as much as 2 million barrels.

Motor gasoline supplies likely rose 2.5 million, Wachovia said. IFR sees a rise between 1 million and 2 million barrels for the fuel

And Wachovia predicts a 450,000-barrel increase in distillates. In contrast, IFR sees a fall of 1 million to 2 million barrels.

Natural gas drops to June levels

However, natural-gas futures closed at their lowest levels in eight months as the majority view in the market deemed supply as ample to meet seasonal demand.

"No one expects a sustained bout of cold that could seriously weigh on storage," said Fimat's Fitzpatrick, adding that "domestic gas stocks are at record high levels for this time of year."

Natural-gas futures for March delivery fell as low as $7.90 per million British thermal units, a level not seen since June 1. It closed down 61.8 cents, or 7.2%, at $7.995.


Meanwhile, gold futures closed higher, finding support from the tension over Iran, but at least one analyst warned traders to watch out for a significant correction. See Metals Stocks.

Taking a broad measure of the commodity-futures markets, the Reuters/Jefferies CRB Index stood at 343.3 points, down 0.8%, on the New York Board of Trade.

Myra P. Saefong is a reporter for MarketWatch in San Francisco.

[Ichiro]

From Daily Mainichi Newspaper---6 Feb 06.

Japanese foreign exchange reserves rise to record US$851.7 billion in January

Japan's foreign exchange reserves rose US$4.80 billion in January to a record high US$851.67 billion, helped in large part by a stronger euro, the Finance Ministry said Tuesday.

The increase in the nation's reserves, which includes convertible foreign currencies, gold and International Monetary Fund special drawing rights, follows a US$3.63 billion rise in December and a US$1.48 billion increase in November.

The euro's recent rise against the dollar was the biggest factor in pumping up the reserves, the ministry said. It was also aided by geopolitical factors, including the stroke of Israeli Prime Minister Ariel Sharon and the uncertainty of the Palestinian peace process and the impasse with Iran over its nuclear program, the ministry said.

The euro was quoted at US$1.2156 in New York at the end of January, up from US$1.1848 at the end of the previous month.

Japan's foreign exchange reserves have shown only minor changes, mostly in line with exchange rate fluctuations, since Tokyo stopped its campaign of currency-market intervention in March 2004.

Japan was also the largest holder of reserves for the 74th straight month in November with US$831.08 billion, followed by China, according to the latest data available from the IMF. Data from the IMF differ slightly from those issued by the MOF due to differences in methods used to calculate the value of gold. (AP)

February 7, 2006

[roguewave]

Ichiro, here's a different perspective about the Yen and Nikkei-225 apart from the paid-for BS that the mainsteam press puts out to steer unsuspecting "investors". You might catch that little tidbit about China becoming Japan's largest trade partner replacing us here at home. What do you think that might suggest regarding the future Yen/Yuan exchange rate vs. the Yen/Dollar exchange rate?


http://www.financialsense.com/fsu/editorials/dorsch/2006/0207.html

[Ichiro]

Roguewave,
I do not know much about the future Yen/Yuan exchange yen and maybe you could provide input in this area.

However, as far as the Yen/Dollar Exchange rate, I think that the BOJ will keep their easy monetary policy in the short term since Japan is not in an inflationary environment. But, the big jocker like in China is the price of oil since Japan must import 100% of their oil. In March 06, both the Federal Reserve and the European monetary bank may increase their interest rate but BOJ may not. The US dollar will appreciate against the Yen. So, what am I going to do with the ETFs in my ROTH IRA account (VPL and EFA)--buy when the dollar-yen exchange hits in excess of 120 and if the ETFs (VPL and EFA) are in upward trend. This is my short term move. As far as my long term in the international fund area, I have my $$$ invested in the Dodge and Cox International Funds. The Dodge and Cox International fund is an excellent fund (very conservative) and may eventually close in the near future.

[Ichiro]

Marketwatch---8 Feb 06.

Shanghai sole gainer as Asia recedes
By Chris Oliver, MarketWatch
Last Update: 5:57 AM ET Feb. 8, 2006

MARKETWATCH TOP NEWS
Mining and oils drag Europe lower
Cisco quarterly profit slips; sales rise
China overtakes Japan as leading regional trade nation
Labor talks loom behind GM dividend cut
Time Warner should split into four parts, Lazard says

TRACK THESE TOPICS

HONG KONG (MarketWatch) -- Asian markets ended broadly lower Wednesday, with traders cautious as Japanese earnings wound down and Wall Street disappointed.

The downdraft was felt across all major regional markets apart from the Shanghai Composite Index, which nudged 0.25% higher.

In Tokyo trading, the Nikkei 225 plunged in afternoon trading as much as 2.68%. The broader Topix index fell 2.46% to 1,671.39.

In its global strategy report, Morgan Stanley said it was cutting its outlook on Japan and emerging markets after recent equities gains. The investment bank said it was boosting its outlook on U.S. shares.

"Japan and emerging markets have surged 12% and 15% since the end of November, placing them above our year-end targets. At the same time, our U.S. equity team still looks for more than 10% upside balance for the rest of the year," the bank said in note to clients.

In Hong Kong, the Hang Seng Index fell 0.93%, while the China Enterprise Index plunged as much as 2.88%.

"I think it's a healthy correction, some valuations got a little high," said Henry Chan, head of research at Quamnet, a research portal and adviser based in Hong Kong.

Resource stocks slumped as institutional funds rotated away from commodity-related shares and towards mainland financials on fears a U.S. slowdown could weight on consumption, analysts said.


Chan says banking shares are looking up as China's bank lending cycle begins to reaccelerate. New-loan growth peaked in October 2003 at 24% annually, sparking a round of central government austerity measures that have since dampened new loan issuance to 9% a year.

"There is still a chance for loan growth to slow further, but the Chinese government is slowly loosening. If loan growth picks up, it will be good for banks," Chan said.

South Korea's Kospi Index fell as much as 1.6%, while Taiwan's Weighted Index fell 1.43%. In Singapore, the Straits Times Index was off 0.84%.

Sydney's All Ordinaries plunged as much as 1.51% on soft commodity prices. New Zealand's Gross 50 Index was off as much as 0.71%.

Japan's biggest car maker by sales volume posted a group net profit of 398 billion yen ($3.6 billion) in the quarter ended Dec. 31, up 34% from a year earlier. Merrill Lynch left its neutral rating on the share unchanged despite improving sales, citing the shares' hefty 61% rise from their low in the past year.

Advantest Corp (JP:6857: news, chart, profile) fell 3% on speculative selling after the world's largest maker of chip testing equipment marked a fresh five-year high on Monday.

Financial institutions also took a hit, as Japan's biggest lender Mitsubishi UFJ Financial Group Inc, (JP:8306: news, chart, profile) declined 3%.

[Ichiro]

From Mainichi Daily ---8 Feb 06:


Dollar flat against yen in Asian trading as traders await BOJ meeting

The dollar was almost flat against the yen Wednesday in Asia as traders adjusted their positions amid mixed sentiment over the Japanese central bank's monetary policy.

The dollar was trading at 118.02 yen by mid-afternoon in Tokyo, down 0.07 yen from late Tuesday. The euro rose to US$1.1975 from $1.1973 in New York.

Traders said U.S. hedge funds and Japanese securities firms bought dollars for yen, helping the U.S. unit climb back above 118.00 yen to hit an intraday high of 118.13 yen on EBS, after briefly dipping to a low of 117.54 yen.

But the U.S. currency failed to extend much gains as traders were cautious of selling yen too actively on lingering speculation that Bank of Japan Governor Toshihiko Fukui may express more hawkish views about ending Japan's ultra-easy monetary policy when he meets the press on Thursday, traders said.

Some other Tokyo players, however, were taking a different view, which was partly behind the yen's rises against major currencies overnight in New York, other players say.

"The most important thing is

when Japanese interest rates actually start to rise, and that's still a long way off," said Takehiko Jimbo, chief foreign exchange manager at Mitsubishi UFJ Trust Bank.

Fukui will meet reporters after the end of the BOJ's two-day policy meeting, where board members are widely expected to keep the central bank's ultra-easy monetary settings intact.

Senior BOJ officials, including Fukui, have suggested that the BOJ may end quantitative easing, in which it floods the money market with excess liquidity, as early as this spring. But many analysts expect the BOJ to keep short-term interest rates near zero for some time even after changing the current policy framework.

Higher interest rates tend to make a country's currency more attractive to investors.

The euro was also largely unchanged against the dollar, lacking a clear sense of direction due to a dearth of major U.S. economic indicators this week for gauging the course of U.S. monetary policy, traders said.

The dollar was higher against other Asian currencies, rising to 3.7350 Malaysian ringt from 3.7335 the previous day, and to 32.220 Taiwan dollars from 32.120. It also rose to 51.790 Philippine peso from 51.560. (AP)

February 8, 2006

[roguewave]

Ichiro, I will get back to you, hopefully later on this evening:) FiveTears, if you don'thave the stomach for it, shift back to the G Fund 100%. I've come across some info. that the European, Asian and American equity markets are going to be taken down a notch or two over the next four to six weeks and that the dollar will remain range bound with a little upward movement over the same time frame. I am actually considering shifting for the second time in over two years. I'll keep researching. Good luck.

[Ichiro]

Yuan May Rise Less Than Forecast, Provoking China, U.S. Tension

Feb. 9 (Bloomberg) -- China's government, placing job growth ahead of trade relations with the U.S., Europe and Japan, will limit the yuan's rise this year.

Since July 21, when China took the first step in a decade toward allowing a freely traded currency by allowing it to gain 2.1 percent against the dollar, the yuan has barely risen. Chinese government reports since then showed China's trade surplus expanded to a record $102 billion last year, and triggered threats of tariffs from U.S. Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a Florida Republican.

``Demands for a dramatic appreciation are a non-starter,'' Qing Wang, a senior currency strategist at Bank of America Corp. in Hong Kong, said on Feb. 1. Chinese officials are concerned that a stronger currency may cause companies ``to go bankrupt and people to lose their jobs,'' he said.

The yuan will rise 3 percent to 7.8 per dollar by year-end, according to the median estimate of 27 traders and analysts surveyed by Bloomberg News between Dec. 28 and Feb. 1. A similar reading last August predicted the yuan would strengthen 4.3 percent.

China grew 9.9 percent last year, the fastest among the world's major economies, passing France and the U.K. to become the fourth largest. Exports surged 28 percent, accounting for about 40 percent of the $2.3 trillion economy, the government said on Jan. 25 in Beijing.

`Sizzling' Economy

U.S. Treasury Secretary John Snow, IMF Managing Director Rodrigo de Rato and Japanese Finance Minister Sadakazu Tanigaki all said last month that the yuan is undervalued, giving China's exporters an unfair advantage. European Union industry commissioner Guenter Verheugen said on Dec. 12 he didn't ``exclude the possibility'' of referring China to the World Trade Organization this year.

``That economy is sizzling and we take that into consideration in our negotiations,'' Tim Adams, the U.S. Treasury's top official for international issues, said in a Jan. 25 interview at the World Economic Forum in Davos. ``It does make it more complicated for them to say whatever we've asked them to do is detrimental to growth.''

People's Bank of China Assistant Governor Ma Delun said the difference between wages in China and its partners, not currency policy, is responsible for the trade gap. ``Workers' pay in China is 1/33rd of that of a U.S. worker,'' Ma said in an interview in Shanghai on Jan. 18. He said the market decides the currency's value.

Official Numbers

China reports the unemployment rate for its cities, not for rural areas where people live on about $300 per year and earn about a third of those in urban areas, according to a United Nations Development Program report released on Dec. 16. China's urban unemployment rate was 4.2 percent last year, the government said on Jan. 25.

``The official unemployment rate is on the low side,'' Shen Minggao, an economist in Beijing for Citigroup Inc., the largest U.S. financial services company, said in an interview on Feb. 6. China's urban jobless rate may be as high as 11 percent, he said.

The yuan has risen 0.7 percent since the revaluation, which pegged the currency to a basket that includes the dollar, euro, and yen. At the time, the government said the currency could move as much as 0.3 percent per day. The biggest swing has been less than 0.1 percent against the dollar. The yuan is a denomination of China's currency the renminbi.

Small Swings

China ``should have a dramatically more flexible currency,'' Kenneth Rogoff, professor of economics at Harvard University and former chief economist for the International Monetary Fund, said in an interview on Jan. 10. ``They're better to introduce a bit of flexibility now before it's forced on them.''

Rogoff expects the yuan to strengthen between 3 percent and 5 percent this year.

The People's Bank of China is taking steps to encourage more trading of its currency. The central bank on Jan. 4 named 13 institutions including Citigroup and HSBC Holdings Plc, Europe's biggest bank by market value, as market makers, firms that stand ready to buy and sell the currency.

Six lenders including Mitsubishi UFJ Financial Group Inc., the world's biggest bank by assets, were told on Sept. 19 they could offer forward contracts, which allow investors to speculate on the future value of the yuan to hedge their investments.

The Hong Kong forwards market, where contracts are settled in dollars instead of yuan, indicates traders expect the currency to reach 7.7 to the dollar in a year. In August 2005, the contracts indicated a rise to 7.875 in 12 months.

`China Is Ready'

``China is ready,'' said Jonathan Anderson, chief Asia economist in Hong Kong for UBS AG, the world's second-biggest currency trader. ``They've given us the market-maker system. They've introduced the forwards market. That's really all you need.''

Snow has avoided putting public pressure on Chinese officials. ``The situation come March will look different than we see today,'' he said in a Dec. 1 interview.

The July revaluation kept the U.S. Treasury from naming China a currency manipulator in its quarterly review of trading partners' exchange-rate policies released on Nov. 28. The next report is due April 15.

``It will be gradual,'' Donald Straszheim, president of Straszheim Global Advisors, said in an interview on Jan. 17 from Los Angeles. ``China's financial markets and their banking system are extraordinarily fragile. They cannot endure the rough and tumble of the global financial markets.''

Some economists say the trade surplus and accelerating economy mean there's little reason to be patient.

``This will increase the political pressure from outside for China to allow the currency to appreciate,'' Frank Gong, chief economist for Greater China at JPMorgan & Chase Co., said in Hong Kong. ``Domestic demand is much stronger than expected. They can afford to rely less on exports.'' Gong said he expects the yuan to strengthen 12 percent this year.

Q4 2005 USD/CNY
Deutsche Bank AG 7.7
UBS AG 7.85
JPMorgan Chase & Co. 7.00
Standard Chartered Plc 7.9
Merrill Lynch 7.48
HSBC Holdings Plc 7.85
Citigroup Inc. 7.8
Credit Suisse 2 to 3 percent appreciation
Deutsche Asset Management 7.68 or 7.69
Sumitomo Mitsui Banking Corp. 8.04
Bank of America 7.63
Goldman Sachs Group Inc. 7.8
United Overseas Bank 7.78
Brown Brothers Harriman 7.86
Morgan Stanley 7.8
ANZ Investment Bank 7.78
BNP Paribas 7.6
Dresdner Kleinwort Wasserstein 7.7
Rabobank 7.81
Royal Bank of Scotland 7.6
ABN Amro Bank 7.65
Skandinaviska Enskilda Banken 7.31
Westpac Banking Corp. 8.01
ING Bank NV 7.9
Mizuho Research Institute Ltd. 7.8-7.9
CFC Seymour Ltd. 7.75

Median (27 forecasts) 7.78
Average (27 forecasts) 7.73
High 7.00
Low 8.04


To contact the reporter on this story:
Christina Soon in Singapore csksoon@bloomberg.net

Last Updated: February 8, 2006 11:08 EST

[Ichiro]

Greenspan: Fed Troubled by Rates

From MoneyNews.com and NewsMax.com --date 8 Aug 06.

At a business dinner Tuesday, recently retired Federal Reserve Chairman Alan Greenspan revealed that the central bank is deeply troubled by its inability to control long term interest rates.

At the private meeting Greenspan told attendees that short-term U.S. interest rates might have to rise even further, according to a report from Bloomberg News.

Greenspan departed as Fed chairman on January 31, but before doing so led the central bank in raising short term rates dramatically - some 14 times to a rate of 4.5% - the largest aggregate rate increase in two decades.

Greenspan and others had claimed the rate rises were implemented to cure inflation.

But Greenspan's private comments suggest the Fed was also concerned about the housing market bubble. [Editor's Note: Financial Intelligence Report detailed that Greenspan's actions would lead to a coming recession and housing bust. Read more Go Here Now.]

An unidentified participant at the private New York gathering related that Greenspan told an assembly of Lehman Brothers clients that low long-term rates were inhibiting the Fed's attempts to control the economy and that further rate hikes may be necessary as "homeowners are borrowing more against the value of their homes to finance spending."

But the ex-chairman was vague, failing to specify exactly how high rates would go. Ominously, he indicated that the markets were underestimating just how much more tightening the Fed had to do.

At the same meeting Greenspan reportedly offered a positive view of the U.S. economy.

But his comments were not the first time he has expressed concern about key factors driving the economy, including several remarks he made last September including:

* Greenspan offered a strong warning saying that Wall Street investment firms could prove incapable of handling all the financial risk posed by mortgage giants Fannie Mae and Freddie Mac.

* France's Finance Minister revealed that Greenspan told him the U.S. had "lost control" of its budget deficit.

Finance Minister Thierry Breton quoted Greenspan expressing exasperation at U.S efforts to curb its growing budgetary red ink.

"The United States has lost control of their budget at a time when racking up deficits has been authorized without any control (from Congress)," Breton said.

* In a speech to the National Association for Business Economics in Chicago, Federal Reserve Chairman Alan Greenspan sounded the alarm to American consumers that the long era of low interest rates was coming to an end.

"History cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets," Greenspan said.

In his speech to the NABE, Greenspan reiterated that Americans counting on low rates to refinance homes and buy big-ticket items might soon see a markedly different interest rate environment. [Editor's Note: Could interest rate increases cause a housing bust? Read More Here.]

That same week, Greenspan told a banker's group in California that homeowners with considerable debt should be on high alert. Specific borrowers and lenders "could be exposed to significant losses," he told the group.

The markets appeared to coolly accept reports of Greenspan's remarks at the Lehman Bros. dinner. The Dow Jones rose slightly, as did the Nasdaq and S&P by the close of trading Wednesday.

NewsMax's lead analyst and trader Andrew Wilkinson said Greenspan's comments "could create a short-term spike in the dollar but should have a longer-lasting effect on the price of gold, from an inflationary perspective."

He added that the former Fed chair's words were "negative for bonds, although stocks are still going up since it means the economy is strong."

[cowboy]

I was thinking of jumping to the I fund but with the low dollar the fund should go up good today but then the Witchdoctors and their magic wands are there to goof you up! The question is you don't know what your buying at?

[Dave M]

I-fund is volatile, yes, Cowpoke. You take the natural variability of the (overseas) markets, the variability of the exhange rates, and the variability imposed by the fund managers and you can get some big swings.

For me the answer was to hold on to it for a minimum of 30 days at a time. Last year there were lots of times when when the I-fund was the only thing holding up my account. This year I have 25% of the Kitty riding the I-fund.

Dave

[Birchtree]

Cowboy,

I know you won't let a few variations hold you back from the I fund - just close your eyes and do it. The FTSE is in rocket mode - the ECB I believe mentioned they have no desire to raise their interest rates for the next months. Ben, are you listening? You need to show us you are incharge - Greenspan is now retired - pause and help GM.

Dennis

[Birchtree]

I think I ment BOE and not ECB.

Just trying to draw the Wizard back into conversation.

[cowboy]

I am currently all S fund right now and it isn't chicken feed to me. I got this gut feeling to set tight. But hard to tell what tomorrow brings. Im trying to learn patience hopefully it pays off. So far I am happy with the move I made. The I fund only swung a pitiance down compared to the US markets and its voltile swings it can have. So making me think it hasn't yet bottomed out but maybe the others didn't bottum either. I believe the markets are treading water at this time and were going up the high side of the wave.

[Ichiro]

Bank of Japan governor expects inflation to rise

By David Pilling in Tokyo Thu Feb 9, 4:40 AM ET

Toshihiko Fukui, Bank of Japan governor, said on Thursday he expected inflation would begin to rise by a wider margin in the first quarter, adding to speculation that the central bank is preparing to end its super-loose quantitative-easing policy.

"We could not say today that the consumer price index has stabilised above zero, but from the January data onwards, CPI will show a relatively clear rise," he said, speaking at a press conference after a two-day policy board meeting.

Private economists expect the core CPI, which includes fresh food prices, to rise by 0.4 per cent in January and February, compared with an increase of just 0.1 per cent in November and December, and negative rates until last September.

The BoJ is committed to keep its four-year-old ultra-loose monetary policy in place until the core CPI stabilises above zero and until a majority of the policy board considers it will stay that way.

In spite of his optimism on the likely progress of inflation, the governor would not be drawn on the likely timing of any move, which bank watchers say could come in March or in one of two meetings scheduled for April.

The bank is expected to end quantitative easing by mopping up excess liquidity. The governor has made clear that interest rates could remain at zero long after that.

"I cannot say if a policy shift is in sight," Mr Fukui said, though he added that policy considerations were becoming more important with each successive meeting.

The nine-member board ended Thursday's meeting by keeping policy unchanged, flooding the market with Y30,000bn-Y35,000bn of liquidity, compared with the roughly Y6,000bn needed to push overnight rates to zero.

Two members voted against the resolution, arguing that quantitative easing, adopted in March 2001 to head off a deflationary spiral, should be ended now.

Mr Fukui on Thursday indicated his apparent dislike for inflation targeting, saying that stable Japanese prices tended to be lower than those in other countries. In the 1980s, average inflation was about 1.3 per cent, the bank said.

Mr Fukui described comments from observers suggesting that the bank target an inflation rate of 2-3 per cent as "mysterious".

Haruhiko Kuroda, president of the Asian Development Bank and former Japanese vice-minister of finance, said most central banks built in a margin of error into their inflationary calculations. Anything above a 1 per cent rate of CPI change was deflationary he said, since the CPI overestimated inflation by about 1 point.

"Deflation is not yet overcome," said Mr Kuroda, who favours the adoption of an inflation target. "The only objective of monetary policy is to obtain sustained price stability and that's not achieved. So it is not a good time to change policy."

Kiichi Murashima, economist at Nikko Citigroup, said the bank was likely to start reducing its liquidity targets at the April 28 meeting, though he did not rule out a move before then.

By April 28, the BoJ would have three more sets of monthly CPI data as well as the results of its Tankan business confidence survey. If these were both positive, the bank would probably feel able to reduce liquidity targets in an orderly way, he said.

[Ichiro]

South Korea raises interest rate again. Other asian countries (Thailand, Malaysia and India) raised their interest rates in the past several months. The rising oil price is causing an inflationary environment worldwide and we sure need to find an alternative to oil.


South Korean Central Bank Raises Benchmark Rate to 4% (Update5)

Feb. 9 (Bloomberg) -- South Korea's central bank raised its benchmark interest rate by a quarter percentage point to a three- year high to keep inflation from accelerating.

Bank of Korea Governor Park Seung and his six fellow policy makers raised the overnight call rate to 4 percent at a meeting in Seoul today, the third increase in five months. Five of 12 analysts polled by Bloomberg News expected the decision.

Park, whose four-year term ends March 31, ignored calls by government officials such as Vice Finance Minister Kwon Tae Shin to keep rates unchanged. The governor expressed confidence that Asia's third-largest economy will expand at least 5 percent this year, the fastest in four years, even as a stronger won threatens to curb export growth.

``Today's decision is a very strong recognition that the Bank of Korea is backing a recovery in the domestic economy,'' said Huw McKay, senior economist at Westpac Banking Corp. in Sydney, who expected a rate increase. ``It shows they're prepared to back that forecast in the face of a strong won exchange rate.''

South Korea's Kospi index rose 0.8 percent to close at 1321.66 at 3 p.m. The benchmark, which soared 54 percent last year, reached a record 1426.21 on Jan. 17. The won, which rose 6.2 percent in the past 12 months, fell 0.2 percent to 972.70 against the dollar.

Bonds also rose on optimism the won's strength will prompt the bank to pause in raising rates. The yield on the benchmark three-year government bond fell 10 basis points to 4.85 percent at 3:30 p.m., according to the Korea Securities Dealers Association. The yield reached the lowest level since Oct. 21.

Uncertainty Lifted

``The rate increase lifted the uncertainty that has long kept investors from increasing their holdings,'' said Shin Joo Hyun, a fund manager at Industrial Bank of Korea in Seoul. ``The view is now that raising rates further is hard given that a stronger won clouds the economic outlook.''

Central banks in Asian countries such as India, Thailand and Malaysia have raised interest rates in past months as rising domestic demand and soaring oil prices threaten to fan inflation. The Bank of Japan today held rates at almost zero as it gathers more evidence that deflation has ended.

The U.S. Federal Reserve raised its main lending rate to 4.5 percent on Jan. 31.

Consumers increased spending at the fastest pace in a decade in December and companies boosted investment, the National Statistical Office said on Jan. 27. A separate report today showed consumer confidence rising to a nine-month high in January.

`No Problem'

Rising spending by consumers and businesses may stoke inflation this year, according to the central bank. Consumer prices rose in January at the fastest pace in 10 months, gaining 0.8 percent from December. From a year earlier, prices rose 2.8 percent.

Inflation will accelerate to 3 percent this year from 2.7 percent in 2005, the central bank said in December. Core inflation, which excludes food and energy, will probably accelerate to 3.3 percent in the second half of 2006 from 2.1 percent in the first six months, it forecast. The central bank targets core inflation of 2.5 percent to 3.5 percent.

``The economy is recovering faster than expected and the monetary policy should gradually move to a neutral stance to reduce the side effects of a low interest rate policy,'' Park said at a press briefing in Seoul. ``There are some negative factors like the won gains and higher oil costs but after our studies, we confirmed that there'll be no problem in achieving a 5 percent growth despite those factors.''

The economy grew 4 percent last year, the central bank said.

Government Opposition

With today's increase, Park has brought the call rate back to where it was when he became Governor in April 2002. Park raised interest rates a month after taking over. He then went on to slash borrowing costs to record lows in 2004 as South Koreans were struggling to shake off the burdens of a credit-card binge that left many mired in debt.

Park, 69, increased borrowing costs even after some government officials expressed concern that such a move may stunt economic growth.

``It is advisable for interest rates to be maintained at the current level,'' vice minister Kwon said in an interview with a local cable television Feb. 7. He cited the rising won and higher oil prices as sources of concern for South Korea's economy. Finance Minister Han Duck Soo yesterday said he hopes the Bank of Korea won't ``tighten too much.''

A stronger won makes imported goods cheaper, easing pressure on consumer prices to climb. At the same time, it hurts sales for South Korean exporters such as Samsung Electronics Co. Exports, which account for about 40 percent of the economy, grew 4.3 percent in January, the commerce ministry said on Feb. 1.

To contact the reporter on this story:
Seyoon Kim in Seoul at skim7@bloomberg.net

Last Updated: February 9, 2006 03:22 EST

[oldschool]

nikkei down around 2% currently - apparently brokerage and property stocks on the decline due to fears that BOJ will raise rates.

Random news: Last week the International Herald Tribune ran a story saying 60% of the container ships traveling from North America to China travel empty. 100% full on the return trip.

[Ichiro]

Moneynews---9 Feb 06.

Will Snow Blast China Currency Manipulation?

Currency speculators are bracing themselves over reports that U.S. Treasury Secretary John Snow will label China as a currency manipulator in his next semi-annual report to Congress.

Bloomberg cites Senator Richard Shelby, chairman of the Senate Banking Committee, who says Snow may do just that.

"Treasury should call it like it is," Shelby told Bloomberg. "If the Chinese are manipulating the currency, as I believe they are, and he's got evidence of that, then he should say so.''

But that's not to say that Snow is a sure bet.

Shelby told Bloomberg that he's skeptical Snow will call China out.

"I don't expect him to,'' he said. "People don't usually do that politically. There's political ramifications to it.''

Congress has been after China for months to come clean on its currency management. Pending legislation from Senators Charles Schumer and Lindsey Graham would penalize China with high tariffs should the country fail to make its currency more flexible.

Any word from Snow that China is engaging in fraudulent behavior regarding its currency will make it easier for lawmakers to pass such legislation.

According to Bloomberg, China's trade surplus with the U.S. rose 25% to $185.3 billion through November 2005. That represents over one-third of the overall U.S. trade deficit, which in 2005 was a record $661.8 billion.

"Snow has been calling on China to allow its currency to move in line with market forces, stressing the point during an eight-day trip there in October," says Bloomberg.

"In two reports to Congress last year, Snow stopped short of calling the Asian nation a manipulator."

[Ichiro]

Bears make big bets in Japan rate derivatives
Fri Feb 10, 2006 4:46 AM ET16

By Hideyuki Sano

TOKYO, Feb 10 (Reuters) - Players in Japan's long-dormant interest rate derivative markets are galvanised by the spectre of the Bank of Japan soon ditching its super-easy policy that has pegged interest rates near zero for five years.

Traders spotted some market players making huge bets on a deeper market sell-off in bond futures, options and interest rate swaps after BOJ Governor Toshihiko Fukui delivered a wake-up call on the long-expected policy shift.

"There have been some speculative moves, the sort of moves we haven't seen in the past," said Takeo Okuhara, a senior economist at Daiwa Institute of Research. "These moves are not eye-catching. But they are signalling that some players are looking to big market moves."

Fukui sent the strongest signal yet on Thursday that the central bank is close to ending its "quantitative easing" policy of force-feeding banks with cash, sparking a slide that drove Japanese government bond futures to 1-1/2-year lows.

Analysts were surprised to see what big positions market players have built up in futures so far. At the end of Friday, there were 152,780 open positions, the highest since May 2000.

Some big accounts -- said to be either Japanese big banks or hedge funds -- appear to have dumped bond futures aggressively in an attempt to push the market sharply lower, traders said.

John Richards, director of Asian interest-rate strategy at Barclays Capital in Tokyo, said hedge funds were just "blasting away at futures".

Also spooking many bond traders were unusually big bets in put options for JGB futures. Puts give the holder the right to sell JGB futures for a certain period at a pre-set price, making money when prices fall.

Traders spotted a few huge trades done in the past week in puts for June JGB futures with a strike price at 132 <0#2JGBM6+>, which suggests those players had made highly speculative bets on a further fall in JGB prices.

The current price of the June contract <2JGBM6> is 134.83, which means the contract would have to tumble nearly three full points for a full payout.

Traders also said it was unusual to see trade in options expiring in such a distant future. Most deals are normally concentrated on the Tokyo Stock Exchange's front-end contract, currently the March contract. Continued ...

© Reuters 2006. All Rights Reserved.

[Ichiro]

Bears make big bets in Japan rate derivatives

(continued from above) page 2 of 2

Fri Feb 10, 2006 4:46 AM ET10



Another development that caught the attention of traders was a sharp widening in the spread between interest rate swap rates and Japanese government bond yields -- the so-called swap spread, or LT spread.

Interest rate swaps allow users to tweak their exposure to fixed or floating interest rates, with the floating rates based on the yen London Interbank Offered Rate (LIBOR).

Banks that expect rates to rise would try to pay a fixed rate when rates are low and then receive LIBOR in the future.

Ten-year yen swap spreads hovered around 5 to 10 basis points from late 2003 to late last year. But the spread, which gradually started to expand this year, exploded this week to over 20 basis points, nearly doubling in just two weeks.

Analysts think it suggested that big banks were paying swap rates aggressively -- some seeking protection from a further surge in yields and others simply trying to cash in on a deeper bear market.

"I think some players have been preparing for a rise in yields by paying swaps and selling put options," said Koji Ochiai, a senior analyst at Mizuho Securities.

[Ichiro]

Dollar/yen extends losses, tumbles 1 percent

Fri Feb 10, 2006 2:41 AM ET10

TOKYO, Feb 10 (Reuters) - The dollar extended its slide against the yen on Friday, tumbling 1 percent on the day after the yen received a boost from upbeat economic data that supported the view that the Bank of Japan could soon end its super-loose monetary policy.

The dollar fell to around 117.65 yen <JPY=>. Against the euro, the yen traded around 141 yen <EURJPY=>, up more than 0.9 percent on the day.

[Ichiro]

FOREX-Yen soars 1 pct on BOJ talk, US trade in focus
Fri Feb 10, 2006 3:46 AM ET

By Carolyn Cohn
LONDON, Feb 10 (Reuters) - The yen soared 1 percent against the dollar and euro on Friday after a series of upbeat economic data boosted expectations the Bank of Japan will soon end its ultra-easy monetary policy.

Japanese core machinery orders rose 6.8 percent in December from the previous month, exceeding market expectations for a 1.5 percent increase. There was also a 2.7 percent year-on-year rise in the corporate goods price index in January, its fastest rise in nearly 16 years.

But the dollar held steady against the euro ahead of key U.S. trade data at 1330 GMT, forecast to show a widening in the deficit in December to $65.0 billion.
"The main reason for the yen's strength is the data we got overnight -- it suggests deflation is coming to an end," said Carsten Fritsch, currency strategist at Commerzbank in Frankfurt.
"We would need a very bad trade number to hurt the dollar against the euro, given positive dollar sentiment at the moment."

By 0820 GMT, the dollar was trading at 117.86 yen <JPY=>, close to earlier lows of 117.54.
The euro was trading at 140.94 yen <EURJPY=>, off earlier two-week lows of 140.71.
Traders said hedge funds were buying yen throughout the day. There was also chat that Asian banks were selling the dollar against the yen.
Euro/dollar trading was at $1.1969 <EUR=>, largely unchanged from late U.S. trade.
European Central Bank Governing Council member Vitor Constancio speaks at 0930 GMT.

END TO LOOSE POLICY?

BOJ Governor Toshihiko Fukui on Thursday gave his strongest hint yet that the central bank may soon end its quantitative easing monetary policy, saying that from its next board meeting onwards the central bank would have to consider even more carefully whether it was time for a policy shift.
The BOJ board voted on Thursday to keep its five-year-old policy of flooding the money market with excess cash.

Interest rate differentials between the yen, the dollar and the euro are unlikely to narrow quickly as overnight interest rates in Japan remain near zero, traders said.

The Federal Reserve boosted its funds rate for the 14th straight time to 4.5 percent last week, boosting the dollar against the yen and the euro this month after a dip in January.

The market now thinks the Fed could further increase interest rates in March to 4.75 percent, depending on U.S. economic data.

Some analysts said Fukui also spurred speculation that interest rates may not remain at zero for very long, raising expectations that the BOJ could end policy as soon as March, although many continued to anticipate an April exit.
"Most people in the market see the BOJ scrapping the quantitative easing policy at its board meeting on April 28 as a done deal," said Daisuke Uno, market strategist at Sumitomo Mitsui Banking Corp in Tokyo.

According to a Reuters poll on Thursday, eight out of 12 market participants and analysts said the BOJ will likely scrap its easing policy on April 28, when the central bank will also release its semi-annual report on economic outlook.
Concerns about rising interest rates pushed the yield on two-year Japanese government bonds to a five-year high on Friday. The five-year yield hit its highest level since September 2003.

However, Chief Cabinet Secretary Shinzo Abe said on Friday: "There is no change in our understanding that moderate deflation continues."

TRADE FOCUS.

Market participants said much activity on Friday was driven by traders trimming long dollar positions ahead of December data for U.S. trade as poorer-than-expected figures could shift the market's focus to the growing U.S. trade gap and crank up selling pressure on the dollar.
Economists expect the data to show the U.S. trade deficit widened to $65 billion in December from November's $64.2 billion, which was the third-highest monthly level ever.

Finance ministers from the Group of Eight leading industrial nations start a two-day meeting in Russia later in the day, but they are expected to talk about the economic impact of high energy prices rather than foreign exchange issues.

© Reuters 2006. All Rights Reserved.

[roguewave]

Ichiro, if the yen should start strengthing against the dollar based on possible rate hikes, it would be interesting to try and predict or track the exchange rate between the yen/yuan. This would suggest a MAJOR shift in policy regards the yen/dollar relationship as it pertains to Japan protecting its exporters' markets in trade with American consumers. Keep on eye on China Japan relations as I've been betting that China will force Japan into a decision as it pertains to future trade relations.

[Ichiro]

Dollar drops broadly in wake of US trade data
Fri Feb 10, 2006 9:08 AM ET8



NEW YORK, Feb 10 (Reuters) - The dollar dropped broadly on Friday extending losses against the euro and yen in the wake of a report showing the U.S. trade gap widened to a record in 2005.

The euro <EUR=> climbed to intraday highs of $1.2021, up 0.3 percent from Thursday.

The dollar sagged below 117 yen, tripping a series of pre-set sell dollar orders that took the U.S. currency to a low of 116.97 yen, down 1.5 percent, on track for its largest one-day decline in nearly two months.

Earlier, the U.S. government said the U.S. trade deficit widened 17.5 percent last year to a record $725.76 billion.


© Reuters 2006. All Rights Reserved.

[Ichiro]

Currency Strategists: Goldman Says Dollar Has Reached `Peak'

Feb. 10 (Bloomberg) -- Investors should sell the dollar versus the euro because the U.S. currency has reached its ``peak'' and reflects expectations the Federal Reserve will keep raising interest rates, said Goldman, Sachs & Co.

The dollar climbed nearly 3 percent against the euro since trading at its low for the year last month as investors increased bets the Fed will raise its target rate two more times. A majority of futures traders are now pricing in rate increases at the Fed's meetings in March and May.

``The dollar is going to have a hard time,'' said Jens Nordvig, a currency strategist in New York with Goldman, in an interview yesterday. ``Investor expectations for the Fed will run out of steam.''

Against the euro, the dollar weakened to $1.1999 at 2:40 p.m. in Tokyo from $1.1980 yesterday in New York. The U.S. currency has rallied from $1.2323 on Jan. 25, the weakest since September.

Goldman, the eighth-biggest trader in the $1.9 trillion-a- day currency market, recommended selling the dollar at $1.1950 per euro on Feb. 8. The firm said to exit the trade to limit losses should the currency close stronger than $1.1780.

Nordvig, who joined Goldman's London office in 2001 from the financial research firm IDEAGlobal, expects the dollar to decline to $1.25 per euro in six months and to $1.30 in a year.

Traders are pricing in a 94 percent chance the Fed will raise its federal funds rate a quarter-percentage point to 4.75 percent at a March 28 meeting. The odds of another quarter-point increase at the next meeting on May 10 are now 59 percent, up from about zero percent last month. The Fed raised its benchmark rate at a 14th consecutive meeting on Jan. 31.

`Unlikely'

The central bank said in a statement accompanying the decision that ``some further policy firming may be needed'' to keep inflation in check even as it stopped saying rates may rise at a ``measured'' pace.

``A further significant upward shift in rate expectations seems unlikely in the near term given the current Fed language and the uncertainty about the strength of the data ahead of the March meeting,'' wrote Nordvig, who has a masters degree in economics from the University of Aarhus in Denmark.

Demand for the dollar increased after former Fed Chairman Alan Greenspan bolstered speculation the central bank will continue raising interest rates.

Greenspan suggested at a dinner on Feb. 7 that low long- term rates were limiting the Fed's ability to manage the economy, according to a person briefed by a participant at the meeting. Greenspan made his comments to about a dozen clients of Lehman Brothers Holdings Inc. in New York, according to the person, who declined to be identified.

Kerri Cohen, a spokesman for Lehman in New York, on Feb. 8 declined to comment about Greenspan speaking to customers.

Lehman Recommendation

Lehman is recommending investors increase bets the dollar will rise versus the euro on expectations new Fed Chairman Ben Bernanke will ``leave the door open'' for more interest-rate increases, according to a report.

``We expect the dollar's bullish momentum to remain intact,'' James McCormick, Lehman's London-based head of global currency research, wrote in a report sent to clients yesterday. ``Bernanke is more hawkish than many in the market assume.''

McCormick didn't mention the dinner in his report.

Twin Deficits

Nordvig also said the dollar may decline on speculation widening U.S. trade and federal budget deficits will undermine demand for the currency. The White House projects a record budget deficit of $423 billion for the current fiscal year.

A report today may show the trade shortfall grew to $65 billion in December, the third-largest ever, based on the median forecast in a Bloomberg survey. The gap was a record $68.1 billion in October. A widening deficit means more dollars need to be converted to other currencies to pay for imports.

``We also judge that the dollar is vulnerable from a structural perspective,'' wrote Nordvig. ``External imbalances in the U.S. are not a key market focus at the moment, but this could change on signs of weakening flow support.''

The Treasury Department will release its report on foreign holdings of U.S. assets for December on Feb. 15. Foreign investors raised their holdings of Treasury notes, corporate bonds, stocks and other financial assets by $89.1 billion in November, a slower pace than the record $104.2 billion gain a month earlier.

``We could see a slowdown in portfolio inflows in the official statistics in coming months,'' Nordvig wrote. Next week's data will be ``the first signpost to watch,'' he said.

Goldman also recommended selling the dollar versus South Africa's currency on expectations the rand will benefit from ``broad dollar weakness.''

The rand will also gain because the decline in gold prices is ``coming to end,'' Nordvig wrote. Gold, South Africa's largest export, fell 3.8 percent on Feb. 7, the biggest one-day drop since October 1997, after surging to a 25-year high last week. The precious metal rose 1.5 percent yesterday.

To contact the reporter on this story:
Joshua Krongold in New York at jkrongold2@bloomberg.net.

[Ichiro]

Yen Gains Most in a Month After Japanese Machine Orders Climb

Feb. 10 (Bloomberg) -- The yen gained the most in a month against the dollar after a Japanese government report showed a jump in machinery orders, suggesting the world's second-largest economy is accelerating.

The yen advanced against all 16 major currencies as the faster growth increased the chances the Bank of Japan will end its five-year-old policy of holding interest rates near zero percent to fight deflation.

``This says that things in Japan are on pretty solid ground and economic growth is picking up,'' said Eric Darwell, a currency strategist at Citigroup Global Markets in New York. ``We could see quite a bit of yen strength.''

Japan's currency rose 1 percent to 117.60 per dollar at 11:23 a.m. in New York, the largest rally since Jan. 6. It has gained 1.13 percent this week, snapping a three-week slide. The yen advanced to 140.14 per euro, the biggest gain since mid- December. The dollar gained 0.9 percent this week to $1.1914 per euro, reaching a five-week high.

The yen will strengthen to 116 per dollar in three months and 110 in six months, Darwell said.

The dollar gained against the euro after reaching a so- called support level at $1.2024 per euro, where it finished last week, said Tim Mazanec, senior currency strategist at Investors Bank & Trust Co. in Boston. A support level is an area where buy orders are clustered.

The dollar remained lower against the yen after a government report showed the U.S. trade deficit widened to $65.7 billion in December, the third-largest ever, from a revised $64.7 billion the prior month. Bigger deficits mean more dollars need to be converted into other currencies to pay for imports.

No Surprise

``The deficit is getting worse, but that's not a surprise,'' said Greg Anderson, a currency strategist at ABN Amro Bank NV in Chicago. He expects the dollar to fall to 111 yen and $1.28 per euro by year-end.

Private machinery orders, excluding shipping and utilities, rose a seasonally adjusted 6.8 percent in December, the Cabinet Office said in Tokyo. That's more than four times the 1.5 percent median forecast of economists surveyed by Bloomberg.

``Machinery orders jumped massively and that's been a trigger to think we could be near to the end of the BOJ's zero interest-rate policy,'' said Michael Klawitter, a currency strategist at WestLB AG in Duesseldorf, Germany. ``That's pushed the yen higher.''

A government report next week will probably show Japan's economy grew at a 5 percent annual pace in the fourth quarter, according to the median forecast of 28 economists in a Bloomberg survey. That's more than four times the growth in the U.S. in the same period.

Price Gains

BOJ Governor Toshihiko Fukui said yesterday core consumer prices will ``show clear gains in January.'' Core prices, which exclude fresh food, rose for a second month in December, gains the bank says must be sustained for it to end its deflation- fighting policy known as quantitative easing.

``Our judgment of core consumer prices will become increasingly important from our next policy meeting,'' Fukui said after a policy-setting meeting in Tokyo. The next meeting is March 8 and 9.

The central bank yesterday kept a target for reserves made available to lenders at between 30 trillion yen ($253 billion) and 35 trillion yen, six times more than in March 2001.

Ten out of 15 economists surveyed by Bloomberg before Fukui's comments said the bank may start to lower its reserve target in April and one said it could happen as early as March.

Higher Rates

The U.S. currency gained versus the euro this week on speculation the U.S. interest-rate advantage over Europe will widen.

Chicago Federal Reserve Bank President Michael Moskow said yesterday the central bank may need to keep raising its key rate to cap inflation. The Fed has lifted rates 14 times since June 2004 to 4.5 percent. In contrast, the European Central Bank raised its main rate in December for the first time in five years to 2.25 percent.

``The dollar should remain firm,'' said Mazanec. ``The ECB may not be as aggressive as the Fed and that should lead to dollar gains in 2006.'' He said the dollar may reach $1.16 per euro and 124 yen before year-end.

At 4.63 percent, two-year Treasury notes yield 1.74 percentage points more than the German government bond with a similar maturity, near the highest in about two months.

Yen gains may be limited after overseas investors including pension funds yesterday bought almost two-thirds of the U.S. government's auction of $14 billion of 30-year securities, the first sale since 2001. The result suggests the world's largest economy continues to attract investment.

``Good auction results show continuing inflows of foreign funds into the U.S., supporting the dollar,'' said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan.

The difference in yields between two-year U.S. Treasuries and Japanese debt reached 4.33 percentage points yesterday, the most since 2001. It stood at 4.27 points today.

To contact the reporter on this story:
Joshua Krongold in New York at jkrongold2@bloomberg.net

[Fivetears]

OK Ichiro... In caveman speak for the rest of us. :confused:

Cipher it all. What sayeth you... What sayeth the flock?

I Fund outlook Good?

I Fund outlook Bad?

[Ichiro]

Hi Fivetears,

Well, let me say that i was rather surprised with the movement of the foreign currency on Friday. I mean the sharp change in the direction of the interest rate. Both the yen and the euros dropped after the announcement of the huge US budget deficit. But, the euros recovered very fast. I bet that the Chinese are buying the euros when it dips. The Nikkei took a beating the day before because of the possible increase in the interest rate in the near future by BOJ because Japan is moving from a deflationary to an inflationary environment. The cost of oil will be the big jocker for Japan and also for southasian countries since they must import their oil.

The BOJ will probably increase the rate as early as March 06 and late as April 06. And this will happen. The Nikkei average already reflects this increase in the interest rate by BOJ. I think initially the nikkei will drop when BOJ increases the interest rate increase but the market will recover. Why? Japan's interest rate is very low and even if they increased it, it still low.. I mean less than 1 percent. Please note that the US Federal Reserve increased the interest rate in excess of 10 times... But, did the DOW drop much. No.. The bottom line is that I dont think that the increase in the interest rate by BOJ will cause a crash in the Nikkei. It will just offset the interest rate increase by the Federal Reserve.

But, if the Federal Reserve raises the interest rate by .5% in March... watch out... The dollar will soar as compared to the yen and the euros and it will have a big impact on our I fund. March is going to be a very critical month for us since FED and the European will increase their rates and Japan sooner or later.

I think by year-end the dollar/Yen exchange rate may be from 105 to 110. The outlook for the I fund looks good and we should make about 15 to 20 % return on our I fund. But, dont put all your eggs into the I fund... Put some into the C fund because the large cap stocks are very undervalued compared to the small caps. It is very important that you diversify your investments. I have been in market for over 25 years and I still continue to hold some of my stocks that I purchased 20 years ago. For one of my stock investment, the annual dividend is more than the initial investment I had made and it is already up 100x. I invest in this particular stock on a monthly basis via their dividend reinvestment program.

[Fivetears]

Hi Fivetears,

If the Federal Reserve raises the interest rate by .5% in March... watch out... The dollar will soar as compared to the yen and the euros and it will have a big impact on our I fund. March is going to be a very critical month for us since FED and the European will increase their rates and Japan sooner or later.

I think by year-end the dollar/Yen exchange rate may be from 105 to 110. The outlook for the I fund looks good and we should make about 15 to 20 % return on our I fund.
15 - 20% would be nice! Real Nice, Ichiro.
Unfortunately though, after serving 10 years active duty military & switching to an AF Reserve / civil service job, I have to play catch-up; 10 years worth to be exact. You know, civil service employees get a FERS retirement and a slap in the face annuity these days. Mad I-Fund investing is the only way I see catching up for the 10 years I lost in investing. I'm a 100% I-timer. I seldom do the C & S thing. I do it... but just a handful of times during the year.

At 43, I've just got a few years left to invest and retire. I get a Slap Government Annuity, TSP, Social Security (if it exists), and a Reserve Military Retirement check at 62. The way I see it is I have 10 years to make something really good happen with my TSP, or I'll be eating Alpo dog food at 55... to afford life. Heck, I'll be lucky just to see 62, after climbing in all the aircraft fuel tanks and working with carcinogenic chemicals for 25 years. My wife should be ok, though my financial efforts.

Thanks again for breaking the international markets down to a grass roots level of understanding. I sincerely appreciate it. :)

[roguewave]

Hi Fivetears,

Well, let me say that i was rather surprised with the movement of the foreign currency on Friday. I mean the sharp change in the direction of the interest rate. Both the yen and the euros dropped after the announcement of the huge US budget deficit. But, the euros recovered very fast. I bet that the Chinese are buying the euros when it dips. The Nikkei took a beating the day before because of the possible increase in the interest rate in the near future by BOJ because Japan is moving from a deflationary to an inflationary environment. The cost of oil will be the big jocker for Japan and also for southasian countries since they must import their oil.

The BOJ will probably increase the rate as early as March 06 and late as April 06. And this will happen. The Nikkei average already reflects this increase in the interest rate by BOJ. I think initially the nikkei will drop when BOJ increases the interest rate increase but the market will recover. Why? Japan's interest rate is very low and even if they increased it, it still low.. I mean less than 1 percent. Please note that the US Federal Reserve increased the interest rate in excess of 10 times... But, did the DOW drop much. No.. The bottom line is that I dont think that the increase in the interest rate by BOJ will cause a crash in the Nikkei. It will just offset the interest rate increase by the Federal Reserve.

But, if the Federal Reserve raises the interest rate by .5% in March... watch out... The dollar will soar as compared to the yen and the euros and it will have a big impact on our I fund. March is going to be a very critical month for us since FED and the European will increase their rates and Japan sooner or later.

I think by year-end the dollar/Yen exchange rate may be from 105 to 110. The outlook for the I fund looks good and we should make about 15 to 20 % return on our I fund. But, dont put all your eggs into the I fund... Put some into the C fund because the large cap stocks are very undervalued compared to the small caps. It is very important that you diversify your investments. I have been in market for over 25 years and I still continue to hold some of my stocks that I purchased 20 years ago. For one of my stock investment, the annual dividend is more than the initial investment I had made and it is already up 100x. I invest in this particular stock on a monthly basis via their dividend reinvestment program.


Good comments, I'm just curious why the next six months or longer will be anything like the last 25 years?

[Ichiro]

Hi Fivetears,

I have another ten more years before retirement with the FERS. As you know, our FERS is not much as compared to the CSRS and we have to do well in our TSP along with our other investments. As far as the social security, it will be there but at a reduced amount. The bottom line is that we have to do well in our other investments outside of FERS. As far as our TSP, I will be in the I fund as long as the chart is in an upward trend. once the trend is broken, I will bail out of the I fund. I will stay away from both the F and the S funds for the short term since they are both in a short term bearish divergence. I would look at those charts (EAFE index--provided by Stockcharts.com) very closely along with the movement of the interest rates for the I fund.

my other investments. I have my aggressive common stocks in my Roth IRA (such as AET, CVH, PRU ,etc ) and I also invest heavily in my dividend reinvestment programs. So, where am I making my money....would you believe my dividend reinvestment stocks..

[Ichiro]

Hi Roguewave,

For the US stock market, I willl continue to invest in my dividend reinvestment stocks for the next several decades which constantly increases by 10-11 percent per year. And besides I like those fat dividends. During the short run, when there is a correction in the market, I will purchase more shares to add to my stock portfolio. It is like having a big sale at Walmart.

The next six months and the next five years will be quite different as compared to the last 25 years. There will be too many new factors that will affect the market. such as China, India, oil price, budget deficit, etc. I think that China will be the major impact on the stock market in the near future. China just reminds me of when Japan was an emerging economic power many decades ago. But, the big difference is that China is more risk taking as compared to the Japanese. Japanese jobs are slowly being outsourced to China. When a person in Japan calls their bank for information on their credit card, they may be speaking to a service person in China. I am sure that China will keep a very tight control over their currency. I bet that they are now accumulating euros bonds. We just have to keep an eye on both China and India since they will have a major impact on our stock market.

Roguewave, what are your thougths about where the market is heading in the next six months and five years down the road. I am just curious..

[Ichiro]

Global: Rebalancing Made in Japan?

Morgan Stanley, Stephen Roach (New York), 10 feb 06



Investors tell me that Japan is on fire. And on the surface, it certainly seems white hot -- a stock market that is up some 50% since the spring of 2005 and an economy that our Japan team believes surged by at least a 7% annual rate in the final quarter of calendar year 2005. If that Chinese-style growth outcome comes to pass, Japan would instantly qualify as the fastest growing economy in the industrial world -- an extraordinary reawakening for Asia’s long-slumbering giant. The global implications of this development cannot be minimized: Can the world’s second-largest economy lead the way in the rebalancing of a still unbalanced global economy?

In answering that question, it helps to know where Japan has come from. Significantly, the recovery in the Japanese economy has not materialized out of thin air. After more than a dozen years of 1% real GDP growth, the economy first moved into a 2-3% growth channel beginning in 2003, and then accelerated to a 3.9% average annual pace in the first three quarters of calendar 2005. If our Japan team’s 4Q05 estimate is even close to the mark, the steady increase in momentum now seems to have moved into rarified territory. According to Takehiro Sato, our resident Japan watcher, the gains in the period just ended showed a Japanese economy firing on all cylinders -- external as well as internal demand, with the latter driven by especially impressive gains in private consumption, residential construction, and business capital spending (see his 31 January dispatch, “Japan: On Top of the World”). For my money, the most important element in this equation is Sato-san’s estimate that Japanese consumption growth may have exceeded 5% in the period just ended, pushing the year-over-year growth rate in real consumer demand to 3.6%. It would be one thing if Japan’s reacceleration were driven largely by external demand or autonomous investment. But when the consumer finally steps up, it’s a different matter altogether insofar as multiplier effects to other sectors of the economy are concerned.

A sustained pickup in Japanese consumption could also be a very welcome development for the global economy. The key here is the import side of the Japanese growth equation -- the transmission of domestic growth to any country’s trading partners -- and whether Japan’s revival of internal demand is sourced mainly at home or partly through foreign production. Historically, Japan has been a very closed economy. The import share of its GDP averaged only about 7% from the mid-1980s thorough the mid-1990s -- about half the shares in the rest of the industrial world over this period. In recent years, however, Japan has done a dramatic about-face in embracing the efficiency solutions of low-cost offshore production. The import share of its economy has moved up appreciably in response -- rising above 12% in late 2005.

Rising import penetration holds out the hope that a revival in Japanese internal demand spells heightened export impetus to the rest of the world -- moving Japan to center stage as potentially a new engine of global growth. But there has been an important shift in the mix of Japanese imports in recent years that has altered the transmission mechanism between Japanese internal demand and its traditional trading partners. As recently as 1999, the US had the largest share of Japanese imports -- implying that America would benefit the most from accelerating Japanese growth. That is no longer the case. The US share of total Japanese imports has fallen from close to 25% in 1999 to only about 13% today. The reason -- a stunning surge of Chinese imports. Japan’s purchases of goods from Greater China (the PRC plus Hong Kong) have risen from just 5% of its total imports in the early 1990s to about 22% today. The share of Japanese imports coming from Europe has also drifted down in recent years to about 11%, but it has been on a much gentler downward trajectory than the rapidly plunging US portion.

The shifting character of Japan’s imports -- both their increased share in overall Japanese GDP as well as the rebalancing of the import mix away from the US toward China -- has important implications for the broader global economy. Import channels don’t change over night. A lot of effort goes into the establishment of supply chains, distribution networks, and service operations -- underscoring the inertia of foreign sourcing patterns. It is hard and very costly to rip out one system (i.e., the low-cost China link) and replace it with another (i.e., the higher-cost American option). That means that the mix of Japan’s import demand is likely to remain something quite close to its current configuration in the years immediately ahead. Consequently, to the extent that Japan is able to sustain its recovery in domestic demand -- and in the import content of that demand -- most of the incremental benefit would undoubtedly flow to China and Asia’s increasingly China-centric supply chain. By contrast, that would leave US and European exporters largely on the outside looking in with respect to their opportunities to share the spoils of Japan’s economic recovery.

This has the potential to be a very important development on the road to global rebalancing. On the surface, Japan’s gathering recovery is good news for an unbalanced world. And it comes just in the nick of time. With the asset-dependent American consumer starting to fray around the edges as the US housing market cools, a restarting of the growth engine of the world’s second-largest economy is an especially welcome development. Yet, ironically, Japan’s long-awaited economic recovery may do little to temper the world’s largest and most serious imbalance -- America’s gaping current account deficit. That’s because American exporters have suffered a stunning loss of market share in Japan to China’s ever-ubiquitous producers. As a result, the import content of recovering Japanese domestic demand seems likely to be made increasingly in China rather than in the US.

This underscores what has long been the single most worrisome aspect of America’s current account imbalance -- that there is little hope for a fix from the export side of the equation. With US imports currently running nearly 60% greater than exports, an export-led fix for the US current account problem was always a stretch. The loss of market share in Japan by American exporters makes that even more of a stretch. That underscores the obvious -- that import compression is the only realistic hope for a meaningful US current account adjustment. And, of course, the obvious way for that to happen would be through a sharp reduction in the excesses of asset-dependent US consumption -- the one economic development that the rest of the world dreads the most.

Japan’s turnaround is nothing short of stunning. As the momentum of its economic recovery builds, the world economy will benefit from a long-overdue restarting of another growth engine. But don’t count on Japan to fix the world’s imbalances. That’s a task that remains very much in the court of the most unbalanced economy of all -- the United States.

[Ichiro]

Japan's Jan. Producer Prices Rise Fastest in 16 Years (Update4)

Feb. 10 (Bloomberg) -- Japan's producer prices rose at the fastest pace in almost 16 years last month as fuel and raw material costs increased and a weaker yen raised the price of imported goods.

An index of prices that companies pay for energy and raw materials gained 2.7 percent from a year earlier, the Bank of Japan said in Tokyo today. That was higher than the median 2.6 percent rise projected by 31 economists surveyed by Bloomberg. Producer prices have risen for 23 straight months.

Companies are becoming more successful at passing on higher costs to consumers as the economy expands, the jobless rate declines, wages increase and the Japanese spend more. Consumer prices achieved their first back-to-back gain in almost five years in December, a sign that Japan is emerging from more than seven years of deflation, and the economy probably expanded in the fourth quarter more than four times faster than in the third.

``Companies are regaining pricing power, and they are beginning to pass manufacturing and labor costs to retail prices,'' said Kono, chief economist at BNP Paribas Securities Japan. ``Japan's economy has picked up momentum since early last year, and the gap between supply and demand has narrowed.''

The yen rose to 118.41 against the dollar at 1:10 p.m. in Tokyo, from 118.81 before the report was published.

Final Goods

Costs for raw materials rose 33.1 percent from a year earlier, today's report said, the biggest increase since July 1980. Prices of final goods rose 1 percent on year, the fourth straight gain, adding to signs that deflation is easing.

The rise in final prices ``provides further evidence that Japanese companies are passing higher costs through to end users,'' Takuji Aida, chief economist at Barclays Capital in Tokyo, wrote in a report. ``Faster growth in final goods' prices will put additional upward pressure on CPI, further pulling Japan out of its long period of deflation.''

January's 2.7 gain in corporate good prices was the biggest since March 1990, when prices rose 2.9 percent, rebounding after being suppressed a year earlier due to the imposition of sales tax in March 1989. If that gain is excluded, the rise last month was the biggest since March 1981, when prices increased 3.8 percent, the bank said.

The Bank of Japan's overseas commodity index, which is a weighted average of prices of sixteen overseas commodity market including crude oil, copper and aluminum, rose 42.3 percent in January from a year earlier to a record, the bank reported Feb. 1.

Copper gained in Shanghai yesterday on expectations increasing supplies won't meet growing demand led by China, the world's biggest copper user. Copper for delivery in April rose 630 yuan, or 1.3 percent, to settle at 48,090 yuan ($5,971) a ton on the Shanghai Futures Exchange.

Shifting Funds

Prices of copper have climbed about 67 percent in China in the past year. Investors have shifted more money into metals and other raw materials after gains outpaced returns on stocks and bonds.

Aluminum futures rose 390 yuan, or 1.8 percent, to settle at 22,330 yuan a ton on the Shanghai Futures Exchange.

The average price of Oman Dubai crude, a benchmark for Asian refiners, rose about 70 percent in January from a year earlier.

Japan Airlines Corp., Asia's largest carrier by sales, said on Feb. 6 that its third quarter loss tripled from a year before on higher fuel costs and its loss amounted to 23.1 billion yen ($195 million) in the nine months ended Dec. 31. The company plans to raise prices on domestic fares by 4 percent on average in April to cover fuel cost increases.

Japan's producer prices will probably rise at a faster pace than the central bank predicted in October because of the yen's weakness and gains in commodity prices, Bank of Japan Governor Toshihiko Fukui said on Jan. 20. The bank predicted producer prices would rise 1.7 percent in the year ending March 31.

The yen fell to trade at an average of 115.56 against the dollar in January, from 103.2 a year earlier, increasing the import bill for energy and other materials.

To contact the reporter responsible for the story:
Mayumi Otsuma in Tokyo at motsuma@bloomberg.net.

[Ichiro]

By ELAINE KURTENBACH, Associated Press Writer Fri Feb 10, 7:39 AM ET

SHANGHAI, China - China's currency on Friday closed at its highest level since a July revaluation, capping a weeklong increase.


The dollar closed at 8.0505 yuan on the automatic price-matching system, down from its Thursday close of 8.0537.

The dollar opened at 8.0511 on Friday, prompting speculation that China's central bank may be encouraging the yuan's rise, perhaps to avert U.S. pressure ahead of a visit to Washington by President
Hu Jintao in April.

But a central bank official denied that suggestion, saying the currency movements were purely based on market forces. The official, who spoke on customary condition of anonymity, refused further comment.

China's yuan has risen gradually against the dollar since the central bank revalued it by 2.1 percent against the greenback on July 21, when it also switched from linking the yuan just to the dollar to basing its value on a basket of currencies.

The yuan has risen nearly twice as quickly since the beginning of the year as before, though its daily movements are still measured in hundreds and thousands of a percentage point. Since the revaluation in July, it has risen only about 0.7 percent.

The dollar opened the week at 8.0560. Before the Jan. 28-Feb. 5 holiday, it last traded in Shanghai at 8.0616 on Jan. 27.

China faces pressure from the U.S. and other major trading partners to let the yuan strengthen further. Critics of China's foreign exchange controls view the currency as undervalued and contend this gives Chinese exporters an unfair competitive advantage.

[Ichiro]

ASIA MARKETS

Nikkei slide accelerates, region mixed


By Chris Oliver, MarketWatch
Last Update: 1:31 AM ET Feb 13, 2006

HONG KONG (MarketWatch) -- Asian markets traded mixed to lower Monday, with Tokyo leading the decliners after the release of strong Japanese export data renewed speculation the Bank of Japan would begin reeling in its ultra-accommodative monetary policy in April.

Japan's Finance Ministry said the nation's current account surplus rose in December, the fourth consecutive month the surplus has been on the rise. Compared to the same month a year ago, the broadest measure of Japan's trade in goods and services gained 8.6% to 1.75 trillion yen ($14.8 billion), adding to the picture of an economy on the mend.

Bank of Japan Governor Toshihiko Fukui said Monday the central bank would seek policy change once economic conditions are favorable, according to Reuters reports.

"We introduced the quantitative easing framework as an abnormal policy by sacrificing interest rate mechanisms when the economy was in crisis," Fukui told a parliamentary committee.

"So, once economic conditions are relatively favorable, we need to change it and move to a regular policy of targeting interest rates," he said.
Tokyo's Nikkei 225 declined 380.17 points, or 2.34%, to close at 15,877.66. The broader Topix Index fell as much as 37.03 points to 1,626.49.

It is widely believed normalization of interest-rates could lead to strengthening of the yen against the dollar, and knock back export growth and corporate profits.

In currencies, the dollar stabilized against the yen with the greenback buying 117.86 yen, up 0.28 yen for the session. On Friday the dollar slipped from the 118-yen range, declining nearly 1% on disappointing U.S. trade deficit data and initial suggestions the Bank of Japan may be forced to tighten its monetary policy.

United States trade data released last week revealed the nation's trade deficit widened by 1.5% in December to $65.7 billion, pushing the gap for all of 2005 to $725.8 billion.

Adding to the jitters across Asia was a busy schedule of economic data due to be released this week in Washington, coupled with the first formal presentation by new Fed chief Ben Bernanke, due to speak before Congress.
In South Korea, the Kospi Index fell as much as 0.76%, while the Shanghai Composite Index was off as much as 0.74%.

In Taiwan, the Weighted Index traded basically flat, off just 0.07%. Sydney's All Ordinaries fell as much as 0.86% as commodity prices continued to dip.
Singapore's Straits Times Index rose as much as 0.28%.



Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

[Ichiro]

FOREX-Dollar at 6-wk high vs euro ahead of Bernanke
Mon Feb 13, 2006 3:42 AM ET

By Katie Hunt
LONDON, Feb 13 (Reuters) - The dollar hit a six-week high against the euro on Monday, as investors expect new Federal Reserve Chairman Ben Bernanke to signal this week that dollar-supportive U.S. interest rate rises will continue.
Bernanke is due to testify to the House Financial Services Committee on Wednesday, his first public appearance to discuss the economy and monetary policy since becoming chief U.S. central banker.

"People are lightening up on some short dollar risk going into Bernanke," said Paul Mackel, currency strategist at ABN AMRO.

"Our bias is that U.S. rates will hit five percent by the middle of this year. He could be upbeat," he added.

Mounting expectations the Fed will keep raising interest rates after 14 straight increases to 4.5 percent has helped the dollar rebound from a slide earlier this year, when investors fretted the currency's yield advantage would shrink.
By 0830 GMT, the euro was holding steady at $1.1902 <EUR=> after falling as low as $1.1888 -- its lowest since Jan. 3.

The dollar was at 117.87 yen <JPY=>, little changed from its level in late U.S. trade on Friday, and well off a seven-week high of 119.40 yen struck earlier this month.

The dollar fell as low as 117.52 yen in early trade, after data showed Japan's current account surplus rose unexpectedly in December from a year earlier, helped by a recovery in exports.

The dollar was at 1.3065 Swiss francs <CHF=>, near Friday's peak of 1.3086 francs, its highest since Jan. 3.

STAY FIRM
The dollar had jumped to multi-week highs against the euro and the Swiss franc on Friday, recovering from an initial slide after data showed the U.S. trade deficit swelled more than expected in December and ended 2005 at a record $725.8 billion.

Traders said the dollar would likely stay firm ahead of Bernanke's testimony on the Fed's semi-annual monetary policy report.

"It seems people are in no hurry to sell the dollar right now, especially with Bernanke's testimony coming up later in the week," said Katsunori Kitakura, senior forex trader at Chuo Mitsui and Trust Banking in Tokyo.

The yen has recovered from seven-week lows against the dollar hit earlier this month as the Bank of Japan has signalled its super-loose policy is almost certain to end in the next few months and overnight rates could rise slightly from virtually zero.

Bank of Japan Governor Toshikiko Fukui said on Monday the BOJ needed to end its ultra easy policy once economic conditions were favourable, and then move to a regular monetary policy targeting interest rates.

Expectations for an end to the BOJ's "quantitative easing" policy as early as March have helped push two- and five-year Japanese government bond yields to five-year highs.

The market shrugged off a weekend meeting of Group of Eight finance ministers in Russia that focused on energy prices and paid little attention to exchange rates.

Euro zone finance minister will meet in Brussels later on Monday.

© Reuters 2006. All Rights Reserved.

[Ichiro]

GLOBAL MARKETS-Commodities retreat hurts stocks, dollar firm
Mon Feb 13, 2006 5:38 AM ET

By Lincoln Feast

LONDON, Feb 13 (Reuters) - European shares stalled on Monday, weighed down by a slide in Asian markets and weaker mining companies as metal prices fell, while the dollar hit a six-week high against the euro on expectations of more U.S. interest rate rises.


Euro zone government bonds eased as strong Italian output data dented sentiment ahead of a heavy supply pipeline this week and ahead of Wednesday's first major policy speech from new U.S. Federal Reserve Chairman, Ben Bernanke.

Expectations that Bernanke's testimony to the House Financial Services Committee will signal that dollar-supportive interest rate rises will continue beyond the current 4.5 percent boosted the dollar.

"People are lightening up on some short dollar risk going into Bernanke," said Paul Mackel, currency strategist at ABN AMRO.

"Our bias is that U.S. rates will hit 5 percent by the middle of this year. He could be upbeat," he added.

The dollar hit a six-week peak of $1.1882 per euro <EUR=>, while against the Japanese currency <JPY=> the dollar was up about a third of a percent at 118.2 yen.

The dollar fell as low as 117.52 yen earlier in the session after data showed Japan's current account surplus rose unexpectedly in December, helped by a recovery in exports.

NIKKEI RETREATS, EUROPE STALLS

But exporters led a decline in Japan's Nikkei <.N225> as the rise in the yen gave investors an excuse to cash in some of their holdings of Japanese stocks after a stellar run since May last year.

"Some investors appeared to be unwinding their long positions on the U.S. dollar, pushing up the yen, while foreign investors may be taking profits on Japanese stocks," said Masaki Iso, chief investment officer at Yasuda Asset Management Co. Ltd.

The Nikkei closed down 2.3 percent at 15,877.7 points, ending below 16,000 points for the first time since Jan. 26.

European stocks were treading water as the retreat in Asia offset a late rally on Wall Street on Friday.

The FTSEurofirst 300 <.FTEU3> index of leading European shares was 0.1 percent firmer at 1,326 points.

Roche (ROG.VX: Quote, Profile, Research) weighed, falling 3 percent after the drug maker said it had temporarily suspended recruitment for a clinical trial on its Avastin colon cancer drug because of a number of deaths.

Mining companies were among the worst performers as prices for metals including gold, platinum, zinc and aluminium fell sharply.

BHP Billiton (BLT.L: Quote, Profile, Research), the world's top mining company, was down 1.52 percent at 1035 GMT at 941 pence.

Gold dropped as low as $544.30 an ounce as fund selling saw it break key support at $548 an ounce.

Analysts saw little reason to call an end to the rally in gold and other metals just yet, however.

"This is a healthy correction brought on by profit-taking, and it will enable gold to move up and challenge the previous high," Frederic Panizzutti, analyst at MKS Finance, said.

"There is some hesitation about where to come in with new long positions, but I don't see much in the way of short positioning."

OIL SLIPS

Oil prices were also lower as healthier inventories in the United States offset concerns about Iran's nuclear programme. U.S. light crude oil futures <CLc1> held below $62 a barrel.

Euro zone government bonds softened on worries about rising U.S. and European interest rates, worries not helped by data showing surprisingly strong growth in Italian output and British producer prices.

Benchmark 10-year euro zone bonds <EU10YT=RR> yielded 3.51 percent, while the March Bund future <FGBLH6> fell 46 ticks to 120.10.
© Reuters 2006. All Rights Reserved.

[Ichiro]

LATEST FOREX NEWS

China oil consumption to rise 5.4-7.0 pct in 2006 - NDRC

Sunday, February 12, 2006 12:42:32 PM
http://www.afxpress.com


BEIJING (AFX) - China's oil consumption is expected to rise by 5.4-7.0 pct this year compared to last year, state media reported, citing a report by the National Development and Reform Commission

The world's second biggest oil consumer after the United States consumed 318 mln tons of oil last year, according to the commission

It did not explain the reason for the increase, but China's booming economy is becoming increasingly dependent on oil

Some 75 pct of China's oil this year will be consumed by the transportation sector, Xinhua cited the commission as saying. It noted the increasing purchases of automobiles as one factor behind the rise

China is expected to import 44 pct of its oil demand this year, according to the commission

The country became an oil net importer in 1993 and has since been racing to secure resources abroad to power its booming economy as domestic production has fallen into an overall decline

cs/ben/net For more information and to contact AFX: www.afxnews.com and www.afxpress.com

[Ichiro]

February 13, 2006

latimes.com : Business


Some Expect 2 Rate Hikes

# Nervous bond investors have pushed up shorter-term yields. They will look for clues when the new Fed chief testifies on Capitol Hill.

By Tom Petruno, Times Staff Writer

Wall Street had been hoping for "none, or one and done" in terms of additional Federal Reserve interest rate increases. But a recent jump in yields on shorter-term Treasury securities suggests that investors are losing faith that the central bank is ready to take a break.

The outlook for rates will be center stage this week in financial markets as Ben S. Bernanke gives his first congressional testimony as Fed chairman.

Bernanke, who succeeded Alan Greenspan on Feb. 1, goes before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday, delivering the semiannual monetary policy report required by law.

The backdrop for his coming-out party is an increasingly nervous bond market, where investors last week pushed shorter-term Treasury security yields to the highest levels in five years — delighting savers but threatening borrowers who have certain adjustable-rate loans.

The annualized yield on six-month T-bills hit 4.69% on Friday, up from 4.63% a week earlier and the highest since early 2001.

The two-year T-note yield ended Friday at 4.68%, up from 4.57% a week earlier and also the highest since 2001.

Short-term rates had stabilized in December and early January as more bond investors felt comfortable that the economy would slow and that the Fed soon would halt its 18-month-long credit-tightening campaign, which has lifted its key rate to 4.5% from 1%.

That optimism was reinforced Jan. 3, when the Fed released the minutes of its mid-December meeting. The minutes said policymakers believed that the number of additional rate increases "probably would not be large."

Despite some recent signs of weakness in housing, however, many analysts believe that the economy overall remains on a healthy growth track — healthy enough to justify at least two more Fed rate boosts, some say.

Jack Malvey, a fixed-income strategist at brokerage Lehman Bros. in New York, said he expected the Fed to raise its key rate to at least 5%, and perhaps 5.25%, before stopping.

The sudden jump in short-term Treasury yields in the last three weeks matches the market's catch-up pattern during much of 2005, Malvey said: Many investors last year kept betting that the Fed was finished, only to face quarter-point rate hikes at every central bank meeting.

"The bond market for the last year has consistently underestimated the vigor of the U.S. economy," Malvey said.

In the financial futures market, where investors bet on upcoming Fed rate changes, trading last week showed that investors believed that a quarter-point hike at the Fed's March 28 meeting, to 4.75%, was a certainty.

More surprising is that the futures market now is leaning toward a hike at the mid-May meeting as well. That would bring the rate to 5%.

If that sentiment spreads, shorter-term Treasury yields are bound to head higher — which means that savers might be better off waiting before locking in yields, financial advisors say.

At current levels, shorter-term Treasury yields "are barely positioned for one more rate hike that would stick," let alone two or three hikes, said Lou Crandall, an economist at Wrightson ICAP in New York.

Meanwhile, for homeowners with a popular type of adjustable-rate mortgage that is pegged to one-year Treasury yields, every notch higher could spell bigger monthly payments come adjustment time.

The U.S. labor market may be key in shaping the Fed's decisions on rates in coming months, economists say.

In recent weeks, the number of new claims for unemployment benefits hit a six-year low. That could point to strength in job creation and to a generally tightening labor market.

For the Fed, a relative shortage of labor could raise fears of an inflationary spiral if employers pay significantly more for workers and in turn pass that cost on to the buyers of their goods or services.

"The issue for Mr. Bernanke … is whether a falling unemployment rate and rising wage gains mean that price inflation is likely to pick up," said Edward Yardeni, an economist at investment firm Oak Associates in Akron, Ohio.

By continuing to raise rates, the Fed would be using its principal tool to slow consumption and damp inflation pressures.

On Capitol Hill this week, Bernanke is sure to face questions about his inflation outlook, the labor market and whether the Fed risks pushing the economy into recession if it continues to tighten credit.

And although most economists believe that Bernanke will speak more clearly than Greenspan — who was famous for his verbal gymnastics — they say it's unlikely the new chief will allow his questioners to pin him down in terms of how close the Fed might be to ending its rate-raising campaign.

"While he probably will reiterate that further tightening 'may be needed,' there is no need for him to commit himself to anything at this point," economists at Goldman Sachs & Co. said in a report to clients Friday.

Indeed, the Fed in recent months has made clear that its next moves with rates will depend on what the economic data show. And that means that policymakers themselves may not be sure where they'll stop, analysts say.

Some economists are worried the Fed already has gone too far.

"I think they should pause now," said Joseph Carson, an economist at Alliance Capital Management in New York.

He believes that many U.S. households are stretched financially because of heavy borrowing over the last few years, and that as a result consumer spending is bound to decelerate markedly this year.

Despite some data to the contrary, "I'm pretty convinced the economy is slowing down," Carson said.

The Treasury bond market also is giving a classic sign that it expects a slowdown: Yields on longer-term securities have been below yields on shorter-term securities in recent months, a so-called rate inversion.

The 10-year Treasury note yield, for example, was 4.59% on Friday, 0.1 point less than the yield on six-month T-bills.

Normally, longer-term securities pay more. Historically, when inversions have occurred, they often have been preludes to economic weakness: Investors were willing to lock in less on longer-term securities because they figured all interest rates would be dropping soon because of a slowing economy.

This time, however, many on Wall Street say longer-term bond yields are being held down by pension funds and insurance companies worldwide that have voracious appetites for long-term, fixed-rate securities, as they seek to better match up their assets with what they'll owe retiring baby boomers over the next few decades.

Case in point: The government last week sold new 30-year T-bonds at a yield of 4.53% — well below yields on 10-year T-notes and those on shorter-term issues.

[Ichiro]

FOREX-German GDP caps euro's gains, ZEW data eyed
Tue Feb 14, 2006 4:01 AM ET16


By Veronica Brown

LONDON, Feb 14 (Reuters) - The euro pared earlier gains against the dollar on Tuesday after data showed Germany's economy unexpectedly ground to a halt in the final months of 2005, leaving investors to wait for more data later in the day to gain a clearer picture of activity in the euro zone.

The dollar stayed in sight of a six-week high against the euro but fell against the yen ahead of Federal Reserve Chairman Ben Bernanke's appearance before the U.S. Congress on Wednesday and Thursday that could yield clues about how much higher U.S. interest rates will climb.

After a below-consensus reading of French gross domestic product data last week, preliminary data showed Germany's GDP economy was unchanged compared with the previous quarter, after expanding by 0.6 percent in the July through September period, the Federal Statistics Office said.

Analysts said the data would not derail overall expectations for the German economy, while eurozone government bond dealers said the data was unlikely to significantly erode expectations for monetary tightening by the European Central Bank next month.

"If people are looking for excuses as to why the European Central Bank may feel their hands are a little tied in the short-term (on rates) they could use this, but I think there's a whole wealth of information suggesting that things are on the mend," Ian Gunner, head of foreign exchange research at Mellon Bank, said.

"There's plenty of evidence to show that output is picking up strongly, manufacturing orders and output numbers -- I don't think this is really going to disturb market consensus that the German economy will continue throughout the course of this year," he added.

Germany's ZEW Centre for European Economic Research's indicator of economic sentiment for February , due at 1000 GMT, is forecast to read 71.0, the same as January when it hit its highest level in two years.

At the same time, an initial estimate of euro zone Q4 GDP is expected to show the bloc's economy expanded 0.3 percent in the fourth quarter, giving a year-on-year rate of 1.7 percent.

By 0844 GMT, the euro was at $1.1914 <EUR=>, up 0.08 percent on the day, but not far from the six-week low of $1.1875 struck on Monday. The single European currency was fetching 139.70 yen <EURJPY=>, down over a third of a percent on the day.

The dollar was buying around 117.19 yen <JPY=>, down more than half a yen from the level in late New York trade. Continued ...

© Reuters 2006. All Rights Reserved.

[Ichiro]

Mainichi Daily---14 Feb 06.

Dollar drops amid expectations that Japan will soon change monetary policy

The dollar edged lower against the yen Tuesday in Asia as players bought back the Japanese currency amid expectations of an imminent change in policy by Japan's central bank.

The U.S. dollar was trading at 117.38 yen by mid-afternoon in Tokyo, down 0.34 yen from late Monday in New York. The euro rose to US$1.1909 from US$1.1907 late Monday.

"Expectations that the Bank of Japan will soon exit from its quantitative easing policy and the interest-rate differential will eventually start to form the background" to Tuesday's movements, said Hidenori Kato, head of spot foreign exchange at Societe Generale in Tokyo.

The Bank of Japan has pledged to start tightening money supply and then raise interest rates when deflation finally stops.

Last week, the central bank said it was keeping its ultra-loose monetary policy unchanged, but suggested that the nation is emerging from years of deflation, or a state of declining prices.

On Tuesday, the U.S. currency fell to a session low of 117.35 yen. The yen looked set to gain more as Japanese investors prepared to repatriate coupon payments on U.S. Treasury bonds due to be made Wednesday, traders said.

Small-lot selling of dollars by Japanese exporters also pushed the dollar lower in Asia, while some traders said short term-focused players had attempted to trigger stop-loss orders believed to lie at 117.30 yen.

"The due date for coupon payments is close, and players already covered some of their dollar-short positions last night. So after the market tried the downside again today the rebound seemed weaker than yesterday," said Takeshi Iba, head of Tokyo forex at Calyon Bank.

Traders said the yen also gained ground against the euro, the Australian and New Zealand dollars, and sterling.

The dollar was mostly higher against other Asian currencies, rising to 15,928 Vietnamese dong from 15,926 the previous day, and to 39.355 Thai baht from 39.210. It fell to 969.8 South Korean won from 976.0.

February 14, 2006

[Ichiro]

AP
Chinese Officials Defend Currency Policy

Tuesday February 14, 12:04 pm ET

Chinese Officials Defend Currency Policy, Say Beijing's Treasury Purchases Aid U.S.

SHANGHAI, China (AP) -- China's currency policy is not responsible for the country's growing trade surplus, a central bank official said Tuesday, defending the country's foreign exchange controls.

Meanwhile, a senior Commerce Ministry official argued that Beijing's purchases of Treasuries aid the U.S. economy, and that China's exports are keeping U.S. prices down.

Wu Xiaoliang, a People's Bank of China vice governor, said the yuan, whose value is tightly controlled by the central bank, was not responsible for the surge in China's trade surplus, which more than tripled to $101.9 billion last year.

Later in the day, Washington announced it will step up enforcement of U.S. trade laws governing China, following a top-to-bottom review of America's trading relationship. A new chief counsel for China trade enforcement within the office of U.S. Trade Representative Rob Portman will head the increased enforcement.

China's burgeoning trade gap with the U.S. has led some lawmakers to call for the administration to get tough with China over what they believe are unfair trading practices, including currency manipulation.

Wu reiterated the central bank's stance that it plans no more one-off revaluations of the yuan following a 2.1 percent adjustment in July that shifted the currency's value to 8.11 yuan per dollar.

Recent advances in the yuan's value, which since July has been linked to a basket of currencies instead of just the dollar, were due to market supply and demand, Wu told Dow Jones Newswires on the sidelines of a business conference in Beijing.

The dollar closed at 8.0485 on the automatic price matching system on Tuesday. The yuan has now gained about 0.8 percent against the dollar since the July revaluation.

Wu said that China aims to balance its exports and imports, but that should be done through structural changes.

Meanwhile, Yi Xiaozhun, a vice minister of commerce, told the conference that China's massive purchases of U.S. Treasuries are helping to relieve America's fiscal deficit and to stabilize prices.

"Without China's goods exports, the U.S. CPI (consumer price index) should have risen about two (more) percentage points," Yi said.

Yi said China has bought about 40 percent of newly-issued U.S. Treasuries in recent years. By the end of last year, the amount could have reached around $300 billion, from around $200 billion in 2004, he said.

The U.S. reported last Friday that its trade deficit with China rose to a record $201.6 billion last year, the highest deficit ever recorded with any country and 24.5 percent above the previous record of $161.9 billion set in 2004.

The growing imbalance has renewed pressure from American lawmakers and some industry groups for bigger and faster adjustments in the yuan's value.

Critics contend that the yuan is undervalued by as much as 40 percent, giving Chinese exporters an artificial price advantage overseas.

Official data released Monday showed China's trade surplus was $9.5 billion, down from $11 billion in December but well above the $6.5 billion surplus reported a year earlier.

[Ichiro]

Tokyo volatility sets uncertain tone for global markets

By FT.COM
Published: February 13, 2006

The volatile Tokyo stock market suffered another heavy fall on Monday, setting an uncertain tone for other equity markets.

Metal prices also swung strongly amid strong speculative activity while currency and bond markets trod carefully ahead of key testimony on rates this week by new US Federal Reserve chairman Ben Bernanke.

The Nikkei 225 Average dropped 2.3 per cent to 15,877.66, its first close below 16,000 since January 26. The broader Topix index lost 2.5 per cent to 1,618.01.

The Nikkei has now fallen 3.2 per cent since Thursday's close after comments from the Bank of Japan hinted at end to the central bank's ultra-loose monetary policy amid a recovery in the country's economy.

There was further evidence of Japan's economic upturn yesterday with news that its current account surplus rose unexpectedly in December from a year earlier, helped by a recovery in exports. On Friday, data are expected to show that Japan's economy grew by 1.2 per cent in the December quarter, or an annualised 5.0 per cent, according to consensus forecasts. That would be the fourth straight quarter of growth.

"The recovery in the Japanese economy is picking up an impressive head of steam - an extraordinary re-awakening for Asia's long-slumbering giant,'' said Stephen Roach, economist at Morgan Stanley. "As the momentum of its economic recovery builds, the world economy will benefit from a long-overdue restarting of another growth engine." However, Nomura warned there could be a "short-term correction phase" in the Japanese stock market.

"After stock market gains in excess of 40 per cent in 2005, we think Japanese stocks have reached the point where a slackening in the pace of upward momentum is called before," said Seiichiro Iawasawa, Nomura strategist.

He said a propensity by domestic investors to buy on weakness meant stock prices were likely to stay firm. However, they would not resume their upward trend in earnest until there was greater certainty over earnings outlook from April onwards.

Elsewhere, US shares fell, weighed down by speculation that the US Federal Reserve might raise its benchmark Fed Funds interest rate to beyond 5 per cent.

By midday, the Dow Jones Industrial Average was 4 points lower at 10,915.37. while the S&P 500 index was 0.1 per cent down at 1,265.57. The Nasdaq Composite, hit by weakness in Google, dropped 0.7 per cent to 2,246.99.

Economists were awaiting US retail sales data today for fresh clues on inflationary pressures, along with Mr Bernanke's debut in his new role. Mr Bernanke will deliver the Fed's semi-annual monetary policy report to the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.

The Fed has already raised the Fed Funds rate by 14 times since June 2004 to 4.5 per cent. The rate-setting Federal Open Market Committee next meets on March 27 and 28.

"Bernanke will signal a March hike and do the mandatory fretting about inflation in his Congressional testimony...However, beyond that he might not be able to give much guidance," said Rabobank.

Merrill Lynch has adjusted its forecasts for US economic growth. The bank still saw GDP growth of 2.7 per cent in 2006, a slowdown from the 3.5 per cent in 2005. However, it has changed the quarterly profile of its forecasts for growth in 2006.

First-half growth is expected to average just over 3 per cent and then slow to around 2 per cent in the second-half. Merrill Lynch then forecasts 2.3 per cent growth in 2007. European shares had a better day, led by a resurgent Volkswagen which extended its gains over two-sessions to 15 per cent on the back of restructuring news. The FTSE Eurofirst 300 index closed 0.6 per cent up at 1,332.88.

Gold dropped more than $6 in early trade before bouncing back above $550 an ounce. But it slipped again on profit-taking to an intra-day low of $542.55. Copper and aluminium also fell sharply but rallied later and held on to the gains.

[Ichiro]

AP
Japanese Stocks Fall

Wednesday February 15, 3:01 am ET

Japanese Stocks Fall, Dragged Down by Tech and Airline Issues

TOKYO (AP) -- Japanese stocks fell Wednesday for the third day in four as traders sold off technology and airline issues.

Uncertainty weighed on the Tokyo market ahead of October-December gross domestic product figures due Friday. Investors will be looking for further signs that the nation's economic recovery is for real.


The Nikkei 225 index fell 252.04 points, or 1.56 percent, to 15,932.83 points on the Tokyo Stock Exchange. Stock rose Tuesday but had fallen Monday and Friday.

Stocks opened higher on gains overnight on Wall Street, but lost steam by mid-afternoon.

Traders sold technology issues such as Toshiba Corp., which fell 5.6 percent to 685 yen ($5.82).

Other decliners included All Nippon Airways, which dipped 5.2 percent to 441 yen ($3.75) following Tuesday's announcement to raise around 110 billion yen ($935 million) by issuing new shares.

The broader TOPIX, which includes all issues on the TSE's first section, fell 10.96 points, or 0.67 percent, to 1,624.28 Wednesday.

On Tuesday in New York, the Dow rose 136.07, or 1.25 percent, to 11,028.39, its first foray past 11,000 since Jan. 12, while the Nasdaq composite index rose 22.36, or 1 percent, to 2,262.17.

In currency trading, the dollar bought 117.60 yen on the Tokyo foreign exchange market at 3 p.m. (0600 GMT) Wednesday, up 0.23 yen from late Tuesday in New York. The euro was little changed at $1.1918 from $1.1917.

The yield on the 10-year Japanese government bond fell to 1.5650 percent from Tuesday's close of 1.5900 percent. Its price rose 0.21 point to 100.29.

[Ichiro]

Daily FX

Big Day Ahead for Dollar – TIC and Bernanke

Tuesday February 14, 5:22 pm ET

By Kathy Lien, Chief Strategist strategist@dailyfx.com

• Big Day Ahead for Dollar – TIC and Bernanke
• Euro Rallies Despite Sharp Drop in ZEW
• British Pound Weakens as Inflation Dips Below 2% Target

US Dollar
Stronger US economic data has helped the trade weighted dollar end the day virtually unchanged. Retail sales staged an exceptionally strong recovery, rising 2.3 percent in January after increasing a modest and downwardly revised 0.4 percent the previous month. This is the biggest rise in sales that we have seen since May 2004 and best yet, the sales excluding autos component also hit a 6 year high. The US consumer continues to buy up everything in sight, which means that regardless of whether this behavior is sustainable or not, in the immediate future, it means that we could see a nice pop in first quarter GDP. A strong rise in the figure due out on in April will help traders completely forget about the horrid number released last month. Sales have been strong thanks to record mild temperatures and lower gasoline prices. The new Fed Chairman Ben Bernanke now has some ammo under his belt when he ascends Capitol Hill tomorrow if he chooses to give some sort of validation that there could be one more rate hike in May. His much awaited semi-annual testimony to Congress on the economy and monetary policy is this week’s main event. Notonly are we going to be listening carefully to his assessment of how the risks to the economy and inflation are tilted, but also to his responses during the question and answer session – expect Bernanke to be grilled. Greenspan mastered the art of tactfully answering questions while managing market expectations during his tenure, which will make it particularly interesting to see whether the usually clear speaking economist will be able to do the same under such intense pressure. Aside from Bernanke’s speech however, we should not lose sight of the fact that the net foreign security purchases, also known as the Treasury International Capital (TIC) flow report is also due for release. After rising $89.1 billion in December, purchases are expected to increase by another $76.2 billion, still more than enough to cover the trade deficit. Unless we see foreign purchases sink below $60 billion, we expect the TIC report to be a non-event. Yet, market volatility in the dollar can also come from the Empire State manufacturing survey, the industrial production report or the NAHB housing market index. So clearly, tomorrow will be quite a day and it is no coincidence that many currency pairs are also at a crossroad and looking to tomorrow’s developments for direction.

Euro
The Euro rebounded slightly against the dollar today despite another dose of weaker economic data. The market had expected German GDP growth to increase by 0.2 percent in the fourth quarter, but instead growth was flat. The ZEW survey of economic sentiment also dropped from 71.0 to 69.8. The only glimmer of hope was that the current conditions component remained unchanged at -19.5. This was actually taken as positive since the market had expected that component to drop to -28. In the Eurozone as a whole, GDP growth slowed to an as expected 0.3 percent from 0.6 percent. The ZEW survey of economic sentiment fell modestly to 66.0 from 66.1. Overall, we see that conditions and sentiment in Europe is deteriorating, led primarily by a slowdown in Germany. However in the grand scheme of things, this will still not prevent the European Central Bank from moving forward with their plan to raise interest rates. Eurogroup Chairman Jean-Claude Juncker joined the chorus of ECB officials hinting to the market that their expectations for a March rate hike are valid. He noted that the ECB will probably do as the market expects. We already mentioned on numerous occasions that the ECB’s justification for a rate hike in the context of weak economic data comes from the fact that they are looking ahead. As the strength in the Euro has led to the recent downturn in the economy, the present weakness of the Euro should help stimulate the economy extensively and possibly even so much that the ECB feels the need to be preemptive by tackling problems before they surface.

British Pound
Once again, the British pound has been unable to join the EUR/USD in rallying today. Weaker inflation figures have given sterling bears support to question the possibility of a rate cut by the Bank of England once again. The market has been juggling the thought of whether the BoE will continue to remain neutral or as some have forecasted lower rates sometime over the next few months. Tomorrow’s Bank of England Quarterly Inflation report might be able to help us answer this question. Meanwhile CPI fell 0.5 percent in the month of January, bringing the annualized rate to 1.9 percent, which is the first time it is below the central bank’s 2 percent target since May. This is quite a big surprise and should definitely deal a blow to those expecting interest rates to remain at 4.50 percent for the remainder of the year, especially considering that the original forecast was for annualized inflation to increase from 2.0 percent to 2.1 percent.

Japanese Yen
For the third consecutive day, the Japanese Yen licked its wounds and continued to recuperate its losses against the dollar. The Nikkei has also staged a strong recovery after experiencing a triple digit sell-off the previous day. Like the rest of the world, interest rate expectations are the biggest focus for traders at the moment. The Japanese government still seems to be reluctant in allowing the Bank of Japan to remove its quantitative easing, which means that for the most part, the US dollar will continue to drive the direction of the currency pair. Japan’s fourth quarter GDP report is due out on Thursday, which is Japan’s key economic release for the week and could deliver us some interesting price action. The market is setting the bar high and expects growth to have been exceptionally strong in the last few months of 2005.

[Ichiro]

GLOBAL MARKETS-Waiting for interest rate clues from Bernanke
Wed Feb 15, 2006 6:57 AM ET

By Christina Fincher

LONDON, Feb 15 (Reuters) - European stocks moved in a narrow range and the dollar paused near a six-week high against the euro as investors awaited U.S. Federal Reserve chief Ben Bernanke's first testimony before Congress later on Wednesday.

News for .FTSE
GLOBAL MARKETS-Waiting for interest rate clues from Bernanke
European stocks - Factors to watch on Feb 15
UK Stocks -- Factors to watch on Feb 15


The Fed chairman's semi-annual testimony will be examined even more intently than usual as financial markets size up the man who took over from Alan Greenspan just two weeks ago and search for clues on how high U.S. interest rates are likely to rise. Bernanke is widely expected to establish his anti-inflation credentials, hinting that markets are justified in expecting U.S. rates to rise to 4.75 percent next month.

"The markets expect that Bernanke will be upbeat about the economic outlook," said Monica Fan, global head of foreign exchange strategy at RBC Capital Markets.

However, with futures markets already almost fully discounting U.S. rates rising to 5 percent by September, she said the new Fed chief would need to hint at even more aggressive monetary tightening to boost the dollar. The dollar was steady at $1.1915 to the euro <EUR=>, holding close to six-week highs hit on Tuesday after data showed U.S. retail sales rose almost three times as strongly in January as expected.

The dollar changed hands at 117.60 yen <JPY=>, also little changed on the day.

STERLING SHINES

With major currencies trapped in a tight range, sterling stole the spotlight, rebounding from a six-week low against the dollar after the Bank of England gave no indication it was seeking to cut interest rates.

In its quarterly inflation report, the central bank said Britain's inflation rate would probably stick close to its two percent target over the next two years and growth was expected to pick up in the near term.

The report wrong footed many in the market, lifting sterling more than half a cent to session highs above $1.7390 <GBP=>.

Short sterling futures fell sharply as investors unwound bets that British interest rates would be cut in the coming months.

"The market was looking for a slightly more dovish tone to the report. It seems that they don't see the need to do much on rates and that's supporting sterling," said Daragh Maher, senior currency strategist at Calyon.

Britain's FTSE 100 <.FTSE> index shuttled in a narrow range as did the pan-European FTSEurofirst index <.FTEU3> with investors reluctant to extend recent gains ahead of Fed chairman Bernanke's speech.

Tuesday's surge on Wall Street was largely ignored by Asian stocks markets, with Tokyo's benchmark Nikkei stock average <.N225> closing down 1.56 percent.

U.S. stock futures are pointing to a weaker opening on Wednesday.

OIL RECOVERS FOOTING

Oil inched up towards $60 after sliding to its lowest level this year, as dealers anticipated a big jump in already healthy U.S. inventories.

U.S. March crude <CLc1> oil futures gained 30 cents to $59.87 after tumbling $1.67 on Tuesday to a low of $59.31. London April Brent crude <LCOc1> was up 34 cents at $59.86.

U.S. prices have lost about 12 percent since the end of January and analysts said the spotlight had swung away from supply disruption risks and back to fundamentals, particularly with robust stock levels seen in the United States.

"The market is expecting another significant jump in U.S. stocks later today, and this focus has pushed geopolitical uncertainties off to the side, for now at least," said David Thurtell, commodities strategist at the Commonwealth Bank of Australia.

Spot gold <XAU=> rose to $547.75 an ounce in Asia but eased in Europe as buying subsided.

Gold prices have been volatile in the past two weeks, hitting 25-year highs of $574.60 an ounce then retreating by $40 only to rebound again.
© Reuters 2006. All Rights Reserved.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq and all other quotes delayed by at least 15 minutes.
Reuters does not endorse the views or opinions given by any third party content provider.

[Ichiro]

Bernanke Tells Congress Fed May Need to Raise Rates (Update3)

Feb. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, in his first report to Congress, said the U.S. economy is in a sustained expansion that may require additional interest rate increases to restrain inflation.

``The economic expansion remains on track,'' he said in the text of testimony to the House Financial Services Committee. In addition to high energy prices, ``another factor bearing on the inflation outlook is that the economy now appears to be operating at a relatively high level of resource utilization.''

Bernanke described an economy that is in a durable expansion, using up available resources in productive capacity and labor markets. Additional rate increases may be necessary to keep inflation in check if economic data continue to come in stronger than expected, he said.

``The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately -- in the absence of countervailing monetary policy action -- to further upward pressure on inflation,'' Bernanke said.

Bernanke, 52, said he concurred with the assertion in the Fed's Jan. 31 policy statement that ``some further firming of monetary policy may be necessary.''

The Fed lifted its target rate 14 times since June 2004 to 4.5 percent, and Bernanke's remarks matched the expectations of traders who anticipated he would signal further increases. The yield on the two-year U.S. Treasury note held near a five-year high, at 4.69 percent at 11:57 a.m. in New York.

`Status Quo'

Bernanke became chairman two weeks ago, succeeding Alan Greenspan, who ran the central bank for almost two decades. The hearing is Bernanke's first opportunity to lay out the Fed's forecasts and describe his own approach as head of the world's most influential central bank. He endorsed Greenspan's risk-management approach, without using that term, and said policy must be conducted with ``rigorous analysis informed by sound economic theory.''

``More tightenings are in the pipeline,'' said Anthony Chan, chief economist at JPMorgan Chase & Co.'s private client services group in Columbus, Ohio. ``Bernanke is working very hard to promote continuity by maintaining to a large degree the status quo that was in place at the Federal Reserve.''

Dependent on Data

The transition of the chairmanship occurred with the economy in its fifth year of expansion, and with the unemployment rate at 4.7 percent in January, the lowest in more than four years. The government reported yesterday that retail sales rose 2.3 percent in January, the fifth straight monthly increase.

``It is clear that substantial progress has been made in removing monetary policy accommodation,'' Bernanke said in his text. Policy makers in coming quarters ``will have to make ongoing, provisional judgments about the risks to both inflation and growth, and monetary policy actions will be increasingly dependent on incoming data.''

The new Fed chairman cited the slowing housing market as one risk to the expansion, although he said a ``moderate softening'' seemed more likely than a ``sharp contraction.''

``There are some straws in the wind that housing markets are cooling a bit,'' Bernanke said in response to a question during his testimony. ``If the housing market does cool more or less as expected, that would still be consistent with a strong economy.''

Wagers on Rates

Sales volumes are slowing in the market for existing homes, and prices are lower for new dwellings. Sales of previously owned homes fell 5.7 percent to a 6.6 million annual rate of increase in December, the lowest since March 2004.

Economists expect new home prices to slide another 1.5 percent next year, according to the consensus estimate from a survey by Blue Chip Economic Indicators, following a 3.5 percent decline this year. A record 1.282 million new homes sold in 2005.

Traders in federal funds futures contracts are pricing in nearly a 100 percent probability that the U.S. central bank raises interest rates March 28, Bernanke's first meeting as chairman of the Fed's rate-setting Open Market Committee. Before today's testimony, futures markets had shown expectations for just one more rate increase in 2006 beyond March.

Low long-term interest rates have not risen in tandem with the 3.5 percentage point rise in the central bank's policy rate in 14 consecutive increases since June 2004.

Global Savings

Bernanke said the decline in long-term yields resulted from ``an excess of desired global saving'' in addition to lower perceptions of risk of ``unforeseen changes in real interest rates and inflation.''

Treasury notes maturing in 2 years yield 4.68 percent above the 4.61 percent yield on 10-year Treasury maturities, resulting in a so-called inverted yield curve. The 10-year note's yield is almost unchanged from 4.58 percent in June two years ago, when the Fed began the current series of rate hikes.

Fed officials still view persistently high energy prices, combined with a 4.7 percent unemployment rate, as an inflation risk, according to their statement and public remarks.

The central bank's preferred inflation benchmark, the personal consumption expenditures price index, minus food and energy, rose at a 2.2 percent annualized rate over the past three months, around the high end of the ranges of those policy makers who have expressed a preference.

``Inflation pressures increased in 2005,'' Bernanke said. ``Steeply rising energy prices pushed up overall inflation, raised business costs, and squeezed household budgets.''

Still, ``long term inflation expectations appear to have been contained.''

Energy Prices

Oil prices are up 30 percent over the past 12 months. Retail prices for unleaded gasoline are up 20 percent, according to the American Automobile Association.

Among the factors inhibiting the pass-through of energy prices into the prices of non-energy goods and services are ``advances in productivity as well as increases in nominal wages and salaries that, on balance, have been moderate.''

Despite moderate wage growth, ``the financial health of households appears reasonably good,'' Bernanke said.

Productivity, or output per hour, rose 2.7 percent last year, the slowest since 2001, following a 3.4 percent gain in 2004. Unit labor costs rose 2.4 percent last year, the most since 2000, after a 1.1 percent increase in 2004.

To contact the reporter on this story: Craig Torres in
Washington at ctorres3@bloomberg.net

Last Updated: February 15, 2006 12:10 EST

[Ichiro]

Dollar higher on rate hike expectations


By Wanfeng Zhou, MarketWatch

Last Update: 1:40 PM ET Feb 15, 2006

NEW YORK (MarketWatch) -- The dollar moved higher, but remained in narrow ranges Wednesday after new Federal Reserve Chairman Ben Bernanke signalled further interest rate hikes, but suggested they will become "increasingly dependent" on economic data

Speaking to the House Financial Services panel, Bernanke, in his first congressional appearance in his new role, said more rate hikes may be needed because of the threat of higher inflation from a strong economy and higher energy prices.

"In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur," Bernanke said.

"The speech is as expected. He opens the door basically for further interest rate hikes," said Ashraf Laidi, chief currency analyst at MG Financial Group. "It shows he totally agrees with the last FOMC statement that said short-term interest rates hikes "may" be needed."

Bernanke said economic growth remained on track despite the weak fourth-quarter GDP data. Even with high energy prices, core inflation "remained moderate, and longer-term inflation expectations appear to have been contained," he said.

The dollar fell immediately after Bernanke started speaking as some investors were disappointed he was not even more hawkish. It later recovered and was last trading up 0.3% at 117.98 yen. The euro was down 0.3% at $1.1877.
The Fed has lifted its benchmark overnight lending rates at each of its policy meetings since June 2004 to 4.5%. Financial markets have priced in two more Fed policy tightenings, to a 5.0% rate.

The rate increases have fueled the dollar's 15% bull run last year, but markets had begun to worry the dollar's yield advantage will shrink soon.

Bernanke said the Fed has come a long way in hiking rates and removing accommodation and that further monetary tightening will become much more dependent on the relative performance of the labor and housing markets.
Joel Ward, manager of the Joel Nathan ForexFund, said while Bernanke's testimony is positive in describing the general economic landscape, he didn't delve very much into the areas, namely, the current account deficit and trade balance, that are really going to drive the dollar in coming months.
With the markets focused on Bernanke's testimony, the dollar showed little reaction to a disappointing Treasury report which showed capital flows into the United States fell to $56.6 billion after hitting a revised $91.6 billion in November.

Elsewhere, the New York Federal Reserve said its Empire State Manufacturing index rose to 20.3 in February from 20.1 in January. The increase was unexpected. Economists were expecting the index to slip to 18.1.

U.S. industrial output fell 0.2% in January. The decrease in output in January was the opposite of the 0.2% gain expected by Wall Street economists surveyed by MarketWatch. End of Story

Wanfeng Zhou is a markets reporter in New York.

[Ichiro]

BOJ won't quickly raise rates-BOJ official quoted

Wed Feb 15, 2006 10:32 PM ET10



TOKYO, Feb 16 (Reuters) - The Bank of Japan will not immediately raise interest rates after ending its super-loose "quantitative easing" policy, a lawmaker from the ruling Liberal Democratic Party quoted a senior BOJ official as saying on Thursday.

"We do not believe that it will lead immediately to an interest rate rise," Kozo Yamamoto, head of an LDP panel on monetary policy, quoted the central bank official as telling the panel. Markets expect the central bank to end its quantitative easing policy of flooding the market with excess funds around April, and are looking for clues to future policy when the BOJ reverts to a traditional method centred on interest rates.

[Ichiro]

Bloomberg News

U.S. Considers Branding China as Currency Manipulator (Update1)

Feb. 15 (Bloomberg) -- U.S. Treasury officials are sounding out investors about the potential impact of naming China as a currency manipulator, people familiar with the situation said.

Treasury Undersecretary Tim Adams, in meetings in New York and Washington this month, has asked strategists, investors and academics to assess the likely reaction of financial markets in the event the department cites China in its semiannual report on exchange rates, the people said.

By talking to Wall Street firms before the report is completed, the Treasury is trying to minimize any disruption in currency, equity and bond markets, the people said. President George W. Bush's administration is under mounting pressure from Congress to act against China, which some legislators say is keeping the yuan artificially weak to spur demand for its exports.

``If the market saw the report as an end-game move toward a trade war with China, stocks and the dollar would fall a lot,'' said David Gilmore, a partner in consultants Foreign Exchange Analytics in Essex, Connecticut.

A spokeswoman from China's central bank declined to comment. Chinese policy makers have repeated that investors are now setting the yuan's level. People's Bank of China Assistant Governor Ma Delun said in an interview last month that the market is determining the rate.

Exports helped China's economy double in size in the past decade, vaulting it ahead of the U.K. last quarter to become the world's fourth largest. Exports also swelled the U.S. trade deficit with China to a record $201.6 billion, spurring calls among legislators for sanctions.

Snow

Treasury Secretary John Snow ``should call it like it is,'' Senate Banking Committee Chairman Richard Shelby, an Alabama Republican, said in an interview in Washington on Feb. 8. ``If the Chinese are manipulating the currency, as I believe they are, and he's got evidence of that, then he should say so.''

U.S. Trade Representative Rob Portman said yesterday in a review of trade policy toward China that the country must drop all barriers to American exports.

`Outreach'

Treasury spokeswoman Brookly McLaughlin declined to comment on the Treasury's conversations with market participants. ``Officials engage in frequent and ongoing outreach with various industry representatives, market experts and academics on a wide variety of topics,'' she said in an e-mail response to questions.

In its last currency report in November, Treasury didn't designate China as a currency manipulator, pointing to the country's July 21 announcement that it was revaluing, and severing the yuan's peg to the dollar.

The yuan has appreciated less than 0.8 percent since China revalued the currency 2.1 percent in July and began managing it against a basket of currencies, including the euro and yen. The biggest daily fluctuation has been less than 0.1 percent.

China's currency today rose 0.02 percent to 8.0469 per dollar in Shanghai, according to data compiled by Bloomberg. It will strengthen to 7.8 versus the dollar by year-end, according to a Bloomberg survey between Dec. 28 and Feb. 1.

Treasury hasn't determined whether China is manipulating its currency, the people said. The administration may still balk at the description, said Morris Goldstein, a senior fellow at the Institute for International Economics in Washington.

``What they do is to make a judgment, all things considered, whether it is in the U.S. interests to name,'' Goldstein said. Other considerations may include the need to secure China's help in persuading Iran to abandon its nuclear program, he said.

China's economy grew 9.9 percent last year, the fastest among the world's major economies. Exports surged 28 percent, accounting for about 40 percent of the $2.3 trillion economy, the government said on Jan. 25 in Beijing.

`Sizzling' Economy

``That economy is sizzling, and we take that into consideration in our negotiations with them,'' Adams said in an interview in Davos, Switzerland, on Jan. 24. ``It does make it more complicated for them to say whatever we've asked them to do is detrimental to growth.''

The trade shortfall with China has more than doubled since 2000. Lawmakers including Senator Charles Schumer, a Democrat from New York, and Lindsey Graham, a Republican from South Carolina, are backing legislation that would punish China with tariffs if it doesn't make the yuan more flexible.

Graham and Senator Byron Dorgan, a North Dakota Democrat, have introduced a bill that would force an annual vote over maintaining normal trade relations with China.

More Compelling

The record annual deficit with China makes ``legislation all the more compelling,'' Dorgan said in a statement on Feb. 10. He called the shortfall with China ``disturbing.''

China was last singled out in a report by the Treasury in 1994. The department has also previously cited Taiwan and South Korea.

Under a 1988 law, Treasury is required to consider twice a year whether countries are pursuing exchange-rate policies ``for the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.''

The law requires that, if the administration does determine countries are breaching U.S. rules, it must hold talks with those governments on adjusting exchange rates ``to eliminate the unfair advantage.''

To contact the reporter on this story:
Rich Miller in Washington rmiller28@bloomberg.net

Last Updated: February 15, 2006 04:29 EST

[Ichiro]

Mainichi Daily Newspaper--16 Feb 06

Japanese stocks gain ahead of fourth quarter GDP report

Japanese stocks rose Thursday morning, recovering from early losses, with investors awaiting Friday's fourth quarter economic growth figures for further signs that a long-awaiting economic recovery is on track.

The Nikkei 225 index gained 111.28 points, or 0.7 percent, to 16,044.11 at the end of morning trading on the Tokyo Stock Exchange shortly. The index fell 252.04 points, or 1.56 percent, the day before.

With most company's earnings reports done, investors have been focusing on October-December gross domestic product figures to be released Friday morning. Analysts polled by Dow Jones Newswires project quarterly growth to rise 4.8 percent at an annual pace.

The market fell at the opening but later moved into positive territory as investors snapped up blue-chip exporters such as autos, some technology stocks and pharmaceutical issues. Banking issues also rose.

Gainers so far included Toyota Motor Corp., Canon Inc., as well as Takeda Pharmaceutical Co. and Mitsubishi UFJ Financial Group Inc.

Overnight in New York, stocks rose modestly after new Federal Reserve Chairman Ben Bernanke's testimony before Congress. He said inflation is contained, but warned it coJuld tick higher. He left the door open to future interest rate increases. But he was upbeat about the U.S. economy, saying the latest employment and consumer spending data "suggests that the economic expansion remains on track."

The Dow Jones industrial average rose 30.58, or 0.28 percent, to 11,058.97 while the Nasdaq composite index rose 14.26, or 0.63 percent, to 2,276.43.

The broader TOPIX, which includes all issues on the TSE's first section, rose 5.18 points, or 0.32 percent, to 1,629.46.

In currency trading, the U.S. dollar was trading at 117.85 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Thursday, down 0.01 yen from late Wednesday in New York.

The euro slipped to US$1.1883 from US$1.1888 late Wednesday in New York.

The yield on the 10-year Japanese government bond fell to 1.5450 percent, from Wednesday's close of 1.5650 percent. Its price rose 0.17 point to 100.46.

February 16, 2006

[Ichiro]

MOneynews---16 Feb 06

Expert: China to Dominate 21st-Century Investing

China will be the place to go for portfolio growth over the next few years, according to a report in The Royal Gazette, Bermuda's only daily newspaper.

Jim Rogers, who co-founded the Quantum Fund with George Soros, was visiting the British territory, where he gave a speech at the Society of Bermuda's Fifth Annual Forecast Dinner last week.

He noted that "China is going to be the next great country whether we like it or not, and the 21st century is going to be the century of China. They call themselves communists in China, but they are among the world's best capitalists," the newspaper reports.

Rogers, who lived in China from 1999 to 2002, says that the country is huge, with a booming middle class that sets the tone for the nation's economic growth.

"In China they save and invest over 35% of their income and they are willing to work as hard as necessary to live the way we do, and the single best advice I can give you is to teach your children and grandchildren Chinese."

So where should one invest in China? Roger says that raw materials and natural resources are a good bet.

"Commodities have been the best place to be for quite a few years now, and if you are going to diversify, the best thing to have is some commodities," he told the Bermudan audience.

"In most parts of the world in 2006, you don't drink the water, so investment lesson No. 1 is that anybody who can come up with a solution to the world's water problems is going to be unbelievably rich."

[Ichiro]

apan And China: Two Trade Deficit Culprits

Carl Delfeld, Chartwell Advisor, 02.16.06, 11:00 AM ET





COLORADO SPRINGS, COLO. - According to the Commerce Department, the trade deficit with China was $201 billion in 2005, or 28% of America’s total deficit of $726 billion. Our 2005 trade deficit in petroleum products was an even larger $210 billion, but the China number will certainly get the most political attention and this eye-popping figure is sure to get the China trade hawks riled up. But if you look behind the numbers, the trade imbalance with Japan is likely larger than China.

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Here's why. China customs data indicate that about 60% of China’s exports come from foreign companies manufacturing and assembling in China. Even if we knock this number down to 50%, this is still equal to $100 billion worth of China’s exports last year. According to research from my think tank, ChartwellAmerica, the vast majority of these so-called Chinese exports are controlled by Taiwanese, South Korean, American and Japanese firms.

For example, about 75% of manufacturing output by Taiwanese companies takes place in China. Samsung has 23 factories in China and closed down its last notebook plant in South Korea last year. Japan’s Panasonic has 70,000 employees working in China.

This is why I have been recommending clients have allocations to the Taiwan, South Korea and Japan iShares in order to capture this growth in their global portfolios.

A major reason for Japan’s economic recovery can be attributed to its booming exports to China, of which a major slice goes on to America. China has now replaced America as Japan’s largest trading partner.

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If we conservatively assume that 25% of $100 billion of foreign-controlled Chinese exports are from Japanese companies in China and add that to Japan’s 2005 trade surplus with America of $82.7 billion, this brings the number to $107.7 billion. That's higher than China’s number stripped of its foreign company exports.

The Japan imbalance is often explained by its weak economy and consumer demand, but it is amazing that the deficit has stubbornly persisted and that American firms have still been unable to penetrate the second largest economy in the world. Because of the huge imbalance in wages between China and the U.S., a bilateral trade imbalance seems logical. But why one with Japan where wage levels are roughly comparable to those in the U.S.?

Japan’s weak yen policy is certainly a key issue. Japanese manufacturers are loath to see the yen get stronger as it will put pressure on their pricing advantage.


Even if you are skeptical of the trade data, it is hard to argue that more American exports, particularly of manufactured goods, will not raise American growth rates, lessen our dependence on foreign capital (China’s and Japan’s central banks financed 40% of our 2005 deficit) as well as raise wages. Let’s work relentlessly to open new markets and not be shy about using our leverage as the largest consumer market in the world. Rather than bilateral trade pacts with smaller countries that will have only a small impact on our economy, let’s tackle China and Japan head on.

Meanwhile, back on the home front, the enactment of a flat tax has to be the top priority. It will work wonders to spur economic growth, innovation, higher levels of savings and investment, less dependence on foreign capital and, yes, higher levels of exports.

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor. He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor. Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor.

[roguewave]

Ichiro, my apologies for not getting back to you about how I might perceive the future in terms of these markets. I post the article below to provide some backdrop for my comments.

I'm from the school of thought which suggests that there are two economies in our country that do not regress or correlate very much, if, at all. The PHYSICAL economy and the FINANCIAL economy represent these economies. I think the article below is very indicative of what is really transpiring in the "Real" economy. Productivity in this country has been going down for a very long time despite all the myths and jobs are continuing to be exported as a solution for cutting costs and being "competitive". This does not represent positive economic growth as suggested by the parrots on bubblevision. I believe you are wanting me to comment on the FINANCIAL economy which is represented by currency and derivatives of currency as reflected in our debt and equity markets and markets throughout the world that have become very dependent on each other.

I think we're entering a period of extreme volatility in all markets reflecting the fact that globalization is coming to an end where countries begin to focus inward more then abroad. As this process begins to gain more momentum, you will begin to see all markets abroad and here become very roiled to the point where it will be difficult to look at a chart and try to guess the direction. Real value players will be acquiring commodities while the rest will be chasing dreams of the not to distant past and will be very disappointed as this process corrects itself back to an economic model built on savings and real capital investment as opposed to debt and financial investment. Two very different economic models.

I've been in commodities for the past six years and see no reason to change my investment philosophy going forward. For the DOW to reflect real value to date compared to commodities over the last five plus years the DOW would have to be trading in the low to mid 20,000+ range so it has a ways to go and if it should approach these levels I'm betting commodities will more then surpass it in terms of overall return. Here's an interesting correlation or prediction that I will make, if the DOW should approach these levels, unemployment in this country will be at about 12% to 15% reflecting a tale of two very different economies. Good luck with your investment choices.



Forget Iran, Americans Should be Hysterical About This


http://counterpunch.com/roberts02112006.html

By PAUL CRAIG ROBERTS

Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of MBG Information Services, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you don’t know what worry is.

Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That’s one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.

Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.

US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers have written to me that they cannot even get Wal-Mart jobs because their education makes them over-qualified.

[Ichiro]

AP
Japan Stocks Rebound After 2 Days' Losses

Monday February 20, 10:11 pm ET

Japanese Stocks Rebound After Two Days of Losses on Rekindled Foreign Interest

TOKYO (AP) -- Japanese stocks rebounded Tuesday on rekindled demand among foreign investors and on news that real estate companies are planning to hike office rents, another sign the economy is emerging from deflation.


The Nikkei 225 index jumped 281.05 points, or 1.82 percent, to 15,718.98 points on the Tokyo Stock Exchange at the close of morning trade Tuesday. The index shed 275.52 points, or 1.75 percent, to 15,437.93 the previous day.

Pre-market buying via foreign brokerages before the market opened Tuesday outweighed selling for the first time in 10 sessions, helping to boost investor sentiment after two straight sessions of losses.

A report in Japan's leading business newspaper the Nihon Keizai that the government is likely to upgrade its economic assessment and that real estate firms are planning office building rent hikes is also rekindling hopes that the economy may be coming out of deflation.

The news helped lift banks and real estate stocks. Winners included real estate developer Mitsui Fudosan Co., up 5.25 percent to 2,305 yen (US$19.45), and Sumitomo Mitsui Financial Group Inc., up 2.45 percent to 1.25 million yen (US$10,550).

The broader TOPIX, which includes all issues on the exchange's first section, was up 26.71 points, or 1.70 percent, to 1,598.82 midday Tuesday. Gainers outnumbered losers 1,267 to 353. On Monday, the TOPIX lost 33.22 points, or 2.10 percent, to 1,572.11.

In currencies, the U.S. dollar was trading at 118.53 yen on the Tokyo foreign exchange market at 11 a.m. (0200 GMT) Tuesday, up 0.34 yen from late Monday in London.

The euro fell to US$1.1929 from US$1.1945 late Monday in London.

The yield on the 10-year Japanese government bond rose to 1.5400 percent, up from Monday's close of 1.5150. Its price fell 0.25 to 100.51.

[Ichiro]

TOKYO, Feb 21 (Reuters) - The dollar hugged well-worn ranges on Tuesday as the market awaited direction from the minutes of the Federal Reserve's latest policy meeting and from U.S. consumer price data.

For clues about the central bank's thinking, the market will scrutinise minutes of the Jan. 31 Federal Open Market Committee meeting, due at 1900 GMT.

"The question is how far the Fed will go with its rate hikes," said a trader at a Japanese bank. "In that sense, consumer price data will be really important."

A strong reading for the U.S. consumer price index in January -- due on Wednesday -- could cement expectations for more rate rises, dealers said.

As of 0100 GMT, the dollar was trading at 118.45 yen <JPY=>, up from around 118.25 yen in late European trade on Monday, but within its 117-119 yen range of the past month.

U.S. financial markets were closed on Monday for a national holiday.

The euro was little changed at $1.1935 <EUR=> and 141.25 yen <EURJPY=R>.

Expectations that the Fed will raise rates at least twice by the middle of the year helped to push the U.S. currency to a six-week high against the euro last week.

Although the latest Fed meeting was chaired by former Chairman Alan Greenspan rather than the current chief, Ben Bernanke, the market is very interested in the views expressed at the gathering, traders said.

[Fivetears]

Forget Iran, Americans Should be Hysterical About This
http://counterpunch.com/roberts02112006.html

I figured out where all the new jobs are! They're here in San Antonio! Homes are going up like wildfire! Tens of thousands! The jobs are CONSTRUCTION! We're building track houses... for the people who build track houses... for the people building track houses! Did I mention Highway Construction? We're building track houses for the people who build roads and highways, for the people building track houses; to get to the new track houses! It's... PERPETUAL KINETIC growth. :eek:

On a serious note... the article was a good read too; and I agree.

[Gilligan]

I figured out where all the new jobs are! They're here in San Antonio! Homes are going up like wildfire! Tens of thousands! The jobs are CONSTRUCTION! We're building track houses... for the people who build track houses... for the people building track houses! Did I mention Highway Construction? We're building track houses for the people who build roads and highways, for the people building track houses; to get to the new track houses! It's... PERPETUAL KINETIC growth. :eek:

On a serious note... the article was a good read too; and I agree.

Don't forget about the track houses for the construction workers building the new Toyota Plant to supply the trucks to commute the track house workers to build the track houses for the track house builders moving in.

[Fivetears]

Don't forget about the track houses for the construction workers building the new Toyota Plant to supply the trucks to commute the track house workers to build the track houses for the track house builders moving in.
You Nailed It! Pardon the pun.:D
Toyota in NASCAR; Toyota in San Antonio.
Next... Toyota in the Presidential Motorcade in Crawford.

[Ichiro]

Yen Gains as BOJ's Fukui Gives Positive Signals on Policy Shift

Feb. 23 (Bloomberg) -- The yen rose the most in two weeks after Bank of Japan Governor Toshihiko Fukui said a seven-year bout of deflation has almost ended and the central bank will ``gradually'' raise interest rates from zero percent.

The central bank will ``immediately'' reduce the amount of cash pumped into the financial system, a precursor to raising rates, when it is convinced of sustained inflation, Fukui told lawmakers today in Tokyo. The yen climbed against all of the 16 most-traded currencies that Bloomberg tracks.

``Fukui's comments are positive on a shift in policy, and we may even get rate hikes later this year,'' said Marios Maratheftis, a currency strategist at Standard Chartered Plc in London. ``That is positive for the yen.''

The BOJ, which has kept key rates near zero since 2001, is preparing to end its deflation-fighting policy after fourth quarter growth in the world's second-largest economy outpaced that of the U.S. and the dozen nations that share the euro. The Federal Reserve's key rate is 4.5 percent and the European Central Bank's benchmark borrowing cost is 2.25 percent.

The yen strengthened to 139.92 per euro at 8:30 a.m. in London from 141.23 late in New York. It traded at 117.57 against the dollar versus 118.54.

`Moment of Truth'

``The yen got its boost because Fukui's comments signaled the moment of truth is approaching,'' said Kenichiro Ikezawa, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd., a unit of Japan's second-largest brokerage. ``An end to the super-easy policy in April could be a done deal, and the bank may raise rates in the last six months of 2006.''

The central bank holds its next policy meeting on March 7-8. The yen may strengthen as much as 116.70 against the dollar today, Ikezawa said.

``Core consumer prices achieving stable gains are close at hand,'' Fukui told a parliamentary committee in Tokyo. The prices, which exclude fresh food and rose 0.1 percent in November and December, will show ``relatively clear gains'' in January, he said.

Three-month euro-yen futures indicate traders are betting the central bank will raise interest rates a quarter-percentage point in the last quarter of this year.

Contracts for December 2006 delivery yielded 0.505 percent, up from 0.415 percent three weeks ago.

The futures settle to a three-month Tokyo interbank lending rate that averaged about 0.51 percent when the BOJ kept its target for lending at 0.25 percent from Aug. 11, 2000, to Feb. 27, 2001, according to data compiled by Bloomberg.

Consumer Prices

Core consumer prices rose 0.1 percent from a year before both in November and December, the first back-to-back gains since April 1998. The government will release January's price index on March 3.

Higher interest rates in Japan may bolster the yen as local investors bring cash home to benefit from higher returns. The yen fell 13 percent versus the dollar last year as Japanese investors bought 16.6 trillion yen ($140.5 billion) of assets abroad.

The economy expanded at an annual 5.5 percent pace in the fourth quarter, up from a revised 1.4 percent in the third, a government report on Feb. 17 showed. The U.S. economy, the world's largest, grew at a 1.1 percent annual rate last quarter. The euro region expanded 0.3 percent in the fourth quarter from the third.

The yen also gained after the dollar failed to break through 119 versus the Japanese currency this week, after touching a high of 118.99. The currency last traded at 119 on Feb. 7.

'Sell the Dollar'

``People are looking for any reason to sell the dollar and buy the yen at a moment,'' said Michiyoshi Kato, vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``The upside of the dollar looks heavy after it failed to break through to 119 in the past couple of days.''

Japanese government bonds also fell after Fukui said the central bank will gradually raise rates to a ``neutral level.''

The yield on the benchmark 1.6 percent bond due December 2015 rose 3 basis points, or 0.03 percentage point, to 1.545 percent, according to Japan Bond Trading Co. Yields move inversely to price.

Investors reversed so-called ``yen carry trades,'' a strategy of borrowing in yen at low Japanese interest rates to invest in higher-yielding assets such as New Zealand bonds, said Keizo Tanaka, senior currency dealer in Tokyo at Resona Bank Ltd. Those trades had helped to depress the value of the Japanese currency.

`Reversal of Bets'

``The yen is benefiting from a reversal of bets on yen-carry trades on concern the New Zealand dollar will fall,'' Resona's Tanaka said. ``The unwinding of that trade also is going on amid speculation the central bank is getting closer to raising rates.''

Traders may buy the euro in anticipation a measure of German business confidence today will hold near a five-year high, bolstering speculation the ECB will keep raising interest rates after an expected increase on March 2.

The euro traded at $1.1908, from $1.1914 yesterday.

The Ifo confidence index, based on a monthly survey of 7,000 executives in Europe's largest economy, was probably 101.5 in February from 102 in January, a level last reached in May 2000, according to a survey of 20 economists by Bloomberg News. The survey reading has averaged 94 in the past five years.

French executives' confidence rose in February to the highest in more than a year and Italian consumers grew more optimistic, suggesting Europe's growth is quickening, reports showed yesterday.

``Should the Ifo figures have a strong showing, it may help push up the euro,'' said Kikuko Takeda, a currency manager at Bank of Tokyo-Mitsubishi UFJ, a unit of the world's largest lender by assets. ``Given ECB officials' recent comments, a rate increase next week is on the horizon.''

To contact the reporter on this story:
Kabir Chibber in London at kchibber@bloomberg.net;
Chris Young in Sydney at cyoung12@bloomberg.net.

Last Updated: February 23, 2006 03:42 EST

[Ichiro]

Very, very important info.... In summary it states: As the BOJ starts to increase the interest rate in the near future (starting in March 06), it would start with speculators suddently closing positions that are becoming more expensive: dumping Treasuries, gold, Shanghai real estate or whatever else they used yen borrowings to bet on. This already happened back in 1998 on what carry-traders can do. But, i dont think it will happen till the interest rate is raised beyond 3% by BOJ.


Japan's Boom May Explode Yen-Carry Trade: William Pesek Jr.

Feb. 22 (Bloomberg) -- Surprisingly strong growth in Japan is raising many eyebrows, not least those at the central bank anxious to scrap its zero-interest policy.

There can be little doubt 5.5 percent growth between October and December pushed the Bank of Japan further in that direction. Oddly, there are few if any signs global markets are bracing for higher debt yields in Japan.

Why? Japanese rates have been negligible for so long that investors take them for granted. This, after all, is the economy that's cried wolf too many times. The reason investors from New York to Singapore aren't ecstatic about Japan's recovery is the sense we've been here before -- many times.

Yet Japan's latest growth figures should make believers of some of the biggest skeptics. Not only did exports boost the economy in the fourth quarter, so did personal spending -- a sign optimism is spreading to households around the nation.

Rest assured the BOJ is noticing and will soon begin pulling liquidity out of Asia's biggest economy. Once that process begins, there's no telling how aggressive the BOJ will be and what effect it will have on bond yields.

Where Liquidity Begins

There are two reasons Japan's rate outlook is a huge story for global markets. One, yields in the biggest government debt market will head steadily higher for the first time in more than a decade. Two, it may mean the end of the so-called yen-carry trade.

``All liquidity starts in Japan, the world's largest creditor country,'' said Jesper Koll, chief economist for Japan at Merrill Lynch & Co. ``When rates go up here, rates go up everywhere.''

What makes the carry trade so worrisome is that nobody really knows how big it is. For example, the BOJ has no credible intelligence on how many hedge funds, investors and companies have borrowed cheaply in ultra-low-interest-rate yen and re-invested the funds in higher-yielding assets elsewhere.

Nor are the Bank for International Settlements, Federal Reserve Bank of New York or the International Monetary Fund likely to know how much leverage this most popular of trades has enabled banks to build up. Ditto for regulators overseeing the dealings of portfolio mangers around the globe.

Carry-Trade Craze

During the past decade, the yen-carry trade has become a staple for many punters. A popular form of the strategy exploits the gap between U.S. and Japanese yields. Anyone borrowing for next to nothing in yen and parking the funds in U.S. Treasuries received a twofold payoff: the 3-plus percentage-point yield difference and the dollar's rise versus the yen. The latter dynamic boosts profits by the time they're converted back to yen.

Yet as the BOJ raises rates and more investors buy into Japan's revival, the yen is sure to rise, much to the chagrin of carry-trade aficionados. Realization the trade is moving against investors may send shockwaves through global markets.

It would start slowly with speculators suddenly closing positions that are becoming more expensive: dumping Treasuries, gold, Shanghai real estate, shares in Google Inc. or whatever else they used yen borrowings to bet on. The chain reaction would accelerate once the mainstream media jumped on the story.

If all this sounds far-fetched, think back to late 1998, which offers an example of the damage a panic among carry-traders can do.

Remember 1998

In October of that year, Russia's debt default and the implosion of Long-Term Capital Management LP shoulder-checked global markets. The disorienting period culminated in the yen, which had been weakening for years, surging 20 percent in less than two months.

Suddenly, just about anyone who'd borrowed cheaply in yen rushed for the exits. It prompted frantic conference calls among officials in Washington, Tokyo and Frankfurt. Just how big was the yen-carry trade? How much leverage was involved? What could policy makers do, if anything, to regain control?

Since then, the wild days of 1998 have been largely forgotten. And as Japan slid back into recession and deflation, the yen-carry trade was back in favor. Trouble is, just as then, officials have little data to go on to understand the enormity of the risks all this poses.

Clearly, the global financial system is in better shape than it was in 1998. For the first time in a decade, economies in the U.S., Europe and Japan are growing in synch. There's the added benefit of strong growth in China and most of the rest of East Asia. India is also growing rapidly.

A boom in the number of hedge funds globally hasn't destabilized the international financial system as critics expected -- at least not yet. The world economy's resilience in the face of rising terrorist threats and record oil prices also provides some measure of comfort.

Even so, it's not clear investors are taking the risk of rising Japanese bond yields seriously enough. Once the process begins, world markets may be surprised by how quickly Japanese rates shoot higher, taking the yen -- and all those who borrowed in it -- along for the ride.


To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net

Last Updated: February 21, 2006 20:22 EST

[Ichiro]

Why the Bank of Japan Should Just Shut Up: William Pesek Jr.

Feb. 13 (Bloomberg) -- Transparency, Alan Greenspan liked to say while heading the U.S. Federal Reserve, is a cornerstone of successful central banking.

Efforts to demystify the Fed in the 1990s encouraged central banks around the globe to institute their own versions of monetary glasnost. Yet can the process go too far? Can central banks be too, well, talkative? Yes, and the Bank of Japan is a case in point.

The BOJ is itching to end its policy of holding interest rates near zero. And who can blame it? No central bank should ever become such an obvious pawn of politicians that it eliminates short-term borrowing costs. Japan's is now in a unique bind, one it understandably wants to get out of.

And so, BOJ officials can't seem to stop talking about their desire to take yen out of the system. There's just one problem: Japan is still experiencing deflationary pressures. What the BOJ really should do is just shut up.

Governor Toshihiko Fukui and his BOJ colleagues think they're doing the prudent thing, telegraphing plans to tighten credit. Yet until the consumer price index and other inflation measures turn positive and stay there for six months or even longer, BOJ staffers should keep their heads down and their mouths closed.

Too Much Talk

The BOJ doesn't have a monopoly on the too-much-talk front. Take Greenspan, who, off the payroll for barely a week, began arming hedge fund managers with insights into the Fed's thinking on rates. It would be better if he kept mum for a couple of months out of respect for his successor. Ever the capitalist, Greenspan is choosing fat speaking fees, according to press reports.

Few monetary decisions will be as important this year as ones made in Tokyo. After 15 years of walking in place, Japan probably grew at an annual rate of almost 5 percent in the final three months of 2005. Steady growth and rising-price trends in key sectors like property are fueling concern at the BOJ that inflation will suddenly accelerate out of control.

Prematurely declaring an end to Japan's seven-year-plus bout with falling prices may prolong it. For one thing, it will undermine investors' efforts to assess inflation expectations. For another, it will damage the economy's revival.

Clear Hints

Last week, Fukui said consumer prices, excluding fresh food items, ``are going to show clear gains in January and afterwards. Our judgment of core consumer prices will become increasingly important from our next policy meeting,'' which is on March 8-9.

That's about as clear as language gets in the central banking world of winks, nods and secret handshakes: The BOJ plans to begin pumping fewer yen into the economy sooner rather than later.

Fukui was toasted as the world's best central banker by the Economist magazine in 2004 and by AsiaMoney last year. You would think he'd know monetary policy is as much about influencing perceptions as the money supply. It's a mistake to worry too much about a problem Japan doesn't have (inflation) and not enough about one it does (falling prices) -- and to relay that impression to markets.

Inflation expectations must be based on data and anecdotal evidence, not on what the central bank says. If Fukui's confidence that inflation is on the way proves wrong, a central bank that already has little credibility will have even less.

BOJ Risks

Core consumer prices rose 0.1 percent in both November and December from a year earlier. Yet this recovery hasn't even come close to proving it can sustain price increases through Asia's biggest economy. And even with high oil prices, deflationary pressures unleashed by China and India may slow the process.

The bigger risk is that the BOJ moves too soon, before inflation firmly takes hold. Is the BOJ about to make a mistake similar to one in August 2000, when it raised rates prematurely? It reversed course 10 months later, returning rates to zero. Another mistake like that may boost bond yields and undermine the economy.

This is one of the very few cases in modern history where politicians are right to jawbone a central bank, as Prime Minister Junichiro Koizumi has been doing. He wants the BOJ to wait until deflation is clearly in the rearview mirror before altering its policies. And Koizumi is right.

For a more objective take on things, consider recent comments by Asian Development Bank President Haruhiko Kuroda. A respected economist, Kuroda's past as chief currency official at Japan's Ministry of Finance gives him considerable authority on the issue.

Walk the Walk

``The main objective is price stability,'' Kuroda said in Tokyo last week. ``That hasn't been attained. Deflation is not yet over.''

Kuroda has no ax to grind; he's merely concerned that a mistake may not only crimp Japanese growth, but Asia's. ``I think the recovery is good for Asia,'' he said. ``The Japanese economy was a growth engine for many years, and it may become one again.''

To get there, Japanese policy makers need to walk the walk of smart, forward-looking central banking. At the moment, they're only talking the talk -- and doing so a bit too much for comfort.


To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net

[Ichiro]

Emerging market currencies slide on contagion fear

Wednesday February 22, 7:11 am ET

By Steve Johnson


Emerging market and high-yielding currencies fell sharply in European morning trade on Wednesday as Tuesday's sharp slide in the Icelandic krona unnerved investors.

The krona suffered its biggest one-day fall against the US dollar for most five years on Tuesday, tumbling 4.6 per cent, as Fitch lowered the outlook on Iceland's country rating from "stable" to "negative", citing an "unsustainable" current account deficit and soaring net external indebtedness.


The krona continued to slide on Wednesday, falling a further 3.4 per cent to a 15-month low of IKr68.26 to the dollar.

And the sell-off appeared to spook carry trade investors who have piled into a range of generally high-yielding emerging market currencies in the hunt for superior returns.

"Markets appear to be reacting to heightened risk by selling off emerging market currencies in the wake of the Icelandic krona's move yesterday," said Tim Fox at Dresdner Kleinwort Wasserstein."

The South African rand fell 1.3 per cent to R6.105 against the dollar, the Turkish lira 1.3 per cent to TL1.3325 to the dollar, the Indonesian rupiah 1 per cent to Rp9,350 to the dollar, the Polish zloty 0.5 per cent to 3.8094 zlotys against the euro and the Slovak koruna 0.3 per cent to SK37.418 to the euro.

The Brazilian real, backed by interest rates of 17.25 per cent, also fell 1.9 per cent to R$2.165 to the dollar, although at least there was fundamental news here, with Brazil reporting a current account deficit of $452m in January, compared to a surplus of $802m in the same month last year. Despite this, Goldman Sachs saw the deterioration as likely to be temporary.

Elizabeth Gruie, emerging markets currency strategist at BNP Paribas, argued that the wider sell-off was being driven by declining global liquidity, as major trading blocs raise interest rates, but she believed the move was likely to be contained.

"Emerging market currencies universally suffered, reflecting fears of global tightening following the hawkish [ECB president Jean-Claude] Trichet into the Federal Open Market Committee minutes and oil nervousness, but the correction is so far muted and the sell off is likely be contained," she said.

The New Zealand dollar, the highest yielding developed world currency, also continued its recent slide, falling a further 0.7 per cent to a fresh 17-month low of $0.6576 against the greenback. Not for the first time, the sell-off was blamed on Japanese retail investors, who have hitherto been big buyers of kiwi-denominated uridashi bonds.

"New Zealand dollar sentiment has deteriorated markedly in recent days with the economic data continuing to point to the possibility that the New Zealand economy is falling into recession, which will force some aggressive monetary easing by the Reserve Bank later this year," said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ.

"One key driver of New Zealand dollar appreciation was Japanese investor demand seeking higher yields. With high yields now in doubt this demand is ebbing away."

In contrast, the behaviour of the major currencies was more predictable. The US dollar was little moved by Tuesday's release of the FOMC minutes, which surprised no one by saying that "some further policy firming might be needed to keep inflation pressures contained".

However the dollar firmed 0.3c to $1.1881 against the euro and 0.6c to $1.7393 against sterling ahead of US inflation data due later on Wednesday. The greenback was little changed at Y118.75 against the yen, with the latter seen gaining some strength from the repatriation of funds by Japanese retail investors.

Sterling was little changed at £0.6830 to the euro as minutes revealed the Bank of England voted 8-1 to leave rates on hold earlier this month, as most observers had expected.

[Ichiro]

Another great info on Yen carry Trade....


YEN CARRY TRADE TO UNWIND
Market Crash Alert
by Christopher Laird
PrudentSquirrel.com
February 22, 2006


There is a very important development regarding the YEN carry trade. I deem this important enough to post a market crash alert.

The Japanese economy is strengthening enough to cause an unwinding of the massive YEN carry trade. The last time this happened, there was the LTCM collapse.

Japan has had enough economic growth these last quarters, in production growth and consumer spending, that the BOJ may well end the policy of zero interest rates in Japan.

That zero rate interest policy has lasted about ten years, and is the first source of the liquidity bubbles world wide, and is very much a part of the liquidity bubbles here in the US. Once the BOJ starts to raise interest rates in Japan, the Yen carry trade will start to unwind.

The Yen carry mechanism is to borrow Yen at virtually zero rates, and then to purchase US treasuries at about a 3% interest rate gain net. There are literally trillions USD of yen carry trade positions scattered amongst hedge funds, insurance companies, and mutual funds. The phenomena is so widespread and has gone on so long, that the BOJ and even the BIS does not have data on the known net amount of YEN carry trade floating out there in the world. The result is that the effects of an unwinding of the Yen carry trade are unknown, but are sure to be very negative.

Here are the kinds of things that will happen when the Yen carry trade is unwound:

*

US treasuries will become less desirable, much of the purchases of UST’s last year were from foreign private entities who bought the UST’s to benefit from the interest differential of about 3% net over Japan.
*

UST’s were not the only beneficiaries of the Yen carry trade. Markets world wide are given massive amounts of liquidity, as Yen borrowed for virtually nothing are then invested eventually in foreign stock markets everywhere. Real estate markets also benefit greatly, as the Yen carry trade finds its way into real estate markets from Shanghai to the US to everywhere. The BOJ literally acts like a central bank of the world through the Yen carry trade, supplying liquidity that finds its way into markets everywhere.

The phenomena is a decade old now for the latest manifestation. The last time this level of penetration of the Yen carry trade was reached was just prior to the LTCM collapse. Back then, when the Yen unexpectedly strengthened 20% it caused a massive move out of Borrowed Yen on the Cheap, and caused massive market sell offs world wide, and was a direct cause of the LTCM collapse, where the US FED had to act immediately to bail out banks and illiquid brokerages and financial entities with blank checks to forestall that crisis.

We are again facing a very similar dilemma now, with the present significant strengthening of the Japanese economy, and the prospect of a rising Yen and a rising Japanese interest rate environment. Both of these trends hit the Yen carry trade on two sides.

This could cause a massive move out of the Yen carry trade, as those positions are unwound quickly to get out in advance of as many others as possible. This is because that Yen carry trade has gone on for about ten years and the accumulated positions are just astronomical.

It is for this reason that I am issuing my third market crash alert for 2006. I don’t like issuing these, but when I see such event pending, I just have to give the alert. This is not something I like doing. An alert does not mean there must be a crash, only that there is a serious new risk of one.

Here is a link to a superb article at Bloomberg about this issue. I have paraphrased some of it above.

Bloomberg: Remember 1998

"In October of that year, Russia's debt default and the implosion of Long-Term Capital Management LP shoulder-checked global markets. The disorienting period culminated in the yen, which had been weakening for years, surging 20 percent in less than two months.

Suddenly, just about anyone who'd borrowed cheaply in yen rushed for the exits. It prompted frantic conference calls among officials in Washington, Tokyo and Frankfurt. Just how big was the yen-carry trade? How much leverage was involved? What could policy makers do, if anything, to regain control?

Since then, the wild days of 1998 have been largely forgotten. And as Japan slid back into recession and deflation, the yen-carry trade was back in favor. Trouble is, just as then, officials have little data to go on to understand the enormity of the risks all this poses. “ Article Link

© 2006 Christopher Laird

[Ichiro]

Nikkei rises helped by economic data; Sony shines
Thu Feb 23, 2006 2:41 AM ET


By Eriko Amaha

TOKYO, Feb 23 (Reuters) - The Nikkei average <.N225> rose 1.99 percent to end above 16,000 for the first time in a week on Thursday, as investors encouraged by strong economic data bought Mitsubishi UFJ Financial Group Inc. (8306.T: Quote, Profile, Research) and other companies that rely on domestic demand.

Sony Corp. (6758.T: Quote, Profile, Research) led the gains after it unveiled a plan to scrap adviser positions as part of its restructuring, while Matsushita Electric Industrial Co. (6752.T: Quote, Profile, Research) ended up 2.7 percent at 2,495 yen.

After the market closed Matsushita, the maker of Panasonic goods, said senior managing director Fumio Ohtsubo will become president in June and current president Kunio Nakamura will become the company's chairman.

"There has been no change in the outlook for economic fundamentals, and that was proved in the latest corporate earnings (report season)," said Susumu Abe, a manager in the information and investment department at Mito Securities Co.

The Nikkei ended up 314.32 points at 16,096.10, closing above 16,000 for the first time since Feb. 16. The broader TOPIX index <.TOPX> finished up 1.93 percent at 1,640.47, after climbing more than 2 percent at one point.

Still, Takashi Kamiya, chief economist at T & D Asset Management, said the stock market may stay in the current range for a while, until it gets confirmation on further economic expansion.

"The market is already at a fair value and the economy has to growth further for the market to rise," he said. "What fund managers are doing right now is shuffling their portfolios -- switchings sectors, selling outperforming ones and scooping up laggards."

Banks gained after data showed the tertiary sector activity index, which gauges conditions in the services sector, rose 0.2 percent in December from the previous month. That compared with a forecast of a 0.3 percent rise.

Leading lender Mitsubishi UFJ Financial Group rose 2.5 percent to 1.63 million yen while its peer Mizuho Financial Group Inc. (8411.T: Quote, Profile, Research) rose 1.7 percent to 910,000 yen.

Property stocks also rose on the optimism about the economic recovery with leading property developer Mitsui Fudosan Co. Ltd. (8801.T: Quote, Profile, Research) up 4.8 percent to 2,400 yen and No.2 Mitsubishi Estate Co. Ltd. (8802.T: Quote, Profile, Research) rising 4.6 percent to 2,495 yen.

Japan's No.1 brokerage, Nomura Holdings Inc. (8604.T: Quote, Profile, Research), rose 2.8 percent to 2,170 yen after a report in business daily Nihon Keizai saying Japan's "Big Three" brokerages are planning to issue record dividend payouts for the 2005/06 financial year.

Second-ranked Daiwa Securities Group Inc. (8601.T: Quote, Profile, Research) climbed 2.8 percent to 1,357 yen and Nikko Cordial Corp. (8603.T: Quote, Profile, Research) rose 2.4 percent to 1,763 yen.

In the technology sector, Sony rose 2.9 percent to 5,630 yen after the electronics and entertainment conglomerate said on Wednesday it is scrapping 45 adviser positions as part of restructuring, leading to the departure of well-known names in its old guard.

Factory automation equipment maker Keyence Corp (6861.T: Quote, Profile, Research) ended up 4.8 percent to 31,800 yen. An executive told Reuters it is on track to hit its sales and operating profit targets for the year to March 20. [ID:nT206458]

After the close, Citizen Watch Co. Ltd. (7762.T: Quote, Profile, Research) said it would cancel 19.23 million of its own shares, or 4.81 percent of its outstanding stock, on March 3. Prior to the announcement, the stock ended up 3.3 percent at 1,073 yen.

INTEREST RATES

The Tokyo market is also keeping a close eye on monetary policy at home and in the United States.

Takahiko Murai, general manager of equities at Nozomi Securities, said the market has become sensitive to changes in the Bank of Japan's monetary policy and investors are becoming more selective.

"Investors have begun to look for companies whose profit growth is not high but steady and whose share valuations are cheap," he said. "So financially sound companies such as Toyota Motor Corp. (7203.T: Quote, Profile, Research), Honda Motor Co. (7267.T: Quote, Profile, Research) and Canon Inc. (7751.T: Quote, Profile, Research) may be targeted."

The yen rose against the dollar and bonds fell on Thursday after BOJ Governor Toshihiko Fukui reiterated the central bank would eventually raise interest rates.

Abe of Mito Securities said the pace at which the BOJ raises interest rates is key. "As long as the BOJ raises interest rates in tandem with the economic recovery, there should be no negative impact on the stock market," he said.

Market participants expect the BOJ to start dismantling its five-year-old hyper-loose monetary policy around April to reflect the end of deflation, and some have been buying Japanese shares in anticipation of this change.

Merrill Lynch said in a report on Thursday its survey of 45 global investors on the BOJ's monetary policy showed that 38 percent of respondents thought the Nikkei would rise after the BOJ exits its so-called "quantitative easing" policy, and 53 percent expect a rise in the Nikkei when the BOJ raises short-term interest rates from zero.

Volume hit its lowest level since Friday, with 1.996 billion shares changing hands on the Tokyo exchange's first section.

Advancers beat decliners by a ratio of almost 10 to 1.
© Reuters 2006. All Rights Reserved.

[Ichiro]

Ferguson's Exit May Ease Bernanke's Path to Fed Inflation Goal

Feb. 23 (Bloomberg) -- Federal Reserve Vice Chairman Roger Ferguson's resignation may help new Fed chief Ben Bernanke win support at the central bank for a numerical inflation goal.

Ferguson, who quit yesterday effective April 28 after eight years on the Fed's Board of Governors, opposes an inflation target, partly because it may limit the central bank's flexibility. Bernanke's support for such a move has been a hallmark of his work as an economist.

The absence of Ferguson and former Chairman Alan Greenspan removes the two biggest obstacles to a Fed inflation goal, leaving Governor Donald Kohn as the only board member known to disagree with the approach. At least 21 central banks, including those in Canada, the U.K. and Australia, have an inflation aim, and Bernanke told Congress in November that such a strategy would make the Fed more open.

Ferguson was ``one voice that would have been against that change in the Fed's way of doing business,'' Princeton University economist Alan Blinder, who was Fed vice chairman from 1994 to 1996, said in an interview.

Ferguson, 54, who was close to Greenspan, leaves the Fed at a time of transition. Greenspan retired last month after more than 18 years atop the central bank, and two new governors, Randall Kroszner and Kevin Warsh, are waiting to be sworn in. A majority of the board's seven slots will have turned over in less than a year. Ferguson was the last governor to have been originally appointed before President George W. Bush took office.

Possible Candidates

The White House has yet to nominate a new vice chairman, who would need Senate approval even if the person is already on the board. Kohn, 63, who has been in the Federal Reserve system since 1970, is a ``logical replacement,'' said Bear Stearns & Co. economist Conrad DeQuadros. Other previously reported candidates for Fed vacancies include former Treasury economist Richard Clarida and Todd Buchholz, founder of the Enso Capital Management hedge fund.

Ferguson said in October 2004 that an inflation goal may limit the Fed's flexibility to respond to economic shocks, and two months ago said any progress toward such a change ``would be very slow.'' Edward Gramlich, who resigned as a Fed governor last year, has said the disagreement between Ferguson and Bernanke ``never got acrimonious.''

`Clear Advantages'

Bernanke co-authored a 2001 book, ``Inflation Targeting: Lessons from the International Experience,'' which examines the results in other countries that adopted the practice. The conclusion: Inflation targeting has ``clear advantages over traditional policies,'' according to the book's description on the Princeton University Press Web site.

Besides Bernanke, six members of the Fed's Open Market Committee, which sets interest rates, have expressed support for inflation targeting. The FOMC consists of the Fed's seven board members and the 12 regional Fed bank presidents. At least two presidents have registered concerns about such a move. One supporter, Philadelphia Fed President Anthony Santomero, will leave his job effective March 31.

Kroszner and Warsh, whose nominations were approved by the Senate last week, told the Banking Committee on Feb. 14 they're open to an inflation goal. Warsh said it might ``provide some incremental benefit'' to investors and Kroszner called it ``one possible way to increase transparency.''

Supporters, Opponents

Other Fed bank presidents who support a numerical goal are Janet Yellen of San Francisco, William Poole of St. Louis, Sandra Pianalto of Cleveland, Jeffrey Lacker of Richmond and Gary Stern of Minneapolis. They vary on how the Fed should pursue the goal, since the central bank has a dual mandate from Congress to achieve stable prices as well as low unemployment.

Bernanke said last year an inflation goal would require ``extensive discussion and consultation.'' He and Yellen have said they want price changes, as measured by the Commerce Department's personal consumption expenditures index excluding food and energy, to remain in the 1 percent to 2 percent range.

Those with doubts about an inflation goal include Michael Moskow of the Chicago Fed and Richard Fisher of Dallas.

Ferguson, in a speech four months ago said ``supply shocks'' that stoke inflation and slow economic growth, such as big increases in the price of oil, ``can be problematic for inflation-targeting regimes.''

The third black person to serve on the Fed's board, Ferguson joined the bank in 1997 and became vice chairman in 1999. He could have served as vice chairman until October 2007 and as a governor until 2014. Ferguson had already outlasted the eight previous vice chairmen since 1973.

Sept. 11, 2001

A former finance-industry consultant and attorney who holds a doctorate in economics, Ferguson was the only Fed board member in Washington during the terrorist attacks of Sept. 11, 2001, and won respect from colleagues for steering the Fed through the crisis.

``He's done an extremely good job, and eight years is longer than most people stay at the Fed,'' said Alice Rivlin, Ferguson's predecessor as vice chairman. ``I suspect he thought, `Well, it's in good hands now with Bernanke, and maybe I should get into the private sector and do something different.'''

Even with the turnover on the board, Bernanke will have plenty of experience to draw from, whether from Kohn, Greenspan's top adviser before joining the board, or some of the regional bank presidents, said former Fed governor Lyle Gramley, who is now senior economic adviser at Stanford Washington Research Group in Washington.

Ferguson won't attend the Fed's next interest-rate meeting on March 27-28, the central bank said in a statement. The Fed has raised its benchmark rate at 14 straight meetings.

[Ichiro]

Now its India looking for alternative to fossil fuels...

India spreads its net for gas, any gas
By Siddharth Srivastava

NEW DELHI - While efforts are under way to seal nuclear deals with the US and France to generate electricity, India's efforts to tie up gas resources as another alternative to fossil fuels have gathered momentum.

Following the decision by Myanmar to supply gas to China, India is now making swift maneuvers to ensure that the US$1 billion Myanmar-Bangladesh-India (MBI) gas pipeline materializes. And significantly, India has virtually decided to join the US-backed

China Business Big Picture


Turkmenistan-Afghanistan-Pakistan (TAP) pipeline, in part because of the geopolitical difficulties involved in the $7 billion Iran-Pakistan-India (IPI) pipeline that Washington opposes.

Paradoxically, New Delhi has found an uncommon ally in Islamabad, which is pushing for India's involvement in the TAP as well as the IPI.

Gas on TAP
This month, Delhi for the first time took part as an observer in a meeting of the steering committee of th


e TAP project. Now it appears ready to sign on as a participant in the Washington-backed $3.5 billion gas pipeline as an alternative to the IPI.

Prime Minister Manmohan Singh had discussed the IPI proposal with Petroleum Minister Murli Deora and his Pakistani counterpart, Amanullah Khan Jadoon. Jadoon reiterated Islamabad's commitment to the IPI, despite US misgivings, and at the same time extended support for India's bid to join the TAP.

While India, Pakistan and Iran go through the motions of pursuing the IPI project, apparently unaffected by the International Atomic Energy Agency's referral of Tehran to the UN Security Council, most observers claim that the prospects of the pipeline materializing are now remote. Despite domestic political pressures, India has so far sided with Western powers against Tehran pursuing an independent nuclear program.

In this context, India was an observer at the recent TAP meeting in the Turkmen capital Ashgabat. Dinsha Patel, minister of state for petroleum and natural gas, led the Indian delegation and expressed willingness to join the TAP. A memorandum of understanding (MoU) was signed at the conclusion of the two-day meeting, under which Turkmenistan will supply 3.2 billion cubic feet gas per day to Pakistan for a period of 30 years.

India is closely studying the project's geopolitical, financial and technical aspects. Afghanistan and Pakistan have been seeking India's participation as vital for the TAP's viability.

"We have 90 days to get necessary official approvals to join the project. Once approved by the cabinet, the project will be renamed TAPI," for Turkmenistan-Afghanistan-Pakistan-India pipeline, Deora said in a statement. According to reports, the Oil Ministry will now seek government approval for joining the project within the next three months.

New Delhi, it seems, is satisfied with the availability of gas resources as well as the viability of the project, which has the backing of the Asian Development Bank. The TAP would stretch from the Turkmenistan-Afghanistan border in southeastern Turkmenistan to Multan, Pakistan (1,270 kilometers), with a 640km extension to India.

Importantly, TAP does not involve Iran or the US, which means none of the geopolitical problems involving the IPI. The TAP not only provides a southern exit route for land-locked Central Asian gas that will not have to cross Iran or Russia, it is also an important cog in Washington's Afghan rehabilitation plan as it will earn substantial transit fees.

Turkmen Oil, Gas and Natural Resource Minister Gurbanmyrat Ataev said that Ashkhabad considered TAP to be a priority gas export route. "This market is attractive first of all because of its closeness and rapid growth in consumption and secondly because Turkmenistan, as a neutral state, can in fact help strengthen regional cooperation and increase the economic prosperity of the people in the region."

With potential hydrocarbon reserves of over 45.44 billion tonnes of oil equivalent, Turkmenistan can significantly increase supplies to the international market.

Mired in Myanmar
Irked by the delays in implementing the Myanmar-Bangladesh-India pipeline, Myanmar recently inked an MoU with PetroChina to supply 6.5 trillion cubic feet (tcf) of gas from Block A of the Shwe gasfields in the Bay of Bengal for over 30 years.

The decision came as a major blow to India's bid to tap gas from its eastern front. It also marked one more victory for Beijing energy giants, which have consistently been beating Indian energy firms in the acquisition of oil and gas reserves around the world. India's state-owned oil giant Oil and Natural Gas Corp (ONGC) has lost to Chinese companies, in Kazakhstan, Ecuador and Angola.

Now, with Block A-1 gas going to China, the cost of the MBI will increase as the available block close to Bangladesh is A-2, which will require an additional 150km of pipeline for the gas to reach India.

This has provoked India to appoint Brussels-based Suz Tractebel as technical consultants to study a different route for the pipeline through the northeast, bypassing Bangladesh. The European infrastructure consultants appointed by the Gas Authority of India (GAIL) have been briefed to "carry out a study for preparing a detailed feasibility report, an environment management plan and a rapid risk analysis study via the northeast Indian territory", the Ministry of Petroleum announced.

GAIL is also exploring the idea of transporting gas from Myanmar via the sea. According to reports, GAIL is planning to invite bids for a long-term chartering service of ships or barges for the purpose.

These moves come a year after India, Myanmar and Bangladesh signed a trilateral pact to collaborate on the MBI project, which is also aimed at helping Bangladesh carry gas from its surplus regions to deficit areas.

The demand for compressed natural gas (CNG) and liquefied natural gas continues to grow in India, with over 300 CNG stations and over 300,000 vehicles running on CNG. The delay in Bangladesh firming up the agreement saw a worried Yangon, which is keen to exploit the financial viability of its new gas finds, acceding to China's demands for gas supplies after persistently urging India to tie up alternative plans, including setting up power projects near the gasfields.

Myanmar is concerned that India will be unable to evacuate gas once the reserves are certified by a third party agency and are made available for commercial production. India's ONGC and GAIL, along with two South Korean companies, Korea Gas and Daewoo, have agreed to jointly develop the block. But there is no agreement on evacuation, with both India and China at an equal distance from the gas blocks.

Though Bangladesh stands to earn substantial transit fees of $125 million per year, it has set conditions that include creation of corridors through India to carry out trade with other neighbors, such as Nepal and Bhutan, as well as steps to reduce its $2.5 billion trade deficit with India. Clearly, New Delhi has made up its mind to bypass Dhaka, even though the cost of the pipeline stands to increase substantially.

For the past year, New Delhi and Yangon have been exploring independent alternatives for importing gas. Bangladesh was not invited to the third meeting on the project. New Delhi has talked of the possibility of constructing the pipeline from Myanmar into Mizoram and onwards to Assam (both in northeast India) and culminating in West Bengal. The shortest pipeline route is from Myanmar to Bengal through Bangladesh, while the alternative land route would be twice the distance.

Thus, given the economic advantages as well as higher feasibility, India opened another window for negotiations with Bangladesh. Former foreign minister Natwar Singh visited Dhaka in August last and said that the tri-nation project would not proceed without the involvement of Bangladesh.

Last month, former petroleum minister Mani Shanker Aiyer visited Beijing. India and China signed a slew of MoUs on energy cooperation, including between ONGC Videsh Ltd, India's flagship firm for overseas oil and gasfield acquisitions, and China National Petroleum Corporation (CNPC). In the first instance of Sino-Indian cooperation, India and China won a joint bid in December last to buy PetroCanada's 37% stake in Syrian oilfields for $573 million.

However, most observers believe that any cooperation in future can only be on a case-by-case basis, with the Myanmar-China deal demonstrating that when it comes to energy security, nations will go it alone if they can.

[Fivetears]

That was allot of great material to digest this evening, Ichiro. It sure is nice to find it all in one place. You're work is in-fact very much appreciated. I feel like the robot in the movie "Short Circuit."

Need Input! :)

[Ichiro]

Thu Feb 23, 2:22 AM ET

TOKYO (AFP) - Japan reported its largest monthly trade deficit for almost a quarter century and the first for five years, as the New Year holidays hit exports to Asia and its oil import bill soared.


The trade balance slumped to a deficit of 348.9 billion yen (2.95 billion dollars) in January compared with surpluses of 911.9 billion yen in December and 193.9 billion yen a year earlier.

It was also more than three times bigger than the expected shortfall of about 102 billion yen.

The deficit was the largest since January 1983 and only the third in two decades.

Exports in January rose 13.5 percent to 5.01 trillion yen while imports expanded 27 percent to 5.36 trillion yen, the finance ministry said.

Financial markets took the data in their stride as analysts said the weak figures were largely due to seasonal factors and high oil prices, and were unlikely to derail Japan's economic recovery.

"Aside from the effects of high oil prices, growth in imports in general can be interpreted as a sign that domestic demand is robust, another reason to say the Japanese economy is on the right track," said Koji Kobayashi, senior economist at Mizuho Research Institute.

"Usually January is the month when the value of exports declines due to New Year holidays in Japan. I would say the deficit will disappear in February," Kobayashi predicted.

Taro Saito, senior economist at NIL Research Institute, said that China's Lunar New Year holidays appeared to be an additional factor for what he described as "irregular fluctuations" in the trade data.

"As the Lunar New Year in 2006 started at the end of January, this could have contributed to the decline in exports to Asia," he added.

Japan's trade surplus ballooned in the 1980s and 1990s, becoming the envy of other industrialized nations.

However it failed to usher in an era of steady growth and the world's number two economy stagnated for a decade after its "bubble economy" burst in the early 1990s.

Analysts say this time around, rising exports are accompanied by a pick-up in corporate and consumer spending although soaring energy costs are hurting the Japanese economy, which gets most of its oil and coal from overseas.

"The wider-than-expected deficit is due to high oil prices, which have now peaked. The growth in the value of imports will not last as we expect crude prices will cool later this year," said Kobayashi of Mizuho Research.

"Exports will stay on a recovery trend as we expect the world economy will be on an uptrend in the first half of this year," he added.

Crude oil imports jumped 67.2 percent while the value of imports of electronic parts was up 35.7 percent year-on-year, the ministry said.

Exports to the United States rose 21.7 percent for a 12th straight monthly increase, with shipments to the
European Union up 14.8 percent for a third consecutive monthly increase, the ministry said.

At the same time, however, exports to Asia managed only a modest increase of 5.1 percent.

"On the whole, the recovery in exports seems to be resilient as the value of exports to the United States and to the European Union grew steadily in January," said Saito.

Investors shrugged off the data as the Tokyo Stock Exchange's benchmark Nikkei-225 index closed up 314.32 points or 1.99 percent at 16,096.10.

Japan's government upgraded its view on the economy Wednesday for the first time for six months, after reporting last week blistering 5.5 percent annualized growth in the December quarter.

[Ichiro]

AP
Japanese Stocks Edge Higher, Dollar Lower

Friday February 24, 3:27 am ET

Japanese Stocks Edge Higher As Gains Steel, Retailers Offset Drop in Autos, Electronics

TOKYO (AP) -- Japanese stocks edged up slightly Friday as gains in steel and retail stocks offset declines in autos and electronics issues. The dollar continued its slide against the yen.

The Nikkei 225 index gained 5.81 points, or 0.04 percent, to finish at 16,101.91 points on the Tokyo Stock Exchange. The index jumped 2 percent Thursday.

For much of Friday, the Nikkei remained in negative territory as many investors initially locked in profits after the index's rally the previous day.

The market's main index moved into positive territory toward the closing bell as investors snapped up stocks viewed as closedly tied to the domestic economy amid signs of an emerging recovery here.

Among gainers were Tokyo Steel MFG Co., which rose 5.63 percent to 2,250 yen ($19.23) and major retailer Daiei Inc. climbed 2.54 percent to 3,340 yen ($28.54).

Nippon Paper Group Inc. rose 0.58 percent to 521,000 yen ($4,452.99), Mitsui Sumitomo Insurance Co. picked up 2.25 percent to 1,410 yen ($12.05).

Decliners included Toyota Motor Corp., which fell 0.32 percent to 6,330 yen ($54.10) and Toshiba Corp. lost 1.54 percent to 661 yen ($5.65).

In currency trading, the U.S. dollar bought 116.64 yen on the Tokyo foreign exchange market at 3 p.m. Friday, down 0.48 yen from late Thursday in New York.

The dollar's drop against the yen stemmed from its weakness versus the 12-nation euro Thursday after a report showed economic sentiment in Germany rose in its highest level in 14 years, indicating that another European interest rate increase was likely.

The euro rose to $1.1923 from $1.1917 in New York.

The yield on the 10-year Japanese government bond rose to 1.5900 percent, from Thursday's close of 1.5550 percent. Its price fell 0.30 point to 100.08.

[Ichiro]

Folks, the yen touched 116.65 today...its time to put some $$$ in the I fund...

UPDATE 3-BOJ Fukui adds fuel to speculation on policy shift

Fri Feb 24, 2006 3:21 AM ET

By Chisa Fujioka

TOKYO, Feb 24 (Reuters) - Bank of Japan Governor Toshihiko Fukui added fuel to speculation of an imminent end to the central bank's ultra-loose monetary policy on Friday, sending short-term Japanese bond yields to five-year highs and the yen to a one-month peak against the dollar.

Following his equally hawkish remarks on Thursday and a newspaper report that the BOJ could change course as early as next month, Fukui said conditions for a policy shift were gradually falling into place -- yet another signal for a near-term policy shift.

"Core CPI excluding fresh food prices has been at or above zero percent for three months in a row since October, and I expect it to show a clearer rise from now on," he told a parliamentary committee.

"In that sense, I think conditions (for a policy shift) are gradually coming into place," he said.

Finance Minister Sadakazu Tanigaki on Friday gave a fresh warning against any hasty move by the central bank, saying mild deflation remains in the world's second-largest economy.

But emerging signs of mutual trust suggest the government is becoming more accepting of the BOJ's independence on monetary policy and less resistant to a shift as long as interest rates are kept near zero.

Fukui suggested he would not hesitate to move once the central bank confirms that prices are recovering steadily.

"We cannot always be fearing failure. Policy is something that takes future conditions into account, so we take risks," he said.

"We would like to make a calm and appropriate judgment on whether our three conditions are met by looking at not only CPI figures on the surface but also economic conditions behind them."

The BOJ has vowed to stick to its so-called quantitative easing policy of supplying the banking system with excess funds and pinning interest rates near zero until core CPI shows consistent year-on-year rises.

A 0.1 percent gain in December core CPI and expectations for a 0.4 percent jump in January have bolstered expectations for an end around April to the five-year-old policy aimed at beating deflation. January nationwide CPI data is due out on March 3.

Apart from steady CPI gains, the BOJ has said it must see that deflation poses no risk of returning and that trends in prices and the economy allow for a policy change.

BOND YIELDS RISE

Recent hawkish comments by Fukui have also convinced PIMCO, the world's biggest bond fund manager, that the central bank is serious about a policy shift, which Fukui said will eventually be followed by a move towards a "neutral interest rate level".

"Clearly, financial markets are getting the BOJ's message that the super, super easy money just isn't going to be there any more in the very near future," Tomoya Masanao, a portfolio manager in Tokyo for PIMCO, told Reuters in a telephone interview.

"Fukui's comments are powerful because in essence he is now saying the same thing as the Fed -- as long as policy remains accommodative, rate hikes are going to continue at a measured pace towards neutrality."

The yen rose and Japanese bond yields jumped as Fukui's comments this week appeared to signal an imminent policy shift, followed by higher interest rates later in the year. Fukui jolted the markets on Thursday when he said the central bank would eventually raise interest rates to a "neutral" level.
By 0725 GMT, the yen was at 116.65 to the dollar <JPY=> after touching 116.42 yen, its strongest level since Jan. 27.

The yield on five-year Japanese government bonds spiked 9.5 basis points to 1.100 percent <0#JPTSY=JBTC>, while the two-year yield rose 7.5 basis points to 0.475 percent.

Both are around their highest levels since late 2000, just months before the BOJ introduced its ultra-easy policy.

Markets also focused on a Yomiuri newspaper report on Friday that said without citing sources that Fukui and senior central bank officials were considering a policy shift as early as the BOJ's next policy-setting meeting on March 8-9.

Fukui would only say he had no idea about the likelihood of a policy shift in March.

"(Monetary policy) will be discussed at the monetary policy meeting. I have no idea," Fukui told reporters when asked about the newspaper report.
While Tanigaki -- worried about risks that higher interest rates could hamper the government's efforts to trim huge state debt -- remains cautious about any premature monetary policy shift, Economics Minister Kaoru Yosano encouraged the BOJ to act on its own.

"It is not good for central banks in the world to give in to politics and the government," he told parliament, adding that an independent central bank boosted the country's credibility. (Additional reporting by Yoko Nishikawa)

© Reuters 2006. All Rights Reserved.

[Ichiro]

AP

Chinese Yuan Hits High Against U.S. Dollar

Friday February 24, 6:22 am ET

Chinese Yuan Hits High Against U.S. Dollar; Share Prices Also Rise

SHANGHAI, China (AP) -- China's currency rose Friday to its highest closing level against the U.S. dollar since a revaluation last July, after the biggest one-day drop in the opening dollar/yuan parity rate this year.

The yuan's advance pushed up property shares and reinforced currency traders' views that the central bank is letting the yuan rise faster than before.

The stronger yuan boosted buying of property shares on China's stock markets. The benchmark Shanghai Composite Index climbed 0.6 percent to 1,296.87. The Shenzhen Composite Index rose 0.8 percent to 316.31.

"Hopes for further yuan rises this year boosted interest in property shares, and this buying interest isn't likely to cool off in the near term," said Fang Yan, an analyst at Guosen Securities.

The dollar closed at 8.0424 yuan on the automatic price matching system after trading in a range of 8.0423, it's lowest level since the July 21 revaluation, and 8.0435. On Thursday, it closed at 8.0480.

The yuan's renewed gains preceeded a visit to China by the U.S. Treasury's undersecretary for international affairs, Tim Adams, who is scheduled to arrive in Beijing Sunday.

In July, China revalued the yuan by 2.1 percent against the dollar and began linking its value to a basket of currencies, instead of just the dollar. But Beijing limits the yuan's daily movements to within 0.3 percent above or below its opening level.

Since July, the yuan has risen only 0.83 percent against the dollar. Washington has urged China to let the yuan strengthen faster.

Critics of Beijing's currency policy argue that it is undervalued, giving Chinese exporters an artificial advantage that contributes to its trade surplus, which rose last year to $201.6 billion, the largest deficit the United States has ever incurred with a single country.

The Treasury Department has suggested it could label China a currency manipulator in a biannual report slated for release April, when Chinese President Hu Jintao is scheduled to visit the U.S.

In share trading, China Vanke A shares rose 1.1 percent to 5.61, Gemdale Corp. advanced 5.4 percent to 7.99 and China Merchants Property Development added 5.6 percent to 11.98.

"The yuan rise is good, not only for property companies but for all yuan-denominated assets, including A-shares," said Chen Huiqin, an analyst at Huatai Securities.

Speculation about further rises in the yuan will continue to attract fresh inflows of money to China's stock market this year, she forecast.

Large-capitalized blue chips, which are institutional investors' favorites, ended higher. Shanghai Pudong Development gained 1.6 percent to 12.19 and China United Telecommunications added 0.7 percent to 2.72.

[Ichiro]

MarketWatch

Crude soars after Saudi explosion report

Friday February 24, 9:05 am ET

By Ciara Linnane

NEW YORK (MarketWatch) -- Crude-oil futures surged early Friday on a report of an explosion in Saudi Arabia, with escalating tensions in Iraq and a report of more trouble for Royal Dutch Shell in Nigeria also offsetting U.S. data showing the nation well supplied with oil and petroleum products.


Crude for April delivery jumped to as high as $62.60 a barrel after a report sourcing the al-Arabiya television channel of an explosion and shots fired at an Eastern Saudi Arabian oil refinery.

The explosion came from Saudi security officials shooting at a vehicle packed with explosives, the television channel reported, according to the Associated Press.

The contract, which had already been trading higher before the Saudi reports, settled back to $62.10, up $1.56.

March-dated gasoline contracts rose 3.2 cents at $1.545 a gallon. March heating oil rose 3.74 cents at $1.70 a gallon.

Coming off loss
The oil contract ended down 47 cents at $60.54 a barrel on Thursday, recovering in part after trading as low as $59.70, its lowest since Feb. 16.

The Energy Department reported a 1.1 million-barrel increase in U.S. crude supplies for the week ended Feb. 17, placing them 9.9% above their year-ago level.

Motor gasoline supplies rose a smaller-than-expected 100,000 barrels to 225.6 million barrels, up 0.9% from a year ago and marking an eighth straight week of higher inventories.

Man Financial analyst Edward Meir said the demand side of the report was positive, particularly for gasoline, which was up 2.3% from last year.

"We have opened higher today, and should maintain these gains going into the close, as yesterday's numbers may be given a second look," he said.

"More importantly, we would suspect that not too many players would want to go home short into the weekend, especially considering the various hotspots still on the boil."

Violence in Nigeria, global concerns over Iran's nuclear-research program and workers going on strike in Ecuador had all contributed to the energy market's gains earlier this week, before moving into the background most recently.

But it's Iraq that is likely to grab the most attention Friday after the government put Baghdad and three provinces under a daytime curfew in an effort to tamp down sectarian violence.

At least 130 people, mostly Sunnis, have died since the al-Askaria shrine was bombed on Wednesday, according to the BBC.

The curfew was introduced on Thursday evening and will last until late afternoon Friday, the Muslim day of prayer.

"Increasing civil turmoil in Iraq will almost surely impact the oil sector, which is already struggling as it is," said Meir.

Meanwhile, a Nigerian court has ordered Shell to pay $1.5 billion to the iJaw people of the Niger Delta region as compensation for local environmental damage growing out of the company's oil operations, the BBC reported.

Shell intends to appeal the judgment, which comes in the same week that nine of its workers were kidnapped by a local group protesting the activities of foreign oil companies, forcing the company to halt 455,000 barrels a day of production.

The company also extended force majeure, whereby it's legally protected from not meeting contractual obligations on Nigerian crude exports.

[Ichiro]

Reuters

Oil jumps $2 on Saudi oil blast

Friday February 24, 9:12 am ET

LONDON (Reuters) - Oil jumped more than $2 on Friday after reports of an explosion and shooting at the huge Abqaiq oil facility in Saudi Arabia, which triggered worries about supply from the world's top crude producer.

The Dubai-based Al Arabiya television station quoted witnesses as saying there was shooting in the area while a Saudi security source said the government had prevented suicide bombing attacks at Abqaiq.

"Security forces foiled an attempted suicide at the Abqaiq (facility) using at least two cars," the official said.

Most Saudi oil is exported from the Gulf via Abqaiq, the world's largest crude processing plant, which handles about two thirds of the country's output.

U.S crude prices hit a high of $62.60 a barrel, up $2.06. They later eased back to $62.23 at 1400 GMT.

London Brent was up $1.55 at $62.09 a barrel.

"It's not clear what damage there is, but Abqaiq is the world's most important oil facility," said Gary Ross, CEO at PIRA Energy consultancy in New York.

"This just emphasizes fears over global oil supply security when we're already facing major ongoing risks in Nigeria, Iran and Iraq."

Oil prices had risen a dollar earlier on Friday as fears of deeper disruptions to Nigerian exports overshadowed the comfort drawn from brimming fuel stockpiles in the United States.

Attacks on Nigeria's oil network have already forced Shell to cut output by 455,000 barrels a day, shutting in a fifth of the country's exports. Militants holding foreign oil workers hostage say they will continue attacks in the next few days.

But oil's upside may be limited by brimming U.S. fuel tanks. Gasoline stocks rose to 225.6 million barrels, the highest level in seven years, according to weekly data. Crude stocks rose 1.1 million barrels to 326.7 million barrels.

"The market is being tugged by two forces -- data are pulling it down and political forces are pulling it up," said independent oil consultant Geoff Pyne.

Outages in Nigeria, the world's eighth largest crude exporter, have helped push London Brent crude close to parity versus U.S. West Texas Intermediate (WTI) futures.

U.S. crude usually trades at a premium to Brent, but the London benchmark better reflects the Nigerian risk premium as it is used to price West African oil sales.

Aside from tension in Nigeria, traders said Iran's nuclear ambitions and the possible ramifications for the nation's oil production also remained a worry.

The board of the International Atomic Energy Agency (IAEA) meets on March 6 to discuss the next step in resolving Iran's nuclear row with the West.

Iraq, which has been struggling to get oil output back to pre-war levels, is suffering the worst sectarian violence since the fall of Saddam Hussein, compounding the geopolitical risks in the Middle East.

[Ichiro]

Reuters

Stocks open little changed after Saudi blast

Friday February 24, 9:39 am ET

NEW YORK (Reuters) - U.S. stocks opened little changed on Friday after explosions and shooting at a Saudi Arabian oil facility sent oil futures climbing and erased early gains by stock index futures.

The Dow Jones industrial average (^DJI - News) was up 1.44 points, or 0.01 percent, at 11,070.66. The Standard & Poor's 500 Index (^SPX - News) was up 0.12 point, or 0.01 percent, at 1,287.91. The Nasdaq Composite Index (NasdaqSC:^IXIC - News) was down 1.05 points, or 0.05 percent, at 2,278.27.

[Ichiro]

Japan's 5-Year Notes Tumble; Yields Jump to Highest Since 2000

Feb. 24 (Bloomberg) -- Japan's five-year notes tumbled, pushing yields to the highest since 2000, after the Yomiuri newspaper said the central bank may start to end its five-year deflation-fighting policy as early as next month.

The Bank of Japan may rein in its policy of making funds available to banks when board members end a two-day meeting on March 9, the Yomiuri said. A change may lead to the bank raising interest rates from near zero percent and prompt investors to demand higher yields in the world's biggest bond market.

``The sell-off happened because of speculation there will be a policy change soon,'' said Yoshihiro Ishida, who helps oversee the equivalent of $2.6 billion in Tokyo at Meiji Dresdner Asset Management Co. ``That's hurting two- and five-year notes.''

The yield on the 1 percent government note due in December 2010 increased 10 basis points to 1.1 percent as of 3:13 p.m. in Tokyo, the most since November 2000, according to Japan Bond Trading. Its price fell 0.457 yen to 99.543 yen. A basis point is 0.01 percentage point.

The yield on the 0.3 percent note maturing in February 2008 rose 5.5 basis points to 0.45 percent, the highest since January 2001. Its price fell 0.106 yen to 99.708 yen.

``We expect gains in core consumer prices will become clearer from now,'' BOJ Governor Toshihiko Fukui told parliament today in Tokyo. ``Conditions to shift our policy are being met gradually.''

The bank has pledged to stick with its policy until core prices stop falling for at least a few months and policy makers are sure they won't start sliding again. Fukui's comments indicate that the second of these conditions may soon be met. The bank also needs to be confident about the overall strength of the economy.

Inflation

Core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, in December posted their first back-to-back monthly gain since April 1998.

Twenty-year bonds earlier rose on speculation pension funds and other investors are buying to match a change the biggest change in a benchmark index in nine months.

Nomura Securities Co. will add debt including 10- and 20-year bonds sold this month to its Bond Performance Index in March. Demand from investors who follow the index, such as Japan's Government Pension Investment Fund, may help drive down yields.

``Investors who follow the index will continue to buy longer bonds,'' said Makoto Yamashita, chief Japanese government fixed- income strategist in Tokyo at Lehman Brothers Japan Inc., one of 25 primary dealers that discuss debt sales with the Ministry of Finance and have to bid for a minimum amount of bonds at auctions.

Nomura Securities will extend its index's duration by 0.15 year for March, said Shinji Hiramatsu, a fund manager in Tokyo at Sompo Japan Asset Management Co. It will be the biggest increase since June, when it pushed up the figure by 0.17 year. Duration measures a bond price's sensitivity to changes in yield.

Biggest Pension Fund

The yield on the 2 percent bond due December 2025 was unchanged at 2 percent after earlier falling to 1.98 percent.

Japan's government pension fund, the world's largest pool of retirement wealth at 58.5 trillion yen ($501 billion), has increased the amount of holdings it matches to the benchmark index.

The fund raised the weighting to 78.6 percent at the end of March from 31.6 percent four years earlier, according to a Fund Investment Operations note on the firm's Web site. The figures are the most recent available. About 55 percent of the fund's money invested in marketable securities is in bonds, the report said.

Yesterday central bank governor Fukui said the Bank of Japan will ``immediately'' shift policy once core consumer prices show solid gains and the bank is confident about the economy's overall strength, though an end to pumping funds into banks won't signal an immediate change in interest rates.

`Can't Stop Him'

Japan's government may say on March 3 that core consumer prices rose 0.4 percent in January, according to the median estimate of 12 economists in a Bloomberg survey. That would be the fastest pace since March 1998.

Finance Minister Sadakazu Tanigaki said deflation still persists in Japan, although there have been some signs that it is easing. He repeated that the BOJ and the government must cooperate to beat deflation. His comments came before Fukui spoke today.

``Some financial institutions believed Fukui would delay the action but the government can't stop him,'' said Xinyi Lu, chief strategist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender. ``It shocked some investors and they finally decided to cut their losses.''

Ten-year bond futures for March delivery dropped 0.62 to 135.65 on the Tokyo Stock Exchange.

[Fivetears]

The ICHIRO JOURNAL isn't here yet. Hmm.

Maybe later. :D

[Ichiro]

Asian Stocks Climb to Three-Week Highs; Mitsubishi UFJ Gains

Feb. 27 (Bloomberg) -- Asian stocks climbed to three-week highs, led by Japanese banks such as Mitsubishi UFJ Financial Group Inc., on speculation reports this week will show the economy is recovering from a seven-year bout of deflation.

Steelmakers rose after Japan's Nihon Keizai newspaper said Nippon Steel Corp. and JFE Holdings Inc. will report record profits this business year. South Korea's Posco advanced.

``Investors expect reports this week will show Japan's recovery from deflation and that's driving domestic demand- related stocks higher,'' said Mitsushige Akino, who oversees $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The prospects for the steel industry are quite positive, supported by strong demand.''

The Morgan Stanley Capital International Asia-Pacific Index added 1.1 percent to 128.42 as of 3:45 p.m. in Tokyo, the highest since Feb. 7. All 10 of the measure's industry groups advanced. Woodside Petroleum Ltd. and PetroChina Co. gained after crude oil had its biggest jump in five months on Feb. 24 in New York.

Japan's Nikkei 225 Stock Average added 0.6 percent to 16,192.95, completing its first three-day gain this month. Government reports on industrial production and core consumer prices are due this week.

Stock indexes advanced around the region, except in New Zealand and Pakistan. India's Sensitive index rose 0.7 percent, set for a record close, while the Hang Seng Index climbed for a 10th day in Hong Kong, headed for its longest winning stretch in two years.

Indonesia's Jakarta Composite Index had the biggest jump in Asia, climbing 1.9 percent. Moody's Investors Service said it may raise the nation's credit rating because of the government's declining budget deficit. PT Telekomunikasi Indonesia led gains.

Mitsubishi UFJ

Mitsubishi UFJ, Japan's largest lender by assets, gained 2.4 percent to 1.7 million yen. Mizuho Financial Group Inc., the second largest, climbed 1.8 percent to 943,000 yen.

A government report tomorrow will probably show Japan's industrial production rose 0.5 percent in January for a sixth straight month, according to a Bloomberg survey of 30 economists.

The government may also say on March 3 that core consumer prices, which exclude fresh food, rose 0.4 percent in January, according to the median estimate of 29 economists surveyed by Bloomberg News. That would be the fastest pace since March 1998.

Rising consumer prices suggest that Bank of Japan may soon end its five-year policy of holding interest rates near zero.

Komatsu Ltd., the world's second-biggest maker of earth- moving machines, jumped 4.2 percent to 2,100 yen. Millea Holdings Inc., Japan's largest non-life insurer, rose 2.2 percent to 2.31 million yen.

Steel Demand

The MSCI Asia-Pacific Materials Index gained 1.7 percent, adding to a four-day, 5 percent rally.

Nippon Steel, Asia's largest steelmaker, rose 5.2 percent to 465 yen. The stock has risen in nine of the past 10 days, climbing 12 percent. JFE, the second biggest, jumped 3.8 percent to 4,420 yen, its fifth day of advance.

Posco, the region's No. 3 steelmaker, rose 2.2 percent to 237,000 won. The shares have jumped 13 percent since Feb. 14.

Last week, Goldman, Sachs & Co. raised its recommendation on U.S. steel producers to ``attractive'' from ``neutral,'' citing higher prices in China and Europe. Baoshan Iron & Steel Co., the listed unit of China's biggest steelmaker, said Feb. 24 rising demand will enable it increase prices as much as 18 percent next quarter.

Nippon Steel, China Steel

Nippon Steel will probably report a 40 percent jump in current profit, or pretax profit from operations, to 520 billion yen ($4.5 billion), for the year ending March 31 on increasing demand for steel used in automobiles, the Nihon Keizai reported.

The result would mark a second year of record profit and exceed the company's own estimate by 25 billion yen, the newspaper said, without saying where it got the information. Nippon Steel will also boost its dividend payout to as much as 9 yen a share, from 5 yen last fiscal year, as a result of the higher profit, the Nihon Keizai reported.

Nippon Steel will announce its forecast for profit this fiscal year on March 2, Tokyo-based spokesman Hiroshi Nakashima said, declining to comment further on the report.

JFE will also say that full-year pretax profit climbed 9 percent to a record 500 billion yen, the Nihon Keizai said.

Sumitomo Metal Industries Ltd., Japan's No. 3 producer of the alloy, gained 3.6 percent to 520 yen. China Steel Corp., Taiwan's largest steelmaker, advanced 1.7 percent to NT$29.55.

PetroChina, the nation's largest oil producer, gained 2 percent to HK$7.75. Woodside, Australia's second-biggest oil producer, climbed 0.8 percent to A$41.36. Santos Ltd., Australia's third biggest, added 1 percent to A$11.71.

`Huge Profits'

Crude-oil futures jumped 3.9 percent to $62.91 a barrel on Feb. 24, the biggest gain since Sept. 19, because of an attempted attack on a processing plant in Saudi Arabia, the world's largest petroleum producer.

At least two bombs exploded outside the Abqaiq oil center, which handles two-thirds of supply from the world's largest producer, during a foiled suicide attack. Oil prices retreated 1 percent to $62.14 today after Saudi oil production and exports were unaffected by the incident.

Al-Qaeda, which has targeted Saudi Arabia's oil industry, threatened to keep attacking the nation's oil production sites until foreigners leave the peninsula, Agence-France Presse reported on Feb. 25.

``I can't see oil prices going significantly lower any time soon,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``Oil companies will make huge profits.''

Indonesia

Telekomunikasi, Indonesia's biggest telephone company, gained 2.4 percent to 6,300 rupiah. PT Perusahaan Gas Negara, Indonesia's second-largest publicly traded company, climbed 2.6 percent to 9,800 rupiah.

Moody's became the second rating company this month to say it may raise the rating on Southeast Asia's largest economy. Standard & Poor's on Feb. 9 raised its outlook on Indonesia's B+ foreign-currency debt rating to ``positive'' from ``stable.'' Moody's rates Indonesia's debt at B2, the fifth junk rating.

Elsewhere in the region, Want Want Holdings Ltd. jumped 8.4 percent to $1.29, the biggest advance on the MSCI World Index. The maker of rice crackers and sweets said fourth-quarter profit almost doubled to $39.5 million as sales to China increased.

To contact the reporter for this story:
Michael Tsang in Tokyo at mtsang1@bloomberg.net.

[Ichiro]

UPDATE 1-Japan braces for near-term BOJ policy shift

Mon Feb 27, 2006 1:45 AM ET


By Chisa Fujioka
TOKYO, Feb 27 (Reuters) - Japan braced for a near-term end to the Bank of Japan's ultra-easy policy on Monday after key government officials appeared to endorse a move and a poll showed that markets think the shift is set for April.

Government bond yields hit new five-year highs -- back to levels before the BOJ started its policy of flooding the banking system with huge amounts of money in March 2001 -- while the yen rose to a one-month high against the dollar and a six-week peak versus the euro.

Following hawkish comments from senior BOJ officials last week, Prime Minister Junichiro Koizumi sounded more resigned than ever to a policy shift despite worries that an eventual rise in interest rates may hamper government efforts to trim state debt.

"What measures are needed is something that the BOJ will determine, in line with the government and BOJ's mandate of overcoming deflation," he told reporters.

On Sunday, Economics Minister Kaoru Yosano gave his strongest endorsement yet to a policy shift, saying the BOJ should feel free to end its so-called quantitative easing policy once conditions for a move were met.

In a sign that government is becoming less resistant to a BOJ policy shift, top government spokesman Shinzo Abe told a news conference on Monday that Yosano's view should be respected.

The BOJ has vowed to stick to its policy of supplying the banking system with excess funds and pinning interest rates near zero until the core consumer price index shows consistent year-on-year rises.

A 0.1 percent gain in December core CPI, excluding fresh food prices, and expectations for a 0.4 percent jump in January have bolstered expectations for a policy shift in April, while some in the market are speculating on a move as early as the BOJ's March 8-9 meeting. January nationwide CPI data is due out on Friday.

DONE DEAL
A top executive of Japan's ruling Liberal Democratic Party warned on Monday that the BOJ should be sure deflation is over for good before it scraps its ultra-easy policy, but analysts say data over the next few months should start showing that. I hope the BOJ makes a decision based on confidence that there will be no return to deflation and that it can explain that," LDP policy council chief Hidenao Nakagawa told a business conference.
In a poll by Reuters and Jiji Press news agency, all but three of 88 analysts, traders and fund managers cited dates in April or March for an end to quantitative easing.

Nearly two-thirds, or 57, forecast the BOJ would end quantitative easing at its April 28 policy meeting, with a majority of them noting that the BOJ was due to publish its semi-annual outlook report on that day.

They added that March consumer price index data, due out on the same day, would likely show core CPI was at or above year-ago levels for the sixth consecutive month.

Comments from senior BOJ officials in recent weeks suggest the central bank has reached consensus on changing the course of monetary policy in the coming months, although they have been vague on plans for guiding market expectations under a new policy framework.

BOJ Governor Toshihiko Fukui said last week that the central bank would act promptly once conditions were in place and would eventually raise rates to a "neutral" level, or one that neither stimulates or hinders economic activity.

© Reuters 2006. All Rights Reserved.

[Ichiro]

........The Yen may rise to 110 in the coming months....


Yen Climbs on Speculation Bank of Japan Preparing to Shift Policy in March

Feb. 27 (Bloomberg) -- The yen advanced to a one-month high against the dollar after Japanese officials said the government supports central bank plans to end deflation-fighting policies.

There's ``hardly any difference between the Bank of Japan and the government's views of the economy,'' said Fiscal and Economic Policy Minister Kaoru Yosano in a televised interview yesterday. The yen extended gains as Prime Minister Junichiro Koizumi said today the central bank should decide when to cut the amount of cash pumped into banks, a precursor to raising interest rates.

``There's potential for the yen to strengthen,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``Acceptance by the government the BOJ will move policy soon has generated interest.''

The yen rose to 116.18 against the dollar as of 7:25 a.m. in Tokyo from 116.90 in late trading in New York on Feb. 24. The currency rose as far as 115.70, the most since Jan. 26 when it touched 115.45. It gained to 137.70 versus the euro, from 138.82. The yen advanced against 61 of the 62 currencies Bloomberg tracks.

Japan's currency may rise to 110 in coming months, Gibbs said.

``The current rebound in the economy has legs,'' Yosano said on NHK's ``Sunday Debate'' program in Japan yesterday. ``It's okay for the central bank to change policy'' when conditions are met.

BOJ Pledge

The Bank of Japan has pledged to stick with its policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding. The bank has held rates near zero percent since 2001.

``The government and the Bank of Japan have united efforts to beat deflation, and the issue is how the central bank will judge necessary steps, following this policy,'' Koizumi said in Tokyo.

The government's endorsement marks a change from late last year when comments from lawmakers such as Liberal Democratic Party policy chief Hidenao Nakagawa suggested the Bank of Japan would need agreement from the government before changing its stance.

The bank should decide independently on when to shift policy and decide on what tools to use after that, Nakagawa said today in Tokyo. On Nov. 13 he had said the bank had ``no independence'' from the government, according to a Nihon Keizai newspaper report.

Under Bank of Japan law, government representatives to the central bank's policy board can urge it to postpone a change in monetary stance. The representatives have no voting rights.

Governor Toshihiko Fukui on Feb. 24 said a seven-year bout of deflation was nearly over and the BOJ would ``gradually'' move toward lifting rates from zero.

`Trigger'

``There's this building case that the BOJ will be changing policy soon,'' said Adrian Foster, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein. ``That's the trigger we've been looking for regarding the yen.''

The dollar may rise versus the euro on speculation reports in the U.S. this week will fuel expectations that the Federal Reserve will keep lifting benchmark interest rates.

Economic reports will show production, income and job gains, according to economists surveyed by Bloomberg News, suggesting the Fed will add to its 14 consecutive rate increases since June 2004 at a meeting next month. The extra yield on dollar-denominated assets over equivalents in Europe helped the U.S. currency rally about 14 percent against the euro last year.

``The U.S. dollar is going to continue to go higher,'' said Craig Ferguson, a currency strategist in Melbourne at Australia & New Zealand Banking Group Ltd. ``U.S. interest-rate differentials are going to help the dollar.''

`Go Higher'

The U.S. currency traded at $1.1851 from $1.1857 on Feb. 24.

The Fed has raised its benchmark rate a quarter percentage point at 14 consecutive policy meetings to 4.5 percent. The European Central Bank increased rates by a quarter percentage point in December for the first time in five years. The next Fed meeting is scheduled for March 28.

Japan's government has decided to endorse any change in BOJ stance at the next policy-setting meeting on March 8 and 9, the Yomiuri daily said today. Policy makers may vote to end the stance of pumping cash into the economy at the March meeting, it added.

``The gain in the yen is in reaction'' to the Yomiuri report and comments from officials, said Ashley Davies, a currency strategist in Singapore at UBS AG. The yen may climb to 115 against the dollar over the next few months, Davies said.

Japan's government may say March 3 that core consumer prices, which exclude fresh food and are the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists in a Bloomberg survey. That would be the fastest since March 1998. Core prices in December posted their first back-to-back monthly gain since April 1998.

Forty-eight percent of the 48 traders, strategists and investors surveyed on Feb. 24 from Sydney to New York advised buying the euro against the dollar, compared with 42 percent who said to sell the 12-nation currency.

To contact the reporter on this story:
Chris Cooper in Tokyo at ccooper1@bloomberg.net

Last Updated: February 27, 2006 02:27 EST

[Ichiro]

Japan's Debt Straitjacket Is Out of Style: William Pesek Jr.

Feb. 27 (Bloomberg) -- Now that Japan is back, the hard part begins: getting the world's No. 2 economy out of debt.

Amid the euphoria over the end of deflation and a likely change in central bank policy, it's easy to forget that Japan remains addicted to borrowed money. For all the concern about the U.S. budget deficit, it's just 2.4 percent of gross domestic product, while Japan's is 6.9 percent.

Japan grew five times faster than the U.S. in the fourth quarter -- at an annual rate of 5.5 percent -- leaving little doubt this recovery is real. It's time Japan weaned itself off an unhealthy reliance on debt. The debt-to-GDP ratio is pushing 151 percent, by far the worst among industrialized nations.

Sadly, the issue is getting little traction in Tokyo. Prime Minister Junichiro Koizumi has pledged for years to reduce public debt, and he's made no progress. Doing so is necessary to avoid higher borrowing costs and to make room for companies to issue bonds. It also would return a sense of normalcy to an economy that for too long has relied on fiscal stimulants.

Because it's a uniquely wealthy nation, Japan has been able to borrow with abandon. After its asset bubbles of the 1980s burst, it relied on public-works projects to create jobs and support regional economies. Financed with debt, the strategy left Japan with the same local-currency bond rating as Kuwait, Latvia and Mauritius, and one notch lower than Botswana.

Rising Yields

Even so, 10-year yields are a scant 1.57 percent, while Australia, a top-rated nation, must pay 10-year investors 5.20 percent. The clubby nature of Japan's market keeps interest rates low; about 95 percent of government securities are held domestically. It explains how Japan manages to keep borrowing costs negligible even as it sells mountains of debt.

The arrangement will be tested as the Bank of Japan abandons its policy of holding short-term interest rates near zero. What's more, the BOJ is about to embark on its first sustained campaign to raise rates in more than a decade. Any resulting increases in borrowing costs will squeeze government coffers.

Only then will investors know how durable Japan's revival really is. Yes, Japan's biggest banks are healthy again, companies are restructuring and household spending is perking up. Yet the national economy is still operating with the benefit of artificial pick-me-ups, and huge ones at that.

The Fat Years

``Unless Japan moves to reduce its fiscal deficit sharply -- in the fat years of this business cycle -- its public sector debt-to-GDP ratio will rise without limit,'' said Carl Weinberg, chief economist at Valhalla, New York-based High Frequency Economics.

How efficiently Japan uses this window of opportunity to kick its debt addiction will say much about its outlook. Demographic trends are but one concern. Because of a low birthrate of 1.26 children per woman, Japan's population actually shrank in 2005.

``If the current birthrate, which is the lowest in the major developed countries, continues, there will be no Japanese,'' Jim Rogers, who co-founded the Quantum fund with George Soros in 1970, said in Tokyo last month. ``Who will pay the enormous debt?''

Debt could become a problem much sooner. ``The longer Japan waits to start acting, the more fiscal tightening will have to be implemented overall,'' Weinberg said. ``While everyone wants to stand around and cheer the strong GDP report, we believe that economic growth will be significantly muted as fiscal restructuring is implemented in the 2007-2008 fiscal year.''

It's Been a While

There's also a nagging risk that Japan's banking system isn't as ready for higher rates as many investors believe. Japan's major lenders are no longer crippled by bad loans, yet many bankers haven't experienced a rising-rate environment. For those who have, it's been 15 years since they needed to worry about tightening credit conditions.

Banks are major holders of government bonds. Such securities are also the main financial asset held by Japanese pension funds, insurance companies, government-run institutions, the postal savings system and individuals. If bond yields shoot higher, just about every sector of the economy will feel the pain.

Now that Japan is growing again, observers are commending Koizumi, who came to power in April 2001 promising ``reform without sacred cows.'' While Koizumi deserves credit for pushing for change, Japan's revival owes far more to China. Its boom both increased demand for Japan's exports and scared executives into making companies more competitive and profitable.

Heavy Lifting

Japan's debt load is a reminder that the heavy lifting is just beginning. Koizumi has promised to step down in September, and whoever replaces him would be wise to act immediately to trim debt. Doing so would soothe markets, avoid higher yields and perhaps lead rating companies to raise Japan's credit standing.

Letting the debt issue fester would be a huge mistake. It would put Japan in a fiscal straitjacket and lead to soaring debt-servicing costs. It also could leave Japan with yet another recovery it couldn't sustain.


To contact the writer of this column:
William Pesek Jr. in Tokyo at wpesek@bloomberg.net

[Ichiro]

European stocks end at 4-1/2 year high on M&A fever

Mon Feb 27, 2006 1:13 PM ET


By Genevieve Butler

PARIS, Feb 27 (Reuters) - Acquisitions fever propelled European stocks to their highest close in 4-1/2 years on Monday as Suez (LYOE.PA: Quote, Profile, Research) and Gaz de France (GAZ.PA: Quote, Profile, Research) outlined a deal to create Europe's second-largest energy utility, offsetting Vodafone's (VOD.L: Quote, Profile, Research) warning of slowing mobile revenue growth.

"We are convinced that M&A will continue ... it is not over yet and our guess is that it has only just started," said Franz Wenzel, senior investment strategist at Axa Investment Management in Paris.

The pan-European FTSEurofirst index <.FTEU3> of 300 leading shares closed 0.3 percent higher at 1,363.76 points. London's FTSE 100 <.FTSE> gained 0.3 percent to near a five-year high, while Frankfurt's DAX <.GDAXI> added 0.8 percent and Paris's CAC 40 <.FCHI> was up 0.1 percent.

The German utility RWE (RWEG.DE: Quote, Profile, Research) rose more than 1 percent on a report that Britain's National Grid Plc (NG.L: Quote, Profile, Research) is set to conclude deals to buy two of its Dutch gas network businesses.

Shares in National Grid closed slightly lower after they agreed to buy U.S. natural gas distributor KeySpan Corp. (KSE.N: Quote, Profile, Research) for around $7.3 billion in cash.

Hopes of consolidation in the utilities sector boosted stocks such as International Power (IPR.L: Quote, Profile, Research) and Scottish & Southern Energy (SSE.L: Quote, Profile, Research) by 3.8 percent and 1.5 percent respectively.

"Merger talk among utilities has been dominating markets for days and you cannot say when this will end," said Guenter Senftleben, an equity strategist at Bankgesellschaft Berlin.

Shares in Gaz de France slipped 2.8 percent and Suez tumbled nearly 6 percent after the companies outlined a government-brokered "merger of equals" seen as a lightning French response to designs on Suez by Italy's Enel (ENEI.MI: Quote, Profile, Research).

"All in all, we welcome the deal, as the new Suez/GDF entity should create value," said Bertrand Lecourt, analyst with Dresdner Kleinwort Wasserstein, in a research note.

"However, we would expect short-term pressure on Suez's share price. Firstly, we believe that the group is likely to lose its 'bid premium', as the announced merger acts as a strong signal that the French government will fight hard against a foreign hostile bid," said Lecourt.

"Secondly, Suez's 'power price upside story' could be diluted. Investors who bought Suez to gain valuation upside via increase in power prices will now have exposure to regulated gas assets," he said.

BUY THE NEIGHBOUR

Italian oilfield services contractor Saipem (SPMI.MI: Quote, Profile, Research) soared more than 10 percent after it bought engineering unit Snamprogetti from parent Eni (ENI.MI: Quote, Profile, Research) for 680 million euros ($805.5 million).

The British glass maker Pilkington (PILK.L: Quote, Profile, Research) gained nearly 2 percent after Nippon Sheet Glass Co. Ltd. (NSG) (5202.T: Quote, Profile, Research) said it would buy the remaining 80 percent of the company for 1.8 billion pounds ($3.1 billion) in cash.

"There are two stories driving the market. The first is valuation related. Second, based on this phenomena that European companies are still very cash rich ... the stock markets are very positive," said Axa's Wenzel.

He also cited the gap between corporate cash flow yields, which he estimated at around 5 to 8 percent, and much lower borrowing costs.

"That invites companies to buy the neighbour."

Money supply growth and loans to the private sector accelerated unexpectedly in the euro zone in January, according to official data released on Monday. Analysts said this strengthened the case for interest rate increases beyond the expected rate hike on Thursday and limited the market's potential gains.

TELECOMS SLIDE

Shares in British mobile phone giant Vodafone (VOD.L: Quote, Profile, Research) dropped nearly 3 percent after the company warned of lower growth prospects, casting a pall over the telecoms sector.

"Vodafone is representative of the whole telecom sector," said Mark Sheikh, analyst at KBC Asset Management.

"They're in some of the most competitive markets, Japan, the U.S., Germany and the UK, and getting close to full penetration levels, so it's not as easy to get growth," he said.

Deutsche Telekom (DTEGn.DE: Quote, Profile, Research), BT Group (BT.L: Quote, Profile, Research), and France Telecom (FTE.PA: Quote, Profile, Research) all lost around 1 percent.

Among companies reporting earnings, Britain's Pearson (PSON.L: Quote, Profile, Research), the world's largest educational publisher, rose 2 percent after its 2005 pretax profit topped expectations.
© Reuters 2006. All Rights Reserved.

[Ichiro]

Yen Set for Monthly Gain as Japanese Factory Production Expands to Record

Feb. 28 (Bloomberg) -- The yen is poised for a third monthly gain, the longest rally since the end of 2004, as a Japanese government report today showed factory production rose to a record.

A sixth month of growth in industrial production for January marks the longest expansion since 1997 and bolsters expectations the economy is growing fast enough for the Bank of Japan to end deflation-fighting policies. The yen in the past five days had the biggest gain of all 62 currencies tracked by Bloomberg.

``We continue to get solid data out of Japan and that will be yen supportive, it's as simple as that,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney.

The yen, up 0.8 percent this month, bought 116.27 against the dollar as of 7:30 a.m. in London from 116.12 late in New York trade yesterday, when the currency rose as far as 115.70, the most since Jan. 26. It traded at 137.74 versus the euro, from 137.55.

The Japanese currency may strengthen to 115 against the dollar in the next few weeks, Rennie said.

Japan's factory production rose a seasonally adjusted 0.3 percent from December, the Ministry of Economy, Trade and Industry said in a report in Tokyo today. The median estimate of 36 economists in a Bloomberg News survey was for 0.4 percent growth.

Prime Minister Junichiro Koizumi said yesterday the central bank should decide when to cut the amount of cash it pumps into the financial system, a precursor to raising interest rates.

There's ``hardly any difference between the Bank of Japan and the government's views,'' said Fiscal and Economic Policy Minister Kaoru Yosano on Feb. 26.

UBS Upgrade

``In light of the flurry of comments from senior Japanese politicians regarding the Bank of Japan, we've revised our one- month forecast for the yen,'' said Ashley Davies, a currency strategist at UBS AG in Singapore.

The Japanese currency will trade at 117 against the dollar in one-month from a prior prediction of 120, according to UBS, the second-biggest currency trader. The bank is maintaining its three- month forecast for the yen to strengthen to 115.

The yen snapped a four-day rally today as some investors speculated gains went too far, too fast, and the yield advantage on dollar-denominated assets will support the U.S. currency.

``The whole move is overdone,'' Craig Ferguson, a currency strategist at Australia & New Zealand Banking Group Ltd., said in Melbourne. ``It may be the yen has done enough upside for now.''

The Bank of Japan won't likely raise interest rates until the fourth quarter, by which time the U.S. Federal Reserve will probably have lifted borrowing costs twice more, said Ferguson. He said the yen will fall to 119.50 in the next one-to-two months.

Rate Gap?

``The interest-rate differential will rise,'' he said. ``The rational for a lasting trend in dollar-yen just isn't there.''

The Fed has raised its target for the overnight lending rate between banks 14 consecutive times since June 2004 to 4.5 percent.

Interest-rate futures show traders are pricing in a 98 percent chance the Fed will raise its target rate to 4.75 percent when policy makers meet on March 2. The odds of another quarter- point increase at the May 10 meeting are about 76 percent.

The yen still held gains for the month as government reports in February indicated Japanese economic growth is accelerating and declines in consumer prices are ending.

The economy grew an annualized 5.5 percent in the last three months of 2005, outpacing Europe and the U.S. Faster growth and rising prices have raised speculation the Bank of Japan may end its five-year deflation-fighting policy as soon as next week.

The production data ``reinforces that the yen could rally further this year,'' said Chris Loong, head of currency and asset allocation at State Street Global Advisors in Sydney. The yen may rise to 115.75 in the ``very short-term,'' he said.

Inflation

The BOJ vowed to stick with a policy of flooding the economy with cash until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding.

The government may on March 3 say consumer prices excluding food, the central bank's preferred inflation measure, rose 0.4 percent in January, according to the median estimate of 32 economists surveyed by Bloomberg. That would be the fastest pace since March 1998. So-called core prices in November and December posted the first back-to-back monthly gains since April 1998.

Should the Bank of Japan reduce the amount of cash it pumps into the financial system in April, it would be only the second time in 17 years that it tightened policy.

The bank pushed up rates to 0.25 percent in August 2000 but kept them there for less than seven months. It previously raised rates in August 1990, when it lifted them to 6 percent from 5.25 percent. The U.S. Fed raised rates to 8 percent that month.

Investors ignore an expected shift in BOJ policy ``at our own peril,'' said Paul McCulley, a managing director at Pacific Investment Management Co. ``This will be a huge event,'' McCulley said in response to questions after a speech to the Money Marketeers in New York yesterday evening.

McCulley said he expects the Bank of Japan to reduce the amount of money it pumps into the economy in April. Newport Beach, California-based Pimco manages the $92 billion Total Return Fund, the world's biggest bond fund.

To contact the reporter on this story:
Chris Young in Sydney at cyoung12@bloomberg.net, or
Chris Cooper in Tokyo at ccooper1@bloomberg.net

Last Updated: February 28, 2006 02:32 EST

[Ichiro]

Here comes India!!!!

India to Spend More on Power, Roads to Spur GDP Growth to 10%

Feb. 28 (Bloomberg) -- India's government will increase spending on power plants, roads and ports to help boost annual economic growth to 10 percent and challenge China as the world's fastest-growing major economy.

Power generation capacity will expand by about 40,000 megawatts in the next three years, with 15,000 megawatts being added in the year starting April 1, Finance Minister Palaniappan Chidambaram said in his budget speech to lawmakers in New Delhi today. Roads are being built at a rate of 4.48 kilometers a day.

Indian ports take 10 times longer than those in Hong Kong to load and unload ships and manufacturers pay twice as much as in China for electricity. India, Asia's fourth-largest economy, attracts a tenth of China's overseas investment, reflecting transport bottlenecks that restricted growth to an average of 6 percent since 1980.

``Infrastructure had to be the priority of this year's budget,'' Saumitra Chaudhuri, chief economist at credit rating company ICRA Ltd., said in New Delhi. ``India can't raise its economic growth bar without fixing its infrastructure.''

Chidambaram said the economy will probably grow as much as 8.1 percent in the year ending March 31, following a 7.5 percent expansion a year earlier. China's economy, the world's fourth largest, expanded 10 percent a year in the past three years.

Prospects for the fiscal year starting April 1 are ``just as good, if not better,'' and the government is ``determined'' to achieve a 10 percent growth rate in the years ahead, Chidambaram told parliament.

Quarterly Growth Slows

Another report today showed economic growth slowed for a second quarter after a fire disrupted crude oil production and natural gas shortages crimped power generation.

Gross domestic product expanded 7.6 percent in the three months to Dec. 31 after an 8 percent gain in the second fiscal quarter, the Central Statistical Organisation said today in a statement in New Delhi. That was less than the median forecast of 7.7 percent in a Bloomberg survey of 11 economists.

The Mumbai stock exchange's benchmark Sensitive Index fell. The Sensex declined 39.11, or 0.4 percent, to 10,242.98, at 12:39 p.m. local time in Mumbai. The index earlier rose as much as 0.7 percent.

The increased spending will be funded from higher tax revenue generated by faster economic growth and through borrowing. India's government relies on tax collection and bond sales for additional resources because its communist coalition partners oppose cuts in food and fertilizer subsidies, which account for a tenth of overall spending.

Services Tax

Chidambaram today increased a tax on services to 12 percent from 10 percent and said more services such as bank's cash machines will attract the levy. Services will contribute 54 percent of gross domestic product, he said.

Chidambaram today left unchanged the tax rate for local companies at 30 percent and for overseas companies at 35 percent.

Last year, he cut the rate for local companies to 30 percent from 35 percent to improve tax compliance. Companies contribute a third of the government's tax revenue.

``Given the constraint on resources, the government can't afford another round of cuts in corporate tax rates,'' said D. H. Pai Panandiker, director general at RPG Foundation, an economic policy group in New Delhi. ``It may decide to bring in more businesses under the service tax net.''

In the last budget, of the total 5.1 trillion rupee spending projected for the year ending March 31, besides subsidies, 14 percent was defense expenditure, 22 percent interest on national debt, and 27 percent went to the country's 29 states as grants and revenue sharing, leaving little for infrastructure.

Subsidies

The government on Jan. 13 scrapped a week-old plan to cut its subsidy bill by 10 percent following opposition from communists, whose support gives Prime Minister Monmohan Singh's government a majority in parliament.

``It's difficult to balance the compulsions to spend aggressively and cut the budget deficit in the current political setting,'' said Sanjeet Singh, a fixed-income analyst at ICICI Securities Ltd. in Mumbai. ``The government is lucky the economy is on an upswing and that will help increase tax collection.''

Chidambaram today said the government's budget deficit will narrow to a revised 4.1 percent of GDP in the year ending March 31, and projected a 3.8 percent deficit for the year starting April 1.

The budget deficit for the current financial year was revised from 4.3 percent projected in last year's budget speech.

Budget Deficit

The government is required by law to cut the budget deficit each year by the equivalent of 0.3 percent of gross domestic product, and to eliminate its revenue deficit by 2009, borrowing only to fund investments thereafter.

Standard & Poor's has a below-investment-grade BB+ rating on India's long-term local-currency debt on concern it may struggle to reduce the deficit. It rates China's local-currency debt A-, its seventh-highest investment grade.

``We will be looking at the renewed commitment to fiscal consolidation,'' Chew Ping, New York-based S&P's director of financial services and sovereign ratings, told reporters during a conference call yesterday. ``India happens to be one of the highest, most indebted countries globally. It has a very high interest-burden budget.''
Last Updated: February 28, 2006 02:27 EST

[Ichiro]

Very interesting article on "carry trade".... Its not only the Japan but also the eurozone such as Swedes, the Swiss.....

Global credit ocean dries up


(Filed: 24/02/2006)

The cash machine that sustained a world boom is about to close, and it's going to get ugly, says Ambrose Evans-Pritchard

One by one, the eurozone, the Swedes, the Swiss and now even the Japanese, are turning off the tap of ultra-cheap credit that has flushed the global system for the past year, keeping the ageing asset boom alive.


The "carry trade" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities.

Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the US and other central banks to restrain over-heating in their own countries.

The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2,400bn a day.

"The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned," said David Bloom, currency analyst at HSBC.

"It's going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet," he said.

"People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to US financial imbalances," he said.

There were early signs of panic this week when the Icelandic krone crashed 8pc in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil.

The debacle was triggered when the rating agency Fitch downgraded Iceland's sovereign debt, a move that would not normally rattle markets.

The new skittishness comes against a backdrop of ever more hawkish moves by Japan and Europe.

"There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable," said Stephen Lewis, an economist at Monument Securities. "When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes."

Toshihiko Fukui, the Japanese central bank governor, gave a fresh warning yesterday that this day is near, saying the country was pulling out of seven years of deflation. The economy grew at a 5.5pc rate in the fourth quarter of 2005.

In his strongest words yet, he said the bank would act "immediately" to curtail its extra injections of liquidity, preparing the way for rate rises above zero in coming months.

"The moment of truth is approaching,'' said Kenichiro Ikezawa of Daiwa SB. In Europe, Sweden raised rates to 2pc this week in the face of an overheated Stockholm property market, while Germany's IFO business climate index soared yesterday to its highest level in 14 years.

The European Central Bank will almost certainly raise eurozone rates to 2.5pc in March, with likely moves to 3pc by the end of the year.

Most of the world is now tightening, with no sign of a fresh credit window opening to keep the game going. This is new. Japan has had the tap on continuously as the trade exploded over the past five years, while America itself became the source of funds after it slashed rates to 1pc at the end of the dotcom bubble, and held them there until June 2004.

The US Federal Reserve has since raised rates 14 times to 4.5pc in a belated effort to restore monetary discipline, with at least two more rises priced into the markets.

It is an open question whether the yen, euro, Swiss franc and Swedish krona carry trades have occurred on such a scale that they have led to over-investment in Latin America and beyond, and compressed US yields, fuelling the American housing boom in 2005 despite Fed tightening.

There are other big forces at work: huge purchases of US Treasuries by Asian central banks, and petrodollar surpluses coming back to the US credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. "The lure of the carry trade is so compelling, it creates artificial demand for 'carryable' assets that has the potential to turn normal asset price appreciation into bubble-like proportions," he said.

"History tells us that carry trades end when central bank tightening cycles begin," he said. Ominously, almost every bank other than the Bank of England is now tightening in unison.

[Ichiro]

AP

Energy Prices Push Euro-Zone Inflation Up


Tuesday February 28, 7:28 am ET
By Aoife White, AP Business Writer

Energy Prices Push Euro-Zone Inflation Up to 2.4 Percent in January

BRUSSELS, Belgium (AP) -- Higher gas pump and heating prices pushed inflation to 2.4 percent in January in the 12 nations using the euro as their shared currency from 2.2 percent the previous month, the EU statistical agency Eurostat said Tuesday.

This is the first rise since inflation climbed to 2.6 percent in September from 2.2 percent in August as pressure on oil supplies squeezed prices.

Monthly price increases are also fueled by the high cost of energy. "Fuels for transport and gas had the largest upward impacts," Eurostat said, comparing prices with December.

The European Central Bank is expected to raise its key interest rate to 2.5 percent on Thursday to dampen price rises as the European economy slowly picks up pace.

Worries about price stability caused the ECB to raise its key interest rate for the euro zone to 2.25 percent from 2 percent in December, the first increase in five years.

The ECB's guideline for inflation is less than, but close to, 2 percent.

Eurostat said prices for housing, transport, alcohol, tobacco and education have risen over the course of the year while the cost of telecoms, clothes and recreation and culture have gone down or remained stable.

In the euro-zone, Spain had the highest January inflation at 4.2 percent, followed by Luxembourg at 4.1 percent. Austria reported the lowest rate at 1.5 percent.

Inflation in the entire European Union was 2.2 percent in January, up from 2.1 percent in December. Latvia leads the pack at 7.6 percent, with Estonia in second place at 4.7 percent and Slovakia following at 4.1 percent.

Poland has the EU's lowest inflation level at 0.9 percent. Sweden reported 1.1 percent.

The European Commission's business climate indicator for the euro area climbed to 0.61 in February from 0.34 in January, its highest level in five years.

"The improvement of the indicator suggests that industrial production growth has picked up further since the start of the year," the commission said, attributing the rise to industry managers' assessment that production trends, total order books and export order books had improved.

Overall economic confidence is also on an upward track, the EU executive said. Its economic sentiment indicator for the euro zone rose to 102.7 in February from 101.5 the previous month, "considerably above its long term average," it said.

The commission said industry, retail and consumers were more optimistic about the economy with construction remaining unchanged and the services sector recording a slight fall in confidence in both the euro zone and the entire EU.

[Ichiro]

Nikkei falls for first time in five sessions
Wed Mar 1, 2006 2:46 AM ET

For the latest Reuters poll of Japanese retail investors click on [ID:nT96490]. (Adds stocks)

By David Dolan

TOKYO, March 1 (Reuters) - The Nikkei average fell for the first time in five sessions on Wednesday, losing 1.49 percent as exporters such as Kyocera Corp. (6971.T: Quote, Profile, Research) declined after weaker-than-expected data raised concerns about U.S. economic growth and weighed on both Wall Street and the dollar.

Investors also unloaded Internet-related firms such as Softbank Corp. (9984.T: Quote, Profile, Research) after U.S. tech bellwether Google Inc. (GOOG.O: Quote, Profile, Research) warned that revenue growth from Internet-search advertising was slowing.

Shares in Rakuten Inc. (4755.Q: Quote, Profile, Research) may be in focus on Thursday. The Internet shopping mall operator said it would raise more than $900 million for financing and debt repayment by issuing new shares.

News of the weak data in the United States -- a key market for Japan's exporters -- weighed on Tokyo stocks, said Shigemi Nonaka, chairman of Polestar Investment Management.

"It was a bit of a negative surprise," he said.

The slowdown in the U.S. economy "is one of the things that we'll have to be watching this year, and it is one of the reasons why stocks aren't likely to book aggressive advances", he said.

A range of U.S. economic data released on Tuesday, including existing home sales and consumer confidence, was below expectations, fuelling concern about growth in the world's biggest economy.

That helped push the yen <JPY=> to its highest level in a month, weighing on shares of exporters. A stronger yen is a minus for exporters, as it eats into profits when dollar-denominated earnings are brought home.

Electronics components maker Kyocera fell 2.4 percent to 10,150 yen. Sony Corp. (6758.T: Quote, Profile, Research) lost 1.6 percent at 5,440 yen, falling for a second session. Toyota Motor Corp. (7203.T: Quote, Profile, Research), the world's second-biggest auto maker, lost 1.6 percent to 6,150 yen.

Yahoo Japan Corp. (4689.T: Quote, Profile, Research), the country's biggest Internet portal, lost 2.9 percent to 134,000 yen, following the fall in shares of Google. [ID:nN28151848]

Internet and communications conglomerate Softbank, which owns 42 percent of Yahoo Japan, slid 3.9 percent to 3,460 yen.

RETAIL INVESTORS CRIMP VOLUME

Slower trade activity due to the absence of many retail investors has weighed on the market in recent sessions, said Katsuhiko Kodama, a senior strategist at Toyo Securities.

Many retail investors have been holding back following the stock market tumble prompted by an investigation into Internet firm Livedoor Co. (4753.T: Quote, Profile, Research).

"The market lacks the kind of trade volume needed to push it higher," Kodama said.

"There were a lot of investors who were burned (by the Livedoor fall-out), and a lot of them have yet to come back to the market," he said.

Individual investors are no longer as bullish as they were on Japanese stocks, because of concerns that foreigners are pulling away from the market as well as the Livedoor scandal, a monthly Reuters survey showed on Wednesday.

Shares in Seven Seven & I Holdings Co. (3382.T: Quote, Profile, Research) fell 2.1 percent to 4,680 yen after Asia's second-largest retailer by sales cut its 2005/06 net profit forecast by 25 percent on Tuesday.

But shares in Japan Airlines Corp. (9205.T: Quote, Profile, Research) rose 4.8 percent to 326 yen, after domestic newspapers reported the airline will replace its chief executive in a bid to end internal strife at Asia's biggest carrier.

Trade activity on Wednesday hit its lowest level so far this week, with 2.1 billion shares changing hands on the Tokyo exchange's first section.

Decliners swept past advancers by a ratio of more than 5 to 1.
© Reuters 2006. All Rights Reserved.

[Ichiro]

China Share Prices Rise

Wednesday March 1, 6:00 am ET

China Share Prices Rise As Yuan Hits New High Against U.S. Dollar

SHANGHAI, China (AP) -- China share prices rose Wednesday as the continued rise of the Chinese currency boosted property and airline stocks.

The benchmark Shanghai Composite Index gained 0.6 percent to 1,306.59. The Shenzhen Composite Index climbed 0.7 percent to 317.63.

The U.S. dollar closed at 8.0390 on the automatic price-matching system, its lowest level since a July 21 revaluation. It traded in a range of 8.0380-8.0365. It closed Tuesday at 8.0402.

At 0738 GMT, the dollar was at 8.0370 on the over-the-counter market. On Tuesday it closed at 8.0403.

Property shares rallied on expectations that the stronger yuan will attract more investments in real estate and shares.

"The yuan's rise is double good news for property stocks, because stocks and properties are top investment choices for overseas speculators," said Kang Haoping, an analyst at Jutian Securities.

On the Shenzhen Stock Exchange, Shenzhen Zhenye (Group) rose 6 percent to 6.55 yuan; Fujian Changyuan Investment gained 4.9 percent to close at 1.29 and Jilin Guanghua Holding Group added 2.3 percent to end at 2.65 yuan.

In Shanghai, Tunefulhome rose 3.7 percent to 3.37 yuan, while Gemdale closed 3.5 percent higher at 8.08.

Airlines, which carry heavy dollar-denominated debt, also got a boost from the yuan's strength.

China Eastern Airlines gained 3.1 percent to 2.68, while China Southern Airlines rose 3 percent to 2.73 yuan.

"The market could climb steadily in the near term with investors upbeat about the regulators' pro-market stance," said James Teng, a strategist at Orient Securities.

Official securities newspapers Wednesday published a speech delivered in January by Vice Premier Huang Ju, in which he pledged to allow more types of funds access to capital markets to attract more strategic investors.

Analysts said the timing of the publication is significant, coming just days before the National People's Congress, China's legislature, begins its annual session on Sunday.

The gathering, which mainly endorses policies set by the ruling Communist Party, will set the year's political and economic agenda.

[Ichiro]

Japan's Bonds Drop, Pushing 10-Year Yield to Highest Since 2004

March 2 (Bloomberg) -- Japan's bonds fell, pushing 10-year yields to the highest since September 2004, as an inflation report tomorrow may support the case for the central bank to pump less money into the economy.

Bonds are set to drop for a second week on concern the Bank of Japan will shift policy at a two-day meeting that starts March 8 and raise interest rates from zero by year-end. Core consumer prices in January had the biggest gain since March 1998, according to the median estimate of economists surveyed by Bloomberg News.

``Investors are reluctant to buy bonds before the price report and the BOJ meeting,'' said Yasunori Kuroda, who helps manage fixed-income assets in Tokyo at Sompo Japan Insurance Inc., the nation's No. 3 casualty insurer. ``I see a more than 50 percent chance for a policy shift next week.''

The yield on the benchmark 1.6 percent bond due in December 2015 rose 3 basis points to 1.63 percent, as of 3:03 p.m. in Tokyo, according to Japan Bond Trading Co.

Ten-year yields earlier rose to 1.64 percent, the highest since Sept. 8, 2004. The price dropped 0.254 yen, or 254 yen per 100,000 yen face amount, to 99.746 yen.

Kuroda said he is keeping the average duration of his debt shorter than the benchmark he uses to gauge performance. Duration measures sensitivity to changes in interest rates, and the lower an investment's duration, the less it loses when yields rise.

Futures

Three-month Euroyen futures indicate traders are betting that the central bank may raise interest rates by 25 basis points from near zero percent in the last quarter of this year.

Contracts for December 2006 delivery yielded 0.575 percent today, up from 0.415 percent a month ago. Euroyen futures settle to three-month Tokyo interbank lending rates that averaged about 0.51 percent when the BOJ kept its target for overnight lending rate at 0.25 percent from Aug. 11, 2000, to Feb. 27, 2001, according to data compiled by Bloomberg.

Five-year notes in February had the biggest monthly drop since September after Bank of Japan Governor Toshihiko Fukui on Feb. 23 said stable gains in core consumer prices are ``close at hand'' and the bank will ``immediately shift policy'' once it judges the right conditions have been met.

The bank has said it will keep its current policy until three conditions are met: core consumer prices stop falling for at least a few months; policy makers are sure they won't resume sliding; and the bank is confident about the economy's overall strength.

Core prices, excluding fresh food, rose 0.4 percent in January, according to the median estimate of 33 economists in a Bloomberg survey. Prices in December had the first back-to-back monthly gain since April 1998.

Japan's economy expanded 5.5 percent in the fourth quarter, compared with 1.4 percent growth in the previous quarter.

`Hard to Buy'

``People will probably find it hard to buy bonds ahead of the consumer-prices report,'' said Katsutoshi Inadome, a fixed-income strategist in Tokyo at Mitsubishi UFJ Securities Co., part of Mitsubishi UFJ Financial Group Inc., the world's biggest lender by assets. ``A strong trend of rising core prices will probably encourage people to reduce their bond holdings.''

Bond futures pared losses after the government's 1.9 trillion yen ($16.3 billion) auction of 10-year debt garnered higher demand than the sale last month.

``The auction results weren't as bad as some people had anticipated,'' said Tokyo-based Tomohiko Katsu, fixed-income strategist at Nikko Citigroup Ltd., the second-largest buyer at government debt auctions in the July to December period. ``Yields are high enough to attract some investors.''

Auction

The Ministry of Finance set a 1.6 percent coupon, the same as the prior month, on 10-year bonds. The auction drew bids worth 2.42 times the amount of debt sold, compared with a ratio of 2.29 at the previous sale on Feb. 2.

Bond futures for March delivery fell 0.06 to 135.80 as of the 3 p.m. close at the Tokyo Stock Exchange, paring losses from the day's low of 135.53.

Benchmark 10-year yields have risen more than 30 basis points since the current fiscal year started on April 1 on signs the economy is growing fast enough to end deflation.

A report on Feb. 28 showed industrial production rose for a sixth month in January, the longest expansion in nine years.

The government can't determine long-term interest rates, Japan's Finance Minister Sadakazu Tanigaki said in Tokyo.

Rates ``are not something that can be controlled politically,'' he said in parliament today.

To contact the reporter on this story:
Keiko Ujikane in Tokyo at kujikane@bloomberg.net

Last Updated: March 2, 2006 01:15 EST

Advertisement: $48 bil

[Ichiro]

AP

Japanese Stocks Fall; Dollar Rebounds

Thursday March 2, 3:26 am ET

Japanese Stocks Fall for Second Day on Lower Steel, Machinery Stocks; Dollar Rebounds

TOKYO (AP) -- Japanese stocks fell for a second day Thursday, dragged down by steel and machinery stocks. The dollar edged higher against the yen.

The benchmark Nikkei 225 index fell 54.70 points, or 0.34 percent, to 15,909.76 points the Tokyo Stock Exchange. The index lost 240.97 points, or 1.49 percent, the previous day.


Investors were also cautious ahead of Friday's release of consumer price figures. Signs that Japan is emerging from deflation, or falling prices, could spur the Bank of Japan to tighten its ultra-loose monetary policy in the near future.

Stocks moved higher for much of Thursday's session before investors sold steel and machinery stocks after some steelmakers revised downward their profit outlook for the fiscal year through March.

Among steelmakers, JFE Holdings Inc. dropped 3.98 percent to 4,180 yen ($36.03) after the company cut its group operating profit outlook. Nippon Steel Corp. fell 4.38 percent to 453 yen ($3.91).

Major machinery maker Okuma Holdings Inc. lost 3.18 percent to 1,362 yen ($11.74).

But auto stocks advanced on news of healthy auto sales in the United states.

Honda Motor Co., which posted a 9 percent increase in U.S. sales last month over a year ago, added 0.15 percent to 6,850 yen ($59.06). Toyota Motor Corp., whose U.S. sales rose 2 percent in February, rose 0.98 percent to 6,210 yen ($53.53).

The broader TOPIX, which includes all issues on the exchange's first section, shed 3.36 points, or 0.21 percent, to 1,632.24 Thursday. The index fell 24.82 points, or 1.49 percent, Wednesday.

In currency trading, the U.S. dollar was trading at 116.30 yen on the Tokyo foreign exchange market at 3 p.m. Thursday, up 0.23 yen from late Wednesday in New York. On Wednesday, the dollar fell to a one-month low of 115.45 yen.

The euro fell to $1.1920 from $1.1936 in New York.

The yield on the 10-year Japanese government bond rose to 1.6250 percent from Wednesday's close of 1.6000 percent. Its price fell 0.22 point to 99.78.

[Ichiro]

FOREX-Euro supported ahead of expected ECB rate rise

Thu Mar 2, 2006 6:13 AM ET166

By Carolyn Cohn

LONDON, March 2 (Reuters) - The euro edged towards the previous day's three-week high against the dollar on Thursday ahead of an expected euro zone interest rate rise and as investors awaited clues on the pace of future tightening.

The European Central Bank is expected to raise rates by 25 basis points to 2.5 percent at 1245 GMT, but with the decision unanimously expected, investors are keen to hear what the bank's president Jean-Claude Trichet has to say at a news conference at 1330 GMT.

The single currency has been stuck in a $1.18-$1.23 range since December and analysts say Trichet needs to sound upbeat to push the euro above the range, given U.S. rates are also seen heading higher in the near term.

"A 25 basis point rise is fully priced into the market, but the crucial thing is whether the euro zone recovery will be sufficient for Trichet to signal we are in a series of rate rises," said Kamal Sharma, currency strategist at Bank of America.

The ECB last raised interest rates in December. Euro zone interest rate futures are pricing in the region's borrowing costs at three percent by the end of this year

By 1100 GMT, the euro was up slightly on the day at $1.1931 <EUR=>, having hit a three-week high of $1.1974 on Wednesday.

It drew support on Wednesday after a survey showing the euro zone's manufacturing sector grew at its fastest pace in 19 months.

Data on Thursday continued to support the euro. Euro zone producer prices rose an above-expected 1.2 percent in January, German retail sales rose by a far stronger-than-expected 2.7 percent and German engineering orders surged 25 percent in January.

The euro was trading at 1.5643 Swiss francs <EURCHF=>, close to its best levels since April 2004 at 1.5678 hit earlier this week. RBS analysts said growing risk appetite and low Swiss rates were helping the euro against the franc.

The dollar was steady at 116.23 yen <JPY=>, off a one-month low of 115.43 set on Wednesday. Continued ...

© Reuters 2006. All Rights Reserved.

[Ichiro]

India stocks just made a new high!!!

AP
Tokyo Shares Drop, India Hits Record High

Thursday March 2, 6:50 am ET

In Asian Markets, Tokyo Shares Drop While India Hits Record High on Nuclear Pact With U.S.

HONG KONG (AP) -- Asian stock markets closed mixed Thursday, with Tokyo shares falling for a second straight session on losses by steel and machinery stocks, while smaller markets were boosted by gains on Wall Street.


Indian shares rose to a new record high for the second straight session as investors snapped up blue chips on news that U.S. President George W. Bush and Indian Prime Minister Manmohan Singh reached a landmark nuclear pact.

The Bombay Stock Exchange's 30-stock Sensitive Index, or Sensex, rose 61.31 points, or 0.6 percent, to a record closing high of 10,626.78. The Sensex's previous record was at 10,565.47 Wednesday.

In Tokyo, Nikkei 225 index dropped 54.70 points, or 0.3 percent, to 15,909.76.

Japanese stocks moved higher for much of Thursday's session before investors sold steel and mac

hinery stocks after steelmakers offered revised earnings outlooks. Nippon Steel, Japan's largest steelmaker, revised its earnings outlook upward, but its stock still fell 4.4 percent after traders said the revisions didn't offer any positive surprises.

No. 2 steelmaker JFE Holdings Inc., which left its net profit outlook unchanged and lowered its operating profit outlook, dropped 3.98 percent.

But auto stocks advanced on news of healthy auto sales in the United states. Gainers included Honda Motor Co. and Toyota Motor Corp.

Investors were cautious ahead of Friday's release of consumer price figures, analysts said. Signs that Japan is emerging from deflation, or falling prices, could spur the Bank of Japan to tighten its ultra-loose monetary policy in the near future.

Hong Kong shares rebounded slightly on gains by select mainland Chinese plays and property stocks.

The Hang Seng Index climbed 64.36 points, or 0.4 percent, to end at 15,882.45. The Hang Seng plunged 100.39 points, or 0.6 percent, on Wednesday.

In currency trading, the U.S. dollar edged a tad higher against the Japanese yen. It bought 116.06 yen in late Tokyo trading, up 0.01 yen from late Wednesday in New York.

The euro rose to US$1.1936 from US$1.1915 in New York.

Elsewhere:

BANGKOK: Thai shares advanced, led by foreign buying of energy and bank blue chips. The Stock Exchange of Thailand index gained 4.24 points, or 0.6 percent, at 752.52.

JAKARTA: Indonesian shares moved up, led by gains in bank and mining sector stocks. The Composite Index added 10.408 points, or 0.8 percent, to 1,249.678.

KUALA LUMPUR: Malaysian shares declined, hurt by a big drop in power utility Tenaga Nasional. The weighted Composite Index of 100 blue chips fell 1.78 points, or 0.2 percent, to 919.78.

MANILA: Philippines stocks rose marginally for the fourth day in a row, boosted by a stronger currency and calmer political situation. The 30-company Philippine Stock Exchange Index edged up 2.34 points, or 0.1 percent, to 2,137.61.

SEOUL: South Korean shares dropped on losses in most financial stocks. The Korea Composite Stock Price Index, or Kospi, edged down 3.89 points, or 0.3 percent, to 1,367.70.

SHANGHAI: Chinese shares fell, led by blue chips, as insurance companies withdrew funds from the market to lock previous gains. The Shanghai Composite Index shed 20.92 points, or 1.6 percent, to 1,285.67.

SINGAPORE: Share prices retreated slightly as investors sold stocks to lock in profits. The Straits Times Index shed 2.37 points, or 0.1 percent, to 2,480.30.

SYDNEY: Australian stocks rose, buoyed by a strong lead from Wall Street and positive commodity prices. The S&P/ASX200 gained 53.20 points, or 1.1 percent, to close at 4,903.80.

TAIPEI: Taiwan's shares were boosted by rising chipmakers following gains on Wall Street. The Weighted Price Index gained 29.57 points, or 0.5 percent, to 6,642.96.

WELLINGTON: New Zealand shares climbed, helped by gains in overseas markets. The NZSX-50 index gained 10.23 points, or 0.3 percent, at 3,407.33.

[Ichiro]

CURRENCIES

Euro at three-week high vs. dollar


ECB hikes rate to 2.5%, says risks remain on upside

By Wanfeng Zhou, MarketWatch

Last Update: 11:51 AM ET Mar 2, 2006

NEW YORK (MarketWatch) - The euro rose to a three-week high against the dollar Thursday after Jean-Claude Trichet, the European Central Bank president, made hawkish comments on the interest rate outlook in the eurozone.

The euro passed the $1.20 mark for the first time since Feb. 10. The currency had climbed to an intra-day high of $1.2002, before paring gains to trade at $1.1981, up 0.5%.

The euro also strengthened to 139.08 yen, up 0.6%.

"The rate hike was widely expected, so it's been discounted," said Mike Malpede, senior currency analyst at Refco in Chicago.

However, the statement from Trichet "seemed to be hawkish, leaving the door open for more rate hikes...Trichet specifically said the policy is accommodative," he said. "This should be a little bit supportive for the euro."
Earlier, the ECB hiked its key interest rate by a quarter point to 2.5%, in response to a European economy that's slowly showing signs of a pick-up in demand after a moribund 2005.

It's the second rate rise in four months, as the central bank moves to quell inflation.

Trichet, in a prepared statement after the policy meeting, said that monetary policy remains accommodative and the risks to stability remain on the upside. The banker also lifted his view of economic growth prospects.
"This decision reflects the upside risks to price stability that we have identified on the basis of both our economic and monetary analyses," said Trichet.

Trichet dropped his use of the word "vigilance" to describe the central bank's attitude toward inflation, reverting back to "monitoring closely." He did the same after the bank's December rate hike.

He added -- as he has done before -- that the central bank has not decided to engage in a series of rate hikes.

The ECB said that inflation is expected to be between 1.9% and 2.5% in 2006, and between 1.6% and 2.8% in 2007. Inflation risks include increases in oil prices.

It also upped its view on the economy, now seeing average annual real GDP growth in a range of 1.7% to 2.5% in 2006, and 1.5% to 2.5% in 2007. See full story.

Jeremy Friesen, senior currency strategist at RBC Capital Markets, said the market is expecting the ECB to raise rates at least twice more this year, but it will be "data dependent." Growth in Germany, inflationary pressures, oil prices will be closely monitored, he said.

Malpede said the dollar/euro's range trading will continue.

"The yield differential is going to limit any real upside for the euro right now," he said.

In the U.S. the market remains primed for one more, and likely two more quarter-point Fed target rate increases, which will lift rates to 5% by mid-year.

Earlier, the dollar showed little reaction to a marginally higher-than-expected U.S. jobless claims report.

The U.S. Labor Department reported that jobless claims rose 15,000 to 294,000 in the latest week; economists surveyed by MarketWatch had expected a smaller increase to 287,0000.
Also on Thursday, data showed that German retail sales surged 2.7% in January after declining 0.7% in December.

The report reinforced the sentiment that the economic rebound in the eurozone is gaining momentum, analysts said.

In Japan, markets were focused on Friday's consumer price index release, which will be key in shaping expectations for either a March or April BoJ policy shift, analysts said.

Wanfeng Zhou is a markets reporter in New York.

[Ichiro]

ECB Raises Interest Rates on Higher Growth Forecasts (Update2)

March 2 (Bloomberg) -- The European Central Bank raised its benchmark interest rate for the second time in three months and indicated that more increases are possible as economic growth and inflation accelerate. Stocks and bonds fell and the euro rose.

``We stand ready to do whatever is necessary and appropriate to ensure price stability,'' ECB President Jean- Claude Trichet said at a press conference in Frankfurt after the ECB lifted the refinancing rate to 2.5 percent from 2.25 percent. The ECB has ```a stimulative monetary policy. There is no doubt in my mind.''

The bank said the economy of the dozen nations sharing the euro will expand about 2.1 percent this year, up from a December forecast of 1.9 percent. Export earnings are fueling domestic spending by companies such as LVMH Moet Hennessy Louis Vuitton SA, which today said second-half profit rose 22 percent.

Trichet's comments ``imply that the ECB is thinking of further monetary tightening during the course of the year,'' said Julian Callow, chief European economist at Barclays Capital in London. ``I would look for that to happen on June 8.''

The Dow Jones Stoxx 600 Index fell 0.8 percent to 328.05 at 4:35 p.m. in London. The decline in bonds sent the yield on German two-year notes, among the most sensitive to changes in rate expectations, up 0.06 percentage point to 3.06 percent, the highest since Dec. 6, 2002. The euro climbed as high as $1.2016 from $1.1924 yesterday.

Faster Inflation

Confidence among European executives and consumers rose to the highest in five years in February. Inflation may average 2.2 percent this year and next, up from a previous estimate of about 2.1 percent, and 2 percent in 2007, Trichet said today.

Investors increased bets the ECB will raise the benchmark refinancing rate to 3 percent by the end of 2006, futures trading suggests. The yield on the three-month contract for December settlement was 3.27 percent, compared with 3.22 percent yesterday.

The contracts settle to the three-month euro area inter- bank offered rate for the euro, which has averaged 15 basis points more than the ECB's benchmark rate since the currency's launch in 1999.

``Interest rates across the maturity spectrum remain at very low levels in both nominal and real terms, and our monetary policy remains accommodative,'' Trichet said. ``We will continue to monitor closely all developments with respect to risk to price stability.''

Wage Demands

In the past month, ECB council members Trichet, Yves Mersch, Nicholas Garganas and Axel Weber expressed concern about so-called second-round effects, as higher oil prices fan demands for higher pay, creating an inflationary spiral. IG Metall, the German engineering and metalworkers' union that traditionally sets the benchmark for other industries, demanded a 5 percent pay increase, more than twice the inflation rate.

Politicians and some economists see a risk that higher ECB rates will choke growth. Dario Perkins, an economist at ABN Amro Holding NV in London, said Feb. 24 that the ECB has irrational fears of an ``inflation monster'' and that the bank is being ``too aggressive.''

Pervenche Beres, chairwoman of the European Parliament's economic and monetary committee, today asked: ``Mr. Trichet, by raising interest rates today, doesn't the ECB risk halting the fragile upturn in growth?''

Global Rates

Manufacturing expansion accelerated to the fastest pace in 19 months in February, according to an index compiled by NTC Research Ltd. The euro-region unemployment rate declined to 8.3 percent, from 8.9 percent in September 2004.

With the exception of the U.K., where policy makers pared their benchmark lending rate in August to 4.5 percent and have left it unchanged since, central bankers worldwide are in the process of lifting borrowing costs.

Bank of Japan Governor Toshihiko Fukui has embarked on a campaign to prepare markets for higher rates as the world's second-largest economy emerges from seven years of deflation. The U.S. Federal Reserve increased interest rates 14 consecutive times since June 2004 to a four-year high of 4.5 percent.

The Fed will increase borrowing costs by at least as much as the ECB in 2006, according to a Royal Bank of Scotland Group Plc survey published yesterday in London.

The euro area will trail the U.S. in economic growth for a sixth year in 2007, according to Organization for Economic Cooperation and Development projections published Nov. 29. The U.S. unemployment rate is almost half that of Europe, and concern about job losses has made Europeans reluctant to increase spending. Retail sales in the region fell in January, the Bloomberg purchasing managers index showed Feb. 6.

Inflation Concerns

Higher energy costs are also forcing consumers to spend more on fuel. Crude oil prices have risen 84 percent in the past two years, climbing as high as $70.85 a barrel on Aug. 30. A barrel of crude cost $62.55 in New York trading today.

``As regards the future, we will decide to move on the basis of facts, figures, data, on our future assessment of the risks to price stability and their own evolution,'' Trichet said today. European consumers ``are not fully satisfied with the current level of inflation and they are calling to us to be up to our responsibility.''

Growth in M3, a measure of money supply the ECB uses as a barometer of future inflation, accelerated to 7.6 percent in January from a year earlier, up from a 7.3 percent gain in December, the bank said this week.

The ECB has estimated euro-region home values exceed the historical average by as much as 25 percent. The expansion in M3 has topped 4.5 percent, the level the ECB says is non- inflationary, every month since May 2001.

To contact the reporter on this story:
Brian Swint in Frankfurt at bswint@bloomberg.net.

[Ichiro]

Fukui, Emulating Greenspan, Prepares for Rate Rise (Update1)

March 3 (Bloomberg) -- Bank of Japan Governor Toshihiko Fukui, preparing to end a five-year deflation-fighting policy and raise interest rates, is taking a page from Alan Greenspan's playbook.

Fukui has embarked on a public campaign to prepare the markets for a change in policy in the world's second-largest economy. Analysts say the effort is reminiscent of former Fed Chairman Greenspan's management of market expectations through the use of such terms as ``measured pace'' at the outset of the U.S. central bank's current round of tightening in 2004.

The goal is to avoid the Fed's experience of 1994, when a series of increases that added 3 percentage points to the Fed's benchmark rate led to a bond-market slump as the cost of debt surged, said Jesper Koll, chief economist for Japan at Merrill Lynch & Co.

``The latest series of increases has been much better managed than 10 years earlier'' in the U.S., said Koll. ``A key challenge for the Bank of Japan will be to manage investor perceptions just as well.''

Japan, like the U.S. in both 1994 and 2004, is seeking to emerge from a period of negative real rates. Fukui, 70, doesn't want a repeat of the last time the Bank of Japan raised its target for the overnight call rate, to 0.25 percent from almost zero, in August 2000. The bank was forced to lower rates again seven months later as the global economy slumped after the Internet bubble burst.

No Repeat

``We will never let the BOJ repeat the mistake the bank made in August 2000,'' Kozo Yamamoto, a legislator of the ruling Liberal Democratic Party, said in January.

Under Fukui's plan, the Bank of Japan won't raise interest rates from zero right away. Instead, it has said it will first gradually reduce the amount of money it makes available as reserves to banks, now between 30 trillion yen ($258 billion) and 35 trillion yen.

The key criterion for a shift in policy is an end to more than seven years of deflation: The bank has said core consumer prices must rise for at least a few months and policy makers must be certain they won't resume their slide.

Core prices, which exclude fresh food, rose in November and December, the first back-to-back gains since April 1998. A government report today will probably show they rose again in January, gaining 0.4 percent from a year earlier, according to the median forecast in a Bloomberg News survey of economists.

On Feb. 9, Fukui told reporters that core prices ``are going to show clear gains in January and afterwards.'' Two weeks later, Fukui told lawmakers that ``We expect gains in core consumer prices will become clearer from now.'' He added: ``Conditions to shift our policy are being met gradually.''

Rising Yields

Japan's five-year notes fell after the Feb. 24 remarks, pushing yields to the highest since November 2000. The yield on 10-year notes rose to 1.595 percent, bringing their advance for the year to 15 basis points. The 10-year yield yesterday touched 1.64 percent, the highest since Sept. 8, 2004.

``Governor Fukui and other Bank of Japan senior officials have strengthened their tone recently and show no signs of letting up,'' Takehiro Sato, an economist at Morgan Stanley Japan, wrote in a note to clients on Feb. 24.

Sato reckons there's a 60 percent chance of a policy shift at the central bank's April 11 meeting and a 30 percent chance at its March meeting.

Eighty-two percent of respondents in a Merrill Lynch survey of 45 global investors published Feb. 21 said the Bank of Japan has done an excellent job communicating policy since March 2003, when Fukui took office.

Expansion

Japan's economy, which endured three recessions in 15 years, grew at a 5.5 percent annual rate last quarter, outpacing the U.S. and the European Union. Japan has now gone 48 months without a recession, appearing to fulfill another one of the central bank's conditions for a change in policy.

``The economy is recovering,'' the government said Feb. 22, deleting the word ```gradually'' from its monthly economic assessment. ``The recovery is expected to continue.''

The government estimates that a 1 percentage point gain in 10-year bond yields would add 1.5 trillion yen to the cost of servicing its debt, the world's largest at 151 percent of gross domestic product. For companies, the cost would be 2.9 trillion yen in lost profit, the government estimates.

``A sharp rise in yields raises interest rates across all forms of debt,'' said Stefan Worrall, an economist at Credit Suisse First Boston in Tokyo. ``The last thing the Bank of Japan wants to do is to surprise the market.''

To contact the reporter on this story:
David Tweed in Tokyo at dtweed@bloomberg.net

[Ichiro]

Japan's Inflation Rate Quickens, Aiding Policy Change (Update7)

March 3 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in eight years in January, giving the central bank room to end its deflation-fighting policy as soon as next week.

Core prices, which exclude fresh food, climbed 0.5 percent from a year earlier after 0.1 percent gains in the previous two months, the statistics bureau said today. The yen fell, eroding gains this week, on concern policy changes won't come fast enough to close the interest-rate gap with the U.S. and Europe.

The inflation report may persuade the Bank of Japan to reduce the cash it pumps into the economy at its next policy meeting on March 9, a precursor to lifting interest rates from near zero. Prime Minister Junichiro Koizumi said in Tokyo he's starting to see signs of an end to deflation, which discouraged bank lending and investment in the world's second-largest economy for the past seven years.

``The chance for a policy change next week has now risen to close to 100 percent,'' said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC Co. The focus will move to when the bank will start to raise borrowing costs, he said.

The yen dropped to 116.47 against the dollar at 4:13 p.m. in Tokyo, from 115.85 before the report was published. Accelerating inflation will erode the value of holding yen until interest rates in Japan rise. The Federal Reserve on Jan. 31 raised the main U.S. interest rate to 4.5 percent and suggested a run of increases isn't finished.

Japan's Finance Minister Sadakazu Tanigaki said he can't conclude that deflation has ended.

``We need to continue to cooperate with the Bank of Japan by constantly keeping in contact with each other and ensuring that there isn't a relapse,'' Tanigaki told reporters in Tokyo after the inflation report.

Wage Growth

A separate report today showed wages in Japan rose for a fifth month in January, the longest expansion since 1997. Spending by households fell 1.5 percent from December and the jobless rate rose to 4.5 percent from 4.4 percent.

Japan's government, the world's largest public debtor, has urged the central bank to avoid making abrupt changes to its policy to prevent a surge in bond yields that would increase interest payments and stifle economic growth.

The yield on the 1.6 percent bond due in March 2016 auctioned yesterday was unchanged at 1.655 percent.

The central bank's first policy adjustment would be to cut the amount of cash it provides to lenders, from between 30 trillion yen ($258 billion) and 35 trillion yen now, Governor Toshihiko Fukui has said. The bank won't immediately raise rates after reducing funds in the banking system, he said.

Policy Conditions

The Bank of Japan has vowed not to change its five-year-old policy until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding. It also needs to be confident about the overall strength of the economy.

``The Bank of Japan's preconditions'' for changing its policy have been met, said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. Maguire predicts policy makers will cut the amount of cash pumped into the economy by about 5 trillion yen at next week's meeting.

Core prices in Tokyo, home to one in 10 Japanese, rose 0.2 percent in February, which show prices a month later than the national report, the first back-to-back gain since August 1998.

Excluding energy and food, Japan's nationwide consumer prices rose 0.1 percent in January, the statistics bureau said. This gauge of prices is widely used in the U.S. and Europe to measure inflation.

The core consumer price gain exceeded the 0.4 percent median forecast of 33 economists surveyed by Bloomberg News. Core price gains accelerated in January mainly because the effects of a cut in phone charges from January 2005 eased, and because gains in crude oil prices lifted the costs of gasoline, kerosene and other fuel products, the statistics bureau said today.

Economic Growth

Japan's economy will probably grow for a seventh straight year in 2006 and at its fastest pace since 1991, a survey of 16 economists showed.

``Japan's core consumer prices will continue to be pushed up by similar factors in February and March, and their increases are not likely to slow from April onwards,'' because the economy will keep expanding, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

The central bank's policy makers will meet again on April 10-11 and April 28.

To contact the reporter on this story:
Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

[Ichiro]

EU Forecasts Fastest Euro Region Growth Since 2000 (Update2)

March 3 (Bloomberg) -- The economy of the dozen euro nations will grow at the fastest pace since 2000 in the first three quarters of this year, the European Commission said.

Gross domestic product compared with the previous three month period will expand around 0.7 percent in the first, second and third quarters of this year, said the commission today. Growth hasn't exceeded 0.7 percent for three consecutive quarters since the period through June 2000.

Accelerating growth prompted the European Central Bank to raise interest rates yesterday and suggest more increases may follow. Exports are spurring business and consumer spending as earnings climb at companies such as Volkswagen AG. Services grew at the fastest pace in more than five years last month, a separate report showed today.

``The economy is gaining a lot of momentum,'' said Dirk Schumacher, an economist at Goldman Sachs Group Inc., which today raised its forecast for rates this year to 3 percent from 2.5 percent. ``That has clear implications for monetary policy. The ECB sounded relatively hawkish yesterday.''

The ECB yesterday raised its forecasts for growth and inflation. The economy of the euro countries will expand 2.1 percent this year, the bank said. Its previous forecast was for expansion of 1.9 percent.

Ready to Act

``We stand ready to do whatever is necessary and appropriate to ensure price stability,'' ECB President Jean- Claude Trichet said yesterday after the bank lifted the refinancing rate to 2.5 percent from 2.25 percent.

Bonds fell, sending yields to the highest since 2002. The yield on Germany's benchmark two-year government bond climbed to the highest since December 2002, touching 3.09 percent today, up from 2.88 percent two weeks ago. The Dow Jones Stoxx 600 Index rose 0.4 percent to 3476.17, putting its gain for the year at 6.4 percent.

The Brussels-based commission raised its forecast for the first quarter and now expects the economy to expand between 0.4 percent and 0.9 percent in the period, the same range it projects for the following two quarters. The higher end of its range was previously at 0.8 percent. The commission also published its third-quarter forecast for the first time.

Confidence Gains

Confidence among European executives and consumers increased to the highest in almost five years in February, the European Commission said Feb. 28. German unemployment declined last month and French consumers were the most optimistic in almost a year.

LVMH Moet Hennessy Louis Vuitton SA, the world's largest luxury-goods maker, posted a 22 percent profit gain in the second half as European and Asian shoppers bought more Vuitton handbags and clothes.

The euro area economy expanded 0.3 percent in the fourth quarter from the previous three months, the EU's Luxembourg- based statistics agency said today, confirming an estimate published Feb. 14. The economy grew 1.7 percent from a year earlier.

Consumer spending fell 0.2 percent in the quarter and increased 0.8 percent from a year earlier, the report said.

Business investment expanded 0.8 percent in the quarter and 3.2 percent from a year earlier, the statistics agency said today. Manufacturing in the euro area expanded in February at the fastest pace in 19 months, according to a survey of purchasing managers published March 1 by NTC Research.

Volkswagen, Europe's biggest carmaker, said its commercial- vehicle division returned to profit in 2005 and forecast further earnings growth this year as new models boosted sales and production and labor costs declined.

Services Index

Services in the euro area expanded the most since September 2000 in February. An index based on a survey of 2,000 purchasing managers at companies including banks and airlines rose to 58.2 from 57 in January, Reuters reported, citing a report by NTC Research Plc. for Royal Bank of Scotland Group Plc. A reading above 50 indicates growth.

Concern about inflation, and the improvement in the euro area economy, spurred the ECB to raise its benchmark interest rate for the second time in three months yesterday. The inflation rate may average 2.2 percent this year and next, up from a previous estimate of about 2.1 percent and 2 percent, the ECB said today.

The ECB's goal is to keep the annual inflation rate below 2 percent.

Rate Expectations

Investors increased bets the ECB will raise its main lending rate to as high as 3 percent this year to keep a lid on inflation, futures trading shows. The implied rate on the three- month contracts for December settlement rose to 3.29 percent from 3.27 percent yesterday.

ECB council members including Trichet and Nicholas Garganas have in the past month expressed concern that recent rises in the cost of oil might filter through to other parts of the economy and spur demands for higher wages.

The price of a barrel of oil has risen 18 percent over the past year, cutting profit at companies that use a lot of energy. Austrian Airlines Group, owner of the country's largest carrier, said Feb. 28 it posted a 65.6 million-euro fourth-quarter loss as the company spent more on jet fuel.

Another potential threat to growth in the euro area may be a slowdown in growth in the U.S. Declining home sales and a manufacturing slowdown indicate growth in the world's biggest economy may cool after accelerating early this year.

Euro-region export growth cooled in the fourth quarter, Eurostat said, declining to 0.5 percent from 3.4 percent in the previous three-month period.

``The risks the ECB has tended to flag lately have focused on the external environment,'' said Nick Matthews, an economist at Barclays Capital in London.

To contact the reporter on this story: John Fraher in Berlin at jfraher@bloomberg.net.

Last Updated: March 3, 2006 06:17 EST

[Ichiro]

European Two-Year Bond Yields Reach Highest Since 2002 on Rates

March 3 (Bloomberg) -- European two-year bonds fell, pushing yields to their highest since December 2002, on rising speculation the European Central Bank will raise interest rates at least two more times this year.

Short-term bonds, among the most sensitive to changes in monetary policy, are headed for the biggest two-week decline since November after the ECB yesterday raised interest rates for a second time in three months and President Jean-Claude Trichet said the central bank is ``ready to do whatever is necessary.''

Trichet ``gave the impression they may go further than the market had been pricing in,'' said Bernard Walschots, head of research at Rabobank Groep in Utrecht, the Netherlands. ``Two- year bonds are going to sell off more during the year.''

Germany's benchmark two-year government bond yielded 3.08 percent by 11:23 a.m. in London, up from 2.88 percent two weeks ago. The yield touched 3.09 percent today, the highest since Dec. 5, 2002, and may reach 3.68 percent by year-end, Walschots said.

The price of the 2.75 percent bond due December 2007 has fallen 0.34, or 3.4 euros per 1,000-euro ($1,200) face amount, to 99.43 in the past two weeks. Bond yields move inversely to prices. Ten-year bund yields rose 12 basis points, or 0.12 percentage point to 3.57 percent.

Services Growth

A private survey today showed growth in service industries, which makes up a third of the region's $9 trillion economy, accelerated last month. The purchasing managers' index rose to 58.2 from 57 in January, the report by NTC Research Plc for Royal Bank of Scotland Group Plc showed.

``All the economic indicators are helping to confirm that further rate increases are on the table,'' said John Davies, a fixed-income strategist at WestLB AG in London.

The economy of the 12 euro nations will grow at the fastest pace since 2000 in the first three quarters of the year, the European Commission said today. Gross domestic product compared with the previous three month period will expand around 0.7 percent in the first, second and third quarters of 2006, it said.

Manufacturing expanded at the fastest pace in 19 months in the euro region last month, according to a similar survey of purchasing managers by NTC Research Ltd. for Royal Bank of Scotland Group Plc published March 1.

ECB policy makers boosted their benchmark rate yesterday for the second time in three months, raising it by a quarter point to 2.5 percent, after inflation in the region stayed above the bank's ceiling for 13 months. The ECB aims to keep inflation below 2 percent. Consumer prices rose 2.4 percent in January, a European Union report showed on Feb. 28.

The ``adjustment of interest rates will continue to ensure that medium to long-term inflation expectations remain solidly anchored,'' Trichet said at a press conference yesterday in Frankfurt after the decision. ``Upside risks to price stability prevail.''

Narrowing Spread

Further interest-rate increases from the ECB should help contain inflation, which may help boost 10-year European bonds, which are more sensitive to price increases, according to Andrew Bosomworth, a fund manager at Pacific Investment Management Co., which manages the world's biggest bond fund.

``The ECB would probably like to see rates around 3 percent by the end of the year,'' said Munich-based Bosomworth. ``In the European market, it's better to be on the long end.''

The difference in yield, or the spread, between 10-year European bonds and shorter-dated euro region debt has narrowed in the last month, from 53 basis points on Feb. 3, to 48 basis points today.

The economy of the dozen nations using the euro may expand about 2.1 percent this year, up from a Dec. 1 forecast of about 1.9 percent, Trichet said at the briefing. Inflation may average 2.2 percent, rising from an earlier estimate of about 2.1 percent.

Rate Expectations

Traders have raised bets that borrowing costs will increase to 3 percent this year, futures trading shows. The yield on euro three-month interest-rate futures due in December and traded electronically on the London International Financial Futures Exchange, has risen 9 basis points this week to 3.27 percent.

The contracts settle to the three-month euro interbank offered rate, which has averaged 0.16 percentage point over the ECB rate since the euro's start in 1999.

Speculation borrowing costs in the region will rise further has hurt benchmark debt, with European bonds of all maturities losing investors 1.1 percent, including reinvested interest, since the year began, according to Merrill Lynch & Co. data.

Debt maturing in one to three years sold by European governments handed investors a 2.06 percent return in 2005, the worst performance since 1999, Merrill data shows.

The yield on the benchmark French 10-year bond rose 9 basis points this week to 3.58 percent, and the yield on the similar- maturity Italian bond also rose 9 basis points to 3.79 percent.

[Ichiro]

European Services Expand Most in More Than Five Years (Update2)

March 3 (Bloomberg) -- European service companies including banks and airlines expanded the most in more than five years in February as export-led growth spread through the economy.

An index based on a survey of 2,000 purchasing managers at service companies in the 12 nations sharing the euro rose to 58.2, the highest since September 2000, from 57 in January, a report by NTC Research Plc. for Royal Bank of Scotland Group Plc showed. A reading above 50 indicates growth.

``The figures confirm the general domestic upswing in the euro economy,'' said Wolfgang Leim, an economist at Dresdner Bank in Frankfurt. ``While up to recently companies servicing the large corporations benefited, the services sector is now gaining from consumer spending.''

Evidence of accelerating economic growth prompted the European Central Bank yesterday to raise its benchmark interest rate for the second time in three months and to revise higher forecasts for gross domestic product and inflation.

Service industries account for one-third of the region's $9 trillion economy. Air France-KLM Group, Europe's largest airline, said Feb. 16 that third-quarter profit more than tripled. Commerzbank, Germany's third-largest publicly traded bank, said Feb. 15 it's seeking acquisitions.

Economists expected today's release to show an increase to 57.3, according to the median of 32 estimates in a Bloomberg News survey.

Rising Confidence

The euro economy will grow at the fastest pace since 2000 in the first three quarters of this year, the European Commission said today. Gross domestic product compared with the previous three month period will expand around 0.7 percent in the first, second and third quarters of this year, said the commission. Growth hasn't exceeded 0.7 percent for three consecutive quarters since the period through June 2000.

Expansion is still being driven by exports after the euro's 13 percent decline against the dollar last year made European goods more competitive. As companies plow profits back into new equipment, the domestic economy is showing signs of picking up. Confidence among executives and consumers rose to the highest in almost five years last month, the commission said this week.

``The signals for a recovery are multiplying,'' said Luigi Speranza, an economist at BNP Paribas SA in London. ``It's extended from manufacturing to services, which is more linked to internal demand, so the signs are now across the board.''

Growth Gap

The ECB, which aims to keep inflation just below 2 percent, says accelerating growth increases the risk of price increases staying above that target. The bank yesterday increased the benchmark rate by a quarter point, to 2.5 percent, and said inflation will stay above its limit for an eighth year in 2007.

Lending to companies and consumers rose at the fastest pace in more than five years, the central bank said this week. The ECB also raised its forecast for economic growth this year to about 2.1 percent, from the 1.9 percent predicted in December.

That won't be enough to close the growth gap with the U.S. The Organization for Economic Cooperation and Development forecasts the U.S. economy will grow 3.5 percent this year.

While unemployment in the euro region is declining, at 8.3 percent the rate is still almost twice that in the U.S.

``Record business and consumer confidence indicators usually take six months to translate into job growth,'' said Karsten Junius, an economist at Deka Bank in Frankfurt.

Henning Kagermann, chief executive officer of Germany's SAP AG, said Feb. 7 that sales growth in Germany will trail Europe and the U.S. as domestic customers spend less. The world's largest maker of business-management software is trying to win small and medium-sized clients in Germany. Such companies make up the bulk of the economy.

Investors are betting the ECB will raise interest rates to 3 percent by the end of the year, futures trading suggests. The yield on the three-month contracts for December settlement was 3.28 percent today.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's benchmark rate since the currency's launch in 1999.

To contact the reporter on this story:
Gabi Thesing in Frankfurt at gthesing@bloomberg.net

Last Updated: March 3, 2006 05:58 EST

[Ichiro]

India's No-Nonsense Budget Deserves Top Marks: Andy Mukherjee

March 1 (Bloomberg) -- Indian Finance Minister P. Chidambaram deserves applause for using the opportunity provided by rapid economic growth to put rickety government finances on a more stable footing.

India's federal government aims to cap its budget deficit at 1.487 trillion rupees ($33.5 billion) in the 2007 fiscal year starting April 1, Chidambaram announced in parliament yesterday while presenting the annual budget.

As a ratio of gross domestic product, the shortfall will ease to 3.8 percent, from 4.1 percent of GDP in the current year ending March 31. The pace of reduction is in line with the Fiscal Responsibility and Budget Management law of 2004.

With the public-debt burden equal to 90 percent of GDP, fiscal rigidity is the biggest challenge to India's creditworthiness.

Even with a banking system far healthier than China's, India is rated four levels below its Asian rival by Standard & Poor's. S&P places India's foreign-currency long-term debt at BB+. Closing the gap will enable Indian companies to raise money more cheaply overseas.

A better credit profile may even give the Indian government the much-needed confidence to borrow internationally, rather than continuing to repress the local banking system by scooping out a large part of household savings for state spending.

Unless economic growth collapses next year, after this year's estimated 8.1 percent expansion, Chidambaram should meet his target comfortably enough. Projections for tax collection are somewhat aggressive, though not overly so.

Undemanding Target

Rough calculations show that the finance minister is anticipating nominal GDP growth of about 11 percent. Assuming inflation, as expressed by the GDP deflator, at this year's level of 4.5 percent, real economic growth need be no more than 6.5 percent next year for Chidambaram to meet his goal.

At this juncture, one can foresee three risks that could sharply drag down India's economic growth rate and jeopardize the deficit-reduction target.

First, a fresh spike in oil prices could push up raw- material costs for companies, leading to lower profits.

Second, if inflation begins to pick up, or if the rupee slumps against the U.S. dollar, the central bank may raise interest rates again, arresting the growth in corporate investments.

Third, if the seasonal monsoon rains are insufficient in the June-September period, farm incomes might come under stress.

Although agriculture accounts for no more than a fifth of the Indian economy, three out of five Indians depend on farming and related occupations for their livelihoods.

Protecting Growth

Chidambaram has made an attempt to shield the economy from all three risks. He has promised to pump money into irrigation projects. Banks are being asked to step up credit to farmers and disburse short-term loans to them with an interest-rate subsidy from the government.

The budget is also supposed to reduce the inflation and interest-rate risks facing the economy.

The peak import tariff has been cut by 2.5 percentage points to 12.5 percent. That should make imported goods cheaper. Chidambaram has also pared government levies on cooking gas, processed food, writing paper, shoes and cars.

With the government taking it upon itself to control inflation, the central bank will need a very good reason to raise the overnight interest rate from 5.5 percent when it announces its quarterly monetary policy on April 18.

If anything, the central bank will have to inject more cash into the banking system to satisfy both the government and the private sector's appetite for credit.

`Back on Track'

Chidambaram has put the country's deficit-reduction effort ``back on track,'' S&P analyst Ping Chew said in a statement after the budget.

Even better, Chidambaram is trying to narrow the fiscal gap without raising personal- or corporate-income taxes, or cutting back on that part of the government's expenditure that creates new assets, such as roads and power stations. Government spending on education and health is also expected to rise handsomely.

Fitch Ratings is concerned that the budget didn't make any effort to curb state subsidies, leaving fiscal consolidation almost entirely dependent on economic buoyancy.

``Any sudden downturn in growth could manifest itself in a sharp rise in public debt, as occurred between 1999 and 2003,'' said Paul Rawkins, a Fitch analyst in London.

Political Compulsion

Had Chidambaram been the finance minister in a government that wasn't being pulled to the left by the Marxists, he might have aggressively sold state assets and rationalized subsidies on food, fertilizers and fuels. His political compulsions don't allow him that maneuverability. It's, therefore, perfectly sensible of him not to announce bolder targets for deficit reduction that would never be met.

Chidambaram has done well to choose pragmatism over ambition. There's nothing in the budget that could cause a political crisis, stall economic growth or spook investors.

``A GDP growth rate of over 8 percent and a fiscal deficit of 3.8 percent lend a very solid platform for the corporate sector to perform,'' says Sandesh Kirkire, chief executive at Kotak Mutual Fund in Mumbai.

Unless India is terribly unlucky with rains this year, economic growth should remain strong. That will lift all boats, including the rather leaky raft of government finances.


To contact the writer of this column:
Andy Mukherjee in Singapore amukherjee@bloomberg.net.

[Ichiro]

SHANGHAI (AFP) - China foreign exchange reserves are too large and investing them in US Treasuries is providing Washington with cheap financing at the expense of Chinese returns, state press reports.


"China's foreign exchange reserve hit 818.9 billion dollars at the end of last year but what China really needs should be no more than 250 billion dollars," economist Xiao Zhuoji told the Shanghai Securities Times.

"The current (holdings are) way above actual needs," he said.

Chinese reserves should be cut by more than two-thirds from current levels, said Xiao, who is also a member of the Chinese People's Political Consultative Conference (CPPCC), an advisory body to the government.

The advisory body is currently holding its annual meeting in Beijing ahead of the full parliamentary session of the National People's Congress starting Sunday.

China's reserves have doubled in the last two years, up from 403.3 billion dollars in 2003 on the back of strong investment flows and funds betting on a future revaluation of the currency.

Analysts widely expect Beijing's rapid build up of reserves to overtake Japan, the world's largest holder of foreign exchange reserves of 846.9 billion dollars at the end of last year.

Xiao, who made similar comments last week, said that most of China's foreign exchange reserves are mainly invested in low yielding US treasuries (government bonds), effectively providing "low-cost" financing for Washington.

The government needs to change its conservative mind-set and encourage capital outflows and should allow companies and individuals to hold more foreign currency, Xiao said.

Liberalizing money outflows is part of China's overall reform to make its currency regime more market-oriented but regulators have yet to take any significant steps towards loosening strict regulations given concerns over the health of the country's financial system.

[Ichiro]

Japan's Inflation Rate Quickens, Aiding Policy Change (Update2)

March 3 (Bloomberg) -- Japan's consumer prices rose at the fastest pace since 1998 in January, supporting the central bank's plan to end a deflation-fighting policy as soon as next week.

Core consumer prices, which exclude fresh food, increased 0.5 percent from a year earlier after 0.1 percent gains in November and December, the statistics bureau said today in Tokyo. That was more than the median 0.4 percent forecast of 33 economists surveyed by Bloomberg News.

The report may persuade the central bank to reduce the amount of cash it pumps into the economy at a meeting next week, a precursor to lifting interest rates from near zero. An end to a seven-year bout of deflation may support corporate earnings, helping wages and loan demand in an economy that will probably grow this year at 3.2 percent, the fastest pace since 1991.

``Investors and traders have already factored in the Bank of Japan changing its policy in March or April,'' said Seiji Adachi, a senior economist at Deutsche Securities in Tokyo. ``If the central bank doesn't take action by then, it would risk spooking financial markets.''

The yen was little changed at 115.87 against the dollar at 9:07 a.m. in Tokyo, from 115.85 before the report was published.

Japan's economy grew at an annualized 5.5 percent in the final three months of 2005, outpacing both Europe and the U.S. The economy will probably grow for a seventh straight year in 2006 and at its fastest pace since 1991, a survey of 16 economists surveyed by Bloomberg News between Feb. 17 and 27 said. That would mark its longest postwar expansion.

Preparing Investors

Bank of Japan Governor Toshihiko Fukui has been preparing investors for a change, saying policy will ``immediately shift'' once conditions set by the bank are met.

The central bank has vowed not to adjust its five-year-old policy until core prices stop falling for at least a few months and policy makers are sure they won't resume sliding. It also needs to be confident about the overall strength of the economy.

Core prices in Tokyo, home to one in 10 Japanese, rose 0.2 percent in February, the first back-to-back gain since August 1998.

Excluding energy and food, Japan's nationwide consumer prices rose 0.1 percent in January, the statistics bureau said. This gauge of prices is widely used in the U.S. and Europe to measure inflation.

The bank's policy makers are scheduled to meet next on March 8-9, April 10-11 and April 28.

Finance Minister Sadakazu Tanigaki told reporters in Tokyo today the report shows Japan is making progress in beating deflation.

Reserves

The bank will hold interest rates near zero for a while after it reduces the 30 trillion yen ($258 billion) to 35 trillion yen of reserves it now makes available to lenders, Fukui has said.

Three-month Euroyen futures indicate that traders are betting the central bank will raise interest rates by at least a quarter- percentage point in the last quarter of this year.

Core price gains accelerated in January mainly because the effects of a cut in phone charges from January 2005 eased, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

``Japan's core consumer prices will continue to be pushed up by similar factors in February and March, and their increases are not likely to slow from April onwards,'' because the economy will keep expanding, Muto said.

Monthly average wages, a key component that influences consumer prices, had their biggest gain in 18 months in December. Producer prices rose at the fastest pace in almost 16 years in January, prompting chemical and steel makers to pass on energy and commodity costs to customers.

Easing Pressure

Government officials signaled earlier this week that they won't oppose a move by the central bank to cut the amount of cash it pumps into the economy, reversing their initial objections on concern it would cause rates to rise, stifling growth, and increasing interest payments on the nation's debt.

Prime Minister Junichiro Koizumi and ruling Liberal Democratic Party's policy council head Hidenao Nakagawa said on Feb. 27 the central bank should make its own decision when to change its policy as long as it cooperates with the government to beat more than seven years of deflation.

The Bank of Japan may want to stick with its policy until April to check price movements for another month or two, said Naoki Iizuka, chief market economist at Dai-Ichi Life Research Institute in Tokyo.

``The central bank has said it wants to assess a price trend averaging over a few months, and if it waits until April, it can confirm more solid increases,'' Iizuka said. ``That will back up the bank's case that they expect consumer prices to show stable gains.''

February consumer prices will be published on March 31 and March prices are probably due on April 28. Iizuka expects core price gains to average about 0.4 percent in the first quarter.

Basket of Goods

The government plans to adjust the basket of goods used to compile consumer prices in August, probably to include more consumer electronics items. Previous revisions lowered prices because of declines in the costs of some of the items added.

The central bank will release on April 28 its projection of annual core price gains for the year starting April 1 and the following one.

Bank of Japan officials have said they plan to present guidance to signal the bank's policy direction and stabilize interest rate expectations when it announces a change to the policy.

Language

The bank hasn't decided whether to use a numerical price reference or ``forward-looking language'' to indicate future policy changes, Deputy BOJ Governor Toshiro Muto said on Feb. 2.

``Financial markets are now focusing on how the BOJ will describe its guideposts to contain interest rate increases, rather than the timing of a policy change,'' said Yasunari Ueno, chief market economist at Mizuho Securities Japan Co. ``It's hard to stabilize market expectations with guidance which depends only on language.''

LDP's Nakagawa has urged the central bank to target a 2 percent inflation rate.

[Ichiro]

Very interesting!!! Japan had started the world liquidity bubble from their ten years of zero cost money. It will be very interesting to see what will happen to the international market in the fall of 2006.


WORLD INTEREST RATES RISING
by Christopher Laird
PrudentSquirrel.com

March 3, 2006


The whole world is now at a critical change in the price of money. The implications for this are going to be huge.

Here is a typical story about the ECB rate hike this week of .25% and the rationale for it. It is my view that the emerging economic strength in Japan, the US and Europe are only late manifestations of the final stage of the great world liquidity bubble Japan started in the early 1990’s. This latest round of rate hikes is going to severely harm the US and world consumer economy. They (central banks) are late.

LONDON (MarketWatch) -- The European Central Bank raised interest rates Thursday for the second time in four months, moving to quell inflation as Europe's economy begins to improve.

The ECB, as expected, lifted its key interest rate by a quarter of a percentage point to 2.5%.

Since about 1990, the world has had an incredible boost of cheap money. It started with Japan after their stock and real estate busts in the early 90’s. Since then, there was a huge US and world stock bubble, a tech crash here, worldwide housing bubbles which are really speculation finance bubbles. We in the US are now seeing our own housing bubble weaken significantly. This week statistics are out that the US housing bubble is cooling significantly, and there is speculation that this is only the beginning of a coming collapse in consumer spending here.

The fact that the US consumer statistics still show strong gains recently does not mean that the downside of a housing collapse will not result in a severe drop in US consumer habits. I foresee that about fall of this year, the published consumer statistics will begin to show significant drops of consumer sentiment and spending. This is the pattern that emerged about the housing bubble. IE, the statistics of a slowdown were 3 months behind the real event.

I believe we are right at the crux of the drop of US consumer spending, and the statistics will show this convincingly in about 3 months.

Now, back to world interest rates. There are enough inflationary forces worldwide that, Europe, Japan and the US are now raising rates simultaneously.

Japan is growing decently and the BOJ has stated it intends to raise rates in the coming months. That is a huge change from their ten years of zero cost money. I said before that Japan had started the world liquidity bubble, and they are going to now raise rates in a major change of policy.

The fact that this is happening now in conjunction with US continued interest rate hikes, and now the ECB is raising rates, having done a baby step .25% increase.

What is emerging is a final chapter of a world liquidity bubble that began in Japan in the early 1990’s. So much money has now gone into real estate, bonds, securities, derivatives, and so on, that this world liquidity bubble will burst with a great crash.

The central banks are going to try to use baby steps, i.e. .25% increases, but that will only just allow the asset bubbles to reach there very pinnacle before they implode.

The now simultaneous interest rate increases in much of the world is going to really start to hamstring liquidity at some point. Already, real estate markets in Shanghai, China, Britain, Australia, the US and other nations are cooling and are going to really break hard.

This should occur, in my estimation, by the fall of this year.

At that point, I will be looking for major drops in world stock markets, and for some recovery in good sovereign bond markets.

Take a look at the inverted US yield curve below and we will talk a little about it and what it means:

Here we see that the six month US treasury (UST) is well above the 2, 3, 5 and 10 year in yield.

Typically, this is a harbinger of a recession. The lag time is about 6 months. Now here in the US, we have pretty strong public statistics for the US economy and employment growth. However, the yield curve indicates that in 6 months we are going to turn down into recession.

This would dovetail nicely with the unwinding of the YEN carry trade, where super cheap YEN are borrowed from Japan, and are reinvested in UST’s and markets worldwide, in real estate and stocks, to just about everything. I have stated that Japan is a virtual central bank of the world, and has caused huge liquidity bubbles to emerge.

The US got well into this game by lowering interest rates here to historical lows after 911, and that, combined with Japan, China, and Europe having super low rates, has created a very unstable economic recovery world wide. Much of the growth in Japan, China, and the US is really due to the incredible amounts of new debt for the consumers, and speculation related positions for investors.

This whole speculation mountain is about to quickly erode. The first cause will be simultaneous rising interest rates worldwide, followed by consumer pullbacks here and elsewhere.

This is all aligned to occur/begin in the fall of 06.

© 2006 Christopher Laird

[Ichiro]

Mainichi Daily--3 mar 06

Dollar up against yen despite stronger CPI data

The dollar rose against the yen Friday in Asia, despite stronger-than-expected Japanese consumer price data that stoked speculation Japan's central bank may end super-easy policy soon.

The U.S. dollar was trading at 116.36 yen in Tokyo by mid-afternoon, up 0.56 yen from late Thursday in New York. The euro fell slightly to $1.2030 from $1.2033 Thursday.

Japanese foreign exchange players took advantage of the yen's initial gains on CPI figures to settle accounts and invest in foreign assets, traders said.

Immediately after the release of the data, which showed that the country's core consumer price index rose 0.5 percent in January, its fastest pace in eight years, the dollar dropped to a session low of 115.56 yen as U.S. investment banks and hedge funds snatched up the Japanese currency.

The data made some traders believe that the central bank would end its policy at the next meeting, scheduled for March 8-9, rather than wait until April, prompting them to sell dollars for yen, dealers said.

But the tide soon turned as Japanese importers, mutual funds and institutional investors sold into the currency's strength, spurring those who had earlier offloaded dollars to hastily buy them back.

"Whether the central bank makes its move in March or in April, I don't think the market will be at all surprised," said Mitsuru Sahara, senior foreign-exchange manager at the Bank of Tokyo-Mitsubishi UFJ.

The dollar was mostly higher against other Asian currencies, rising to 51.22 Philippine peso from 51.20 the previous day, and to 9,190 Indonesian rupiah from 9,180. It also rose to 971.5 South Korean won from 969.2. (AP)

March 3, 2006

[Gilligan]

March 6, 2006
NIKKEI 225 closed up 1.52%

[Gilligan]

March 7 (Bloomberg) -- Asian stocks fell to two-week lows...

The Morgan Stanley Capital International Asia-Pacific Index slid 0.9 percent to 124.94 as of 3:55 p.m. in Tokyo, the lowest since Feb. 22.

Japan's Nikkei 225 Stock Average fell 1.1 percent to 15,726.02.



To contact the reporters for this story:
Stuart Kelly in Sydney skelly22@bloomberg.net;
Michael Tsang in Tokyo at mtsang1@bloomberg.net.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aNoBmVrcgP98&refer=home

[Ichiro]

Dollar gains ground on US rate outlook, yields.

Reuter by Katie Hunt, 7 Mar 06.

For details see:

http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyid=urn:newsml:reuters.com:20060307:MTFH96597_ 2006-03-07_09-12-10_L07771894&rpc=44

[Ichiro]

Yen stumbles on Dollar Strength.

7 Mar 06 by Boris Schlossberg.

For details see:

http://biz.yahoo.com/fxcm/060307/1141724762.html?.v=1

[Ichiro]

AP-Euro drops back below $1.20.

7 Mar 06.

For details see: http://biz.yahoo.com/ap/060307/euro_dollar.html?.v=1

[Ichiro]

AP-Japanese Stock falls.

7 Mar 06.

For details see: http://biz.yahoo.com/ap/060307/japan_markets.html?.v=1

[Ichiro]

Reuter-Yen drags Asia lower, Thai baht biggest loser.--by Rajat Bhattacharya

7 Mar 06

For details see: http://sg.news.yahoo.com/060307/3/3z6xm.html

[Ichiro]

7 Mar 06--Reuters-High US debt yields slam Latin America market.

by Noel Randewich.

For addiitonal info see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060307:MTFH14837_2006-03-07_21-20-17_N07385644&symbol=.MXX&rpc=44

[Ichiro]

7 mAR 06--Bloomberg--UK pound drops the most in month against dollar on rate gap.

by Rodrigo Davies.

For additional info see:


http://www.bloomberg.com/apps/news?pid=10000102&sid=aC7j0C4BhWxE&refer=uk

[Ichiro]

8 Mar 06-Reuters-Shares fall on rate speculation, yen ticks up.

by Ansuman Daga

For further info see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060308:MTFH27379_2006-03-08_11-12-12_L08004942&symbol=.FTEU3&rpc=44

[Ichiro]

8 Mar 06-Reuter-BOJ's Fukui: savvy risk taer with political sense.

by Chisa Fujioka

For additional info see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060308:MTFH27202_2006-03-08_11-03-34_T327636&related=true&rpc=44

[Ichiro]

8 Mar 06-Bloomberg-Japan's bank lending rises for first time since 1996.

by Lily Nonomiya.

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=aEkX9z2Hifyc&refer=japan

[Ichiro]

8 Mar 06-Reuter-ADR Report-ADRs fall as emergiing market hjitters weigh.

by Ellis Mnyandu

For additional info see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060308:MTFH41169_2006-03-08_19-43-48_N08262653&symbol=.BKADR&rpc=44

[Ichiro]

8 Mar 06-Reuter-Forex-Dollar slips but ignores emerging mkt move.

by Jame McGeever

For additonal info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060308:MTFH41070_2006-03-08_19-39-29_N08509061&related=true&rpc=44

[Ichiro]

8 Mar 06-Bloomberg-Japan's problem is high costs, not deflation.

By William Pesek, JR.

For additonal info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=aeNFUFKMHlVs&refer=columnist_pesek

[Ichiro]

9 Nov 06-Reuters--Global Market-Stocks lead-BOJ relief rally in risky assets.

by Christina Fincher

For additonal info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060309:MTFH57597_2006-03-09_11-32-59_L09384627&symbol=.N225&rpc=44

[Ichiro]

9 Mar 06-AP-Most asians Stocks Market advance.

For additional info, see:

http://biz.yahoo.com/ap/060309/asian_markets.html?.v=1

[Ichiro]

9 Mar 06-Bloomberg-Japan's Notes gain as BOJ says rates to stay low after shift.

by Chris copper.

For addtional info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=aldfHzXCG2qY&refer=japan

[Ichiro]

9 Mar 06-Reuter--Forex-Dollar recovers vs yen as traders rethink BOJ move.

By John Parry

For addtional info, see:
http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060309:MTFH70577_2006-03-09_19-45-52_N09197657&related=true&rpc=44

[Ichiro]

Folks, it looks like the BOJ may be raising the interest rate sometimes during the 4th qtr 2006. What does this mean.. The US dollar may be strong during the summer months probably hitting 119 to 120 yen.

10 Mar 06-Bloomberg- BOJ may raise key interest rate by year-end...

by Mayumi Otsuma

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=aRA3vOygCAUQ&refer=asia

[Ichiro]

10 Mar 06-Bloomberg-Asian exporters gain on stronger dollar; Sony, Samsung advance.

by Stuart Kelly

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=aaXWOuQSsKg8&refer=asia

[Ichiro]

Oil, oil, oil.......

10 Mar 06-Bloomberg-South Korea wins Nigeria oil drilling venture, may spend $6 bln.

by Meeyoung song

for more info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=arxkYVm0JZhw&refer=asia

[Ichiro]

10 Mar 06-Bloomberg--Dollar set for weekly gain; job data to support rate increases.

by Kosuke Goto

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000100&sid=aJ6RWfc.gtIM&refer=germany

[Ichiro]

The dollar is slowly rising to the 119 Yen level-first target.

10 Mar 06-AP-Dollar rises vs yen on BOJ Decision.

For additional info, see:

http://biz.yahoo.com/ap/060310/dollar.html?.v=1

[Ichiro]

Folks, I just wanted let you know that I am going to TDY and will not be able to provide any news till 17 Mar (next Friday).


10 Mar 06-Bloomberg-Bank of Japan takes big Risk with policy change.

by William Pesek (one of my favorite financial writer)

For more info, see:

http://www.bloomberg.com/news/commentary/pesek.html

[Ichiro]

Merger speculation in Europe.....

10 MaR 06-Reuter-ADR rEport-Adrs climb on talk of European bank mergers.

by Ellis Mnuyandu.

For addtional info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060310:MTFH98917_2006-03-10_20-33-03_N10299475&symbol=BCS.N&rpc=44

[Ichiro]

17 Mar- 06-Bloomberg- 1st weekly rise in 3 for asian Stocks.

by Chen Shiyin.

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=aVjgZPJ3OBtw&refer=asia

[Ichiro]

17 Mar 06-Bloomberg-Dollar set for weekly Loss.

by Kabir Chibber

For additional infor, see:

http://www.bloomberg.com/apps/news?pid=10000100&sid=afl79Jq8iBFM&refer=germany

[Ichiro]

13 Mar 06-How China can help asia's poor with yuan.

by William Persek

For addtional info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=aCdiH0YdAg5Q&refer=columnist_pesek

[Ichiro]

16 Mar 06-Bloomberg-The yen falls....

by Mayumi Otsuma

For additonal info, see:

http://www.bloomberg.com/apps/news?pid=email_us&refer=japan&sid=aLI7YcD6mKPk

[Ichiro]

17 Mar 06-Bloomberg--European stocks advances.

by Chris Fournier

For addtional info, see:

http://www.bloomberg.com/apps/news?pid=10000087&sid=aEo3fmz8azb0&refer=top_world_news

[Ichiro]

17 Mar 06--Reuters-$ slips to 7 wk low vs euros.

by Toni Vorobyova.

For additional info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060317:MTFH55450_2006-03-17_12-53-39_L17707227&rpc=44&search=.DXY&searchtype=symbol&norics=1

[Ichiro]

17 Mar 06-SmartMoney.com-Japanese stocks should go higher over the next two to three years.

by Lisa Scherzer

For addiitonal info, see:

http://yahoo.smartmoney.com/theproshop/index.cfm?story=20060316&afl=yahoo

[Ichiro]

18 Mar 06-Reuter-Rising Yuan.

by Tamora Vidaillet and Eadie Chen

For additional info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060318:MTFH71977_2006-03-18_04-00-14_T78052&related=true&rpc=44

[Ichiro]

17 Mar 06-Reuters-Dollar Slips

by Ellis Mnyandu

For addiitonal info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060317:MTFH69592_2006-03-17_23-15-14_N17238156&symbol=BA.N&rpc=44

[Ichiro]

17 Mar 06-Reuters-Euros may move to $1.225 early next week..--that is a good news for the I fund...

by Amanda Cooper

For additonal info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060317:MTFH68461_2006-03-17_21-45-57_N17595648&related=true&rpc=44

[Ichiro]

17 Mar 06-Japan shares gain-higher dividends.

by Makiko Suzuki

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=adTUn4PQeCo0&refer=japan

[Ichiro]

17 Mar 06-Bloomberg-M & A in Japan.

by Aiko Wakao

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=aMsfHy_33wOQ&refer=japan

[Ichiro]

18 Mar 06-Bloomberg-Takeover in Britain.

by Jon Menon and Alan Katz

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=a_mhVDDoAH3U&refer=europe

[Ichiro]

16 Mar 06--Yen may trade closer to 100 yen per dollar by the end of the year.

By Yiannis G. Mostrous

For additional info, see:

http://www.financialsense.com/editorials/mostrous/2006/0316.html

[Ichiro]

19 Mar 06-AP-Foreign Investments in Japan

For additonal info, see:

http://biz.yahoo.com/ap/060319/japan_foreign_investment.html?.v=1

[Ichiro]

17 Mar 06-AP-Japan bank to up rates

For additional info, see:

http://biz.yahoo.com/ap/060317/japan_bank_rates.html?.v=2

[Ichiro]

17 Mar 06-AP-Euro up against dollar


For addituonal info, see:

http://biz.yahoo.com/ap/060317/euro_dollar.html?.v=2

[Ichiro]

20 Mar 06-Reuters-Nikkei tops 16,500..

by David Dolan

For additonal infor, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060320:MTFH97400_2006-03-20_03-03-39_T87289&symbol=8603.T&rpc=44

[Ichiro]

20 Mar 06-Reuter-$ turns higher vs euro.

by Veronica Brown

For addtional info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060320:MTFH02482_2006-03-20_09-18-09_L20395514&related=true&rpc=44

[Ichiro]

20 Mar 06-AP-Earnings forecasts up in Japan...


For addtional info, see:

http://biz.yahoo.com/ap/060320/japan_markets.html?.v=4

[Ichiro]

20 MaR 06-Bloomberg-Loose lips in Japan.

By William Pesek

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=aSigF7VTD2S8&refer=columnist_pesek

[FUTURESTRADER]

Asian markets closed next 24 hrs for holiday?

[Rod]

Asian markets closed next 24 hrs for holiday?

Oh oh... there goes the catalyst for a rally Tuesday...:D

[Ichiro]

20 MaR 06-Asian Stocks falls....

by Darren Boey

For additonal info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=aDyTc9KyyCpA&refer=asia

[Ichiro]

21 Mar 06-Bloomberg-European stocks slide

by Dria Cimino

For additional infor, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=aWXt3vFdrlaA&refer=europe

[Ichiro]

22 Mar 06-Reuters-Nikkei down.

by Eriko Amaha

for addtional info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060322:MTFH54115_2006-03-22_07-08-07_T115987&symbol=9984.T&rpc=44

[Ichiro]

22 Mar 06-Reuters-FTSE falls


For additional info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060322:MTFH55829_2006-03-22_08-37-50_IRE231014&symbol=BAY.L&rpc=44

[Ichiro]

22 Mar 06--AP- Euro lower.


For additional info, see:

http://biz.yahoo.com/ap/060322/euro_dollar.html?.v=1

[Ichiro]

22 Mar 08-Dollar flat against yen and euro.

For additional infor, see:

http://biz.yahoo.com/ap/060322/dollar.html?.v=1

[post]

Ichrio


thanks for all the great information! You have been realy helpful

[Ichiro]

23Mar 06-AP-Japanese Stocks slip.


For additional info, see:

http://biz.yahoo.com/ap/060323/japan_markets.html?.v=2

[Ichiro]

23 Mar 06-AP-Dollar gains against yen.

For additional info, see:

http://biz.yahoo.com/ap/060323/dollar.html?.v=1

[Ichiro]

23 Mar 06-Reuter-Deflation in Japan.

I personally don't think that deflation is going away in Japan this year. The companies in Japan are becoming very competitive and it will very hard for them to pass on the price increases to the Japanese consumers. There are many new dollars stores these days in Japan which are bringing down the prices of everyday goods. So, its win win for the Japanese Consumers. And I think that the Japanese consumers will look for a better buy than pay for an overpriced items like in the bubble era ten years ago.

For addtional info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060323:MTFH84270_2006-03-23_08-47-43_T117013&related=true&rpc=44

[Ichiro]

23 Mar 06-FOREX-Mid east countries considering to move reserves of dollar..

For additional info, see:

http://www.middleeastforex.com/index.php?section=147

[Ichiro]

16 Mar 06-Bloomberg- India, the land of opportunity.

by Andy Mukherjee

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=a3M9fKkIAB.E&refer=columnist_mukherjee

[Ichiro]

16 Mar 06-Investor's Business Daily--Global Gorwth Envionment

by Laurie Lande

For additional info, see:

http://biz.yahoo.com/ibd/060316/funds.html?.v=1

[Ichiro]

24 Mar 06-Reuter-Dollar gains

The dollar will probably rise to 119 due to the increase of the interest rate by the FED and drop duirng the later part of next week.

by David McMahon

For additonal info, see:
http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060324:MTFH09742_2006-03-24_06-13-52_T141844&rpc=44&search=.DXY&searchtype=symbol&norics=1

[Ichiro]

24 Mar 06-Reuters-Nikkei rises

by Eriko Amaha

For additional info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060324:MTFH10517_2006-03-24_07-02-15_T150684&symbol=8603.T&rpc=44

[Ichiro]

24 Mar 06-Bloomberg-M & A in Japan

by Takahiko Hyuga

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=a5FTMqTYwnn0&refer=asia

[Ichiro]

24 Mar 06-Bloomberg-European stock rises.........

by Martin Boer

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=am5RJwLm8eVc&refer=europe

[Ichiro]

23 Mar 06-Nre Times-China raises taxes...

by Keith Brasher


For additional info, see:

http://www.nytimes.com/2006/03/23/business/worldbusiness/23yuan.html?_r=2&oref=slogin&oref=slogin

[Ichiro]

25 Mar 06-Bloomberg-European stokcs rise a 3rd week.

For addiitonal info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=ai2O_wWaVYAc&refer=europe

[Ichiro]

23 Mar 06-Bloomberg-Japan imports gain most in a decade....

by Lily Ninomiya

For additional info, see:

http://www.bloomberg.com/apps/news?pid=email_us&refer=top_world_news&sid=ajgTmQIfrKdk

[Ichiro]

27 Mar 06-Reuters-Yen gains broadly.

by veronica brown.

For addiitonal info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060327:MTFH46024_2006-03-27_08-30-00_L27565419&related=true&rpc=44

[Ichiro]

27 Mar 06-AP-Japanese stocks gain..

For additional info, see:
http://biz.yahoo.com/ap/060327/japan_markets.html?.v=4

[Ichiro]

27 mAR 06-AP-Euro Stregnthens against dollar.

For additional info, see:

http://biz.yahoo.com/ap/060327/euro_dollar.html?.v=1

[Ichiro]

27 Mar 06-Bloomberg-Asian stock advance.


by Darren Boey.

For additional info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=atR3jKZed8bc&refer=asia

[Ichiro]

27 Mar 06-Bloomberg-European stocks drop.


by Adria Cimino

For addition info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=agr0.Zg2xViI&refer=europe

[Ichiro]

27 Mar 06-Forex-Switching reserves from dollar to euros.

For additional info, see:

http://www.middleeastforex.com/index.php?section=147

[Ichiro]

27 Mar 06-AP-China's economic growth slows.


For additional info, see:

http://biz.yahoo.com/ap/060327/china_economy.html?.v=4

[Ichiro]

28 Mar 06-Reuter-Euros jump..


by Natsuko Waki

For addiitonal info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060328:MTFH73545_2006-03-28_08-37-10_L28104690&related=true&rpc=44

[Ichiro]

28 Mar 06-Bloomberg-Nikkei rises

by Makiko Suzuki

For additonal info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=a2IU8YF_nx24&refer=japan

[Ichiro]

28 Mar 06-AP-Fed raises interest rate.

by Martin Crutsinger

For more info, see:

http://biz.yahoo.com/ap/060328/fed_interest_rates.html?.v=9

[Ichiro]

28 Mar 06-Bloomberg-Dollar gains...

by Kabir Chibber.

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000087&sid=aUqi4YjqkpwU&refer=top_world_news

[Ichiro]

28 Mar 06-Bloomberg-US stock drops..

by Dune Lawrence

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000087&sid=aAzXh4LWCW8Y&refer=top_world_news

[Ichiro]

29 Mar 06-Reuters-Nikkei hits high..

by Risa Maeda

For more info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060329:MTFH02010_2006-03-29_08-17-48_T160344&symbol=6758.T&rpc=44

[Ichiro]

29 Mar 06-Reuters-Dollar Firm.

by Ansuman Daga

For more info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060329:MTFH04614_2006-03-29_10-25-27_L29697505&symbol=.FTEU3&rpc=44

[Ichiro]

29 Mar 06-Bloomberg-European stocks adv.

by Chris Fournier.

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=aZpT8c0BOADw&refer=europe

[Ichiro]

29 Mar 06-Bloomberg-Deflation ending Japan...

by William Pesek

For more infor, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=atJNAT2rxy2A&refer=columnist_pesek

[Ichiro]

29 Mar 06-Bloomberg-One more increase in the interest rate.......


by John Berry

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=a6k16yVGJrLs&refer=columnist_berry

[Ichiro]

29 Mar 06-Reuters-Ftse higher....

by Keiron hederson

For more info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060329:MTFH05129_2006-03-29_10-51-14_SIL939009&symbol=BG.L&rpc=44

[Ichiro]

30Mar06-Reuters-Ftse jumps

by Matt Faloon

For more infor, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060330:MTFH29873_2006-03-30_07-49-14_IRE028089&symbol=AL.L&rpc=44

[Ichiro]

30Mar06-Reuters-Nikkei stays above 17K.

For more info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060330:MTFH27027_2006-03-30_05-09-20_T147477&symbol=7202.T&rpc=44

[Ichiro]

30Mar06-Retuers-Japan goes bargain hunting.....

by Ritsuko Ando

For more info, see:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060330:MTFH25716_2006-03-30_03-14-28_T168265&symbol=8802.T&rpc=44

[Ichiro]

29Mar06-NY times-China #1 in Foreign Exchange Reserves

by Keith Bradsher

For more info, see:

http://www.nytimes.com/2006/03/29/business/worldbusiness/29yuan.html?_r=1&oref=slogin

[Ichiro]

3330Mar06-Bloomberg-Asian Stock rise........

by Darren Boey

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=a03RmDqvn5GY&refer=asia

[Ichiro]

29 Mar 06-AP-Euro gains.

For more info, see:

http://biz.yahoo.com/ap/060330/euro_dollar.html?.v=1

[Ichiro]

30Mar06-DailyFX-Euro boosted by Middle eastern Reserve Changes.

by DailyFX Research Team

For more info, see:

http://www.dailyfx.com/story/dailyfx-financial-markets-headlines/dailyfx-financial-markets-headlines/7662-euro-boosted-by-middle-eastern-reserve.html

[roguewave]

How about that I fund. And it hasn't even got warmed up.

[Pilgrim]

How about that I fund. And it hasn't even got warmed up.

Dollar is down and foreign markets up. I fund may pay positive today despite the huge payout yesterday, but BEWARE the first day that the dollar is up a little. The I-fund cops will mercilessly mow down anyone who is invested.

[roguewave]

Dollar is down and foreign markets up. I fund may pay positive today despite the huge payout yesterday, but BEWARE the first day that the dollar is up a little. The I-fund cops will mercilessly mow down anyone who is invested.


I understand the games, my average cost is in the mid 13's, let them continue with their games because it won't change the fundamentals. Good day Pilgrim.

[Birchtree]

Roguewave,

You have been demonstrating the merits of the buy and hold approach since January'04 - what a plan. And cheers to the next six points with salutations.

Why not Nikkei at 39,000 once again.

Dennis

[roguewave]

Roguewave,

You have been demonstrating the merits of the buy and hold approach since January'04 - what a plan. And cheers to the next six points with salutations.

Why not Nikkei at 39,000 once again.

Dennis


Various CB's have been going berserk with the electronic printing press as of late and Japan has had a monopoly on that game for a very long time. Should the Japanese Finance Minister and Bank of Japan big dog start down a trail of raising rates, this act in and of itself, might actually make the yen somewhat attractive relative the dollar. This could add further fuel to the Nikkei as Japanes equities might look more attractive then Japanese Bonds as bond money flows into equities. I'm not suggesting that the Nikkei could hit 39,000 once again but then I never underestimate that wiley critter known as a Central Banker. Also, the same mechanism that is in place which is launching the Nikkei will also do the same for the DOW; Nasdaq; S&P etc...we're in the intial stages of this event.

Good luck Birchtree with your "investing".

[Ichiro]

30Mar06-Bloomberg--The yen may rise to 105 against the dollar at year end.

by Kabir Chibber

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000101&sid=aL17G5EWBbcY&refer=japan

[Ichiro]

30Mar06-Reuters-Yen recovers....

by Hideyuki Sano

For more info see:
http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060331:MTFH54763_2006-03-31_03-12-29_T212080&related=true&rpc=44

[Ichiro]

30Mar06-AP-Japanese stocks higher

For more info, see:

http://biz.yahoo.com/ap/060331/japan_markets.html?.v=3

[Ichiro]

31Mar06-Bloomberg-Asian stocks higher...

by Darren Boey


for more info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=a6AwwfOtGyec&refer=asia

[Ichiro]

31Mar06-Bloomberg-European stocks decline...

by Chris Fournier


For more info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=agS75oGNacKw&refer=europe

[Ichiro]

3 Apr 06-SAP-Japanese stocks rise...

For more info, see:

http://biz.yahoo.com/ap/060403/japan_markets.html?.v=6

[Ichiro]

3 Apr 06-yen pushed lower...

by FX research Team.

For more info see:

http://biz.yahoo.com/fxcm/060403/1144053841.html?.v=1

[Ichiro]

3 Apr 06-Bloomberg-HK's Hang seng Index tops 16K.

by Darren Boey

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000080&sid=a.jxYQrWcSOE&refer=asia

[Ichiro]

3 Apr 06-Bloomberg-Eurpoean stocks advance.

by Chirs Fournier

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=aRKvjt_KuC4w&refer=europe

[Ichiro]

3 Apr 06-Bloomberg-US currency may rises to 119.30 yen this week...


by Kosuke Rao

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000087&sid=ad.0YD0Kv9z0&refer=top_world_news

[Ichiro]

4 Apr 06-Reuters-FTSE opens lower...


For more info, see:
http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:re uters.com:20060404:MTFH35696_2006-04-04_07-33-28_BRY427139&symbol=SVT.L&rpc=44

[Ichiro]

4 Apr 06-Reuters-Japan MOF wary of FX speculation

by Izumi Nakagawa

For more info, see:

http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20 060404:MTFH33369_2006-04-04_05-37-36_T144554&related=true&rpc=44

[Ichiro]

4 Apr 06-Bloomberg-Stocks fell in Europe...

by Chris Fournier

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000085&sid=ak0BU7Towt3s&refer=europe

[Ichiro]

4 Apr 06-Bloomberg-Asia-addicted to exports..

By William Pesek

For more info, see:

http://www.bloomberg.com/apps/news?pid=10000039&sid=aQyQ0gGnx.Is&refer=columnist_pesek