Long term trend of gold.

 

Introduction

Continuing global macroeconomic and geopolitical risk, the emergence of inflation and the on-going challenges to manage massive sovereign debt all point to higher commodities prices over the long term. Silver, precious metals and gold have been the best performing asset classes in recent years outperforming equities, REIT and most asset classes over a 3, 5 and 10 year period. Natural gas is the worst one year performer and even oil returns don’t top that of precious metals.

We believe that the gold 10 year bull market remain firmly intact in spite of the highest level of volatility is seen in the past months with price up already up 21% this year at the time of writing this report. The euro-zone debt crisis, currency wars, and deep uncertainty among investors are among the factors driving prices higher.

Over the next ten years or more, metal prices are predicted to remain high. This is mostly due to increasing demand from countries undergoing intensive levels of urbanisation and infrastructure building. In particular China and India will drive the cost of metals across the board. Silver is widely predicted by metal and silver markets analysts to go higher through 2011 and 2012. As long as the systematic devaluation of dollar by the Fed (i.e. interest rates near zero) broad base commodities trends will continue positive. Once interest rates start to increase the dollar will gradually pick up, pushing gold and silver down,

GOLD OUTLOOK

Gold is benefiting from growing investor anxiety about ineffective government policies, unsustainable government debt levels, and the potential for a further global slowdown. As central bankers and other policymakers run out of options, The possibility that government remedies for debt problems will indirectly lead to higher gold prices through inflation is also encouraging investment in gold. The paucity of suitable alternative safe havens, following recent interventions in the currency markets, has further elevated gold’s status.

From supply perspective gold prices are well above the production cost. Extensive investment is done in the past decade in the mining cycle which wil eventually increase the output in the next four years. The current high prices are encouraging a significant increase in scrap supply. However high gold prices are crimpling jewellery demand which is losing market share to investment demand for other form of physical gold including coins and small bar may ease at current prices.

Gold is a hedge against macroeconomic, systemic and inflationary risk with the attractive added potential for significant capital gains. . According to Ibbotson Associates, precious metals are the most positively correlated asset class to inflation. From a strategic point of view, Ibbotson determined that portfolios could reduce risks and improve returns with a 7-15% allocation to precious metals.

We expect a target price of gold to rise up to $ 2,025 in the year 2012. The extreme rise up to $ 2,025 for 2012 is based primarily due to the fear and heightened investor anxieties and due to the asset allocation to the safer heaven. The long term price of the gold is $1,500.

The gold 10 year rally is still intact. Gold has been one of the beneficiaries who has enjoyed considerable gains due to the financial crisis. It rallied at various stages of financial crisis and post crisis, sub-prime mortgage blow-up in the beginning of 2007 to a full-blown global credit and economic turndown in 2008-09, after that sovereign debt crisis which has its roots started from 2010. Gold has outperformed various other asset classes throughout the entire period.

Geo-political risk is also one of the pivotal reasons for the increase in the gold prices. Popular uprisings in North Africa and the Middle East raised fears about oil supply disruptions, triggering a surge in oil prices that also buoyed gold. In addition, the United Nations Food and Agricultural Organization declared a world food crisis this year, due to a combination of drought and floods in the major grain-producing nations of Russia, Ukraine, Kazakhstan, and Australia. Although the FAO food crisis concerns are lifted now but the food prices remain near all-time high till the period of February 2011,

Gold has shown significant performance form 2007, although we see several sharp corrections but the rally remains intact and shows no signs of reversals and this correction live for a very short period of time. Despite wide swings in prices, gold hit a succession of highs throughout the summer, reaching an intraday record of $ 1,920/oz in the first week of September 2011.

The jewellery account for 50% of the physical bullion market the investment demand is the main due to the investment demand is the man factor for the higher gold prices. The gold Exchange Traded Funds (ETF’s) accounts for the bulk of investment in the bullion. The 10 largest ETFs hold an aggregate of 2,250t of bullion, equivalent to more than 80% of annual global mine production.

High prices are eroding demand for jewellery, which is freeing up bullion for the investment markets. The sluggish economy also is weighing on purchases of some luxury goods. Demand for coins and small bars have been very strong for many quarters. But we question whether retail investors will continue to purchase coins and bars in such heavy volume.

The combination of the decline in jewellery demand and the increase in scrap supplies will free up considerable amounts of bullion for the investment markets, we believe. This should moderate – but not reverse – further rallies.

The long selling has formed a bottom–USD- JPY

 

Global softness combines with the sharp adjustments in commodity and equity security markets, decisive government intervention and the continued monetary stimulus in developed economies are key factor influencing the flows in foreign exchange markets.

The USD is consolidating and it is in the recovery mode. The fragile European fundamental couple with the intervention of Japan and Switzerland along with the FED asset reallocation and equity market sell-off all pointing a positive move in the USD in the upcoming months.

Please see the appendix for the global forecast of the upcoming period up to Q1 2013.

CURRENCY OUTLOOK

USD/JPY

The USD/JPY will remained extremely stable due to the recent financial turmoil, the low yield spreads and continued risk aversion make it range bound within the region of 76 to 78. However, position in USDJ/JPY is bullish as financial market volatility will falls and market participant will be more focus towards fundamentals. The year-end USD/JPY target is of 80.

USD/CAD

The Canadian dollar is trending lower on the back of rising global risk aversion driven by uncertainty in Europe, The rapid shift is seen by in the market participants in portfolio holdings to highly liquid US assets and away from risk assets like CAD. The weakness will continue until there is stability in Europe. Accordingly, though the current outlook looks fairly bleak for CAD, we would expect a general retracement of some of the recent losses as we approach year-end. The uncertainty and vulnerability of US economy, with the growth estimates on the lower side is in turn pulling the Canadian outlook down. We anticipate further near-term CAD weakness before markets stabilize and the CAD will lose the year near to parity with the USD.

JAPAN CURRENCY FUNDAMENTALS

The safe heaven waves will continue to support the Japanese yen (JPY) while the country’s manufacturers envisage an improvement in economic conditions. The disaster earth–quake economic impact on Japan growth will be small as compare to the recovery which will be seen in the year 2012 due to the post construction after earthquake and economic recovery activities. Japan massive rebuilding effort and the rebound in auto & electronic manufacturing will lift the economy through remainder of the year and most of 2012.

The country’s manufacturer shows an improvement which is evidenced by the recent Tankan survey. The Japan industrial output has risen for the fifth consecutive month. The Industrial production in August is increased to 0.8% and show an increase of 0.6% from the previous year. The third quarter activity is 6% more from the first quarter readings.

The previous monthly report Bank of Japan (BOJ) states that the Japan economy is improving slowly but surely. Production and export are consistently increasing approving pre-quake levels. Investment and consumptions are also on the right track. The values of japan export are back to the pre earth-quake levels.

The latest retail sales reading are lower but the car sales are still showing the buoyed patterns and the gains are in momentum. The reconstruction effort is likely to gather momentum during the complementary part of 2011 and through 2012. GDP will expand by a meagre 0.3% this year, with a 3.2% rebound anticipated for 2012.

The rising yen is not favourable for the Japanese government and we have seen several interventions in the past from the BOJ to stabilise the currency situation and huge buying interest is seen from the Japanese government. The region of 75 is another potential area where more BOJ intervention is expected if the level of 75.95 is breached.

The BOJ is committed to continue the virtually zero interest rate policy until it judges the rice stability in order for japan economy to avoid the risk of deflation.

UNITED STATES OF AMERICA CURRENCY FUNDAMENTALS

The steady recovery of USD is shaping. Although the employment rate is high and housing market is a moving at a very slow pace couple with the slow recovery of the consumers spending. The USD benefit from strong fiscal and monetary stimulus. The liquidity support from the FED asset purchase program remains intact despite unattractive US treasury yields (10-year bonds valued at 1.74%). In addition, the acute sell-off in emerging markets also injected an element of support to the USD. The consensus forecast of GDP growth remain unchanged for the year 2011 i.e. 1.7% q/q annualized. Recent indicators confirm that a gradual recovery is under its way.

The quality of the US corporate balance sheets and capital investments are improved. The improvement in the quality of asset should help to ride out this slow economic activity period allowing business to take advantage of future opportunities such as additional expansions to emerging markets which is supported by the weaker dollar.

CANADA CURRENCY FUNDAMENTALS

The Canadian economy has shown a solid recovery in the first quarter of 2011 but the second quarter shows a contraction. The factors which rallied the growth during spring gradually disappear. Most notably, motor vehicle & parts assemblies that had been sharply curtailed by global supply disruptions are essentially back on track. The GDP show a good position in the month of July suggesting that a third quarter has a better start but there are other factors which hinder the growth.

The weaker growth of US and intensifying sovereign debt concerns in Europe are unnerving the financial markets. The latest data suggest that the economy continue to remain modest. The labour market is showing the sign of slowing and the consumer confidence is steady in the month of September. The retailers reported stable sales. The auto sales are down but remain in line with the average of the past decade.

The housing markets are cooling off with potential buyers is taking advantage of historically lower interest rates. As long as the debt crisis of Europe continued and with the heightened degree of economic uncertainty and financial market volatility, we expect consumers and businesses to remain cautious spenders for the time being. Meanwhile exports are restrained by slow global demand, particularly from the United States, which accounts roughly 75% of Canadian international shipments.

CANADA AND UNITED STATES Adrienne Warren +1 416 866-4315

Fundamental

INTEREST OUTLOOK

Please find below the interest outlook for Japan, United States and Canada

UNITED STATES	CANADA	JAPAN
The Federal Reserve will keep its fed funds target rate on hold until Q3 2013, in line with the Fed’s loose commitment made in August. Indeed, should further monetary easing be deemed essential, unconventional policies will likely be engaged once again. However, the options are now more limited after the Fed engaged in “Operation Twist” last month, shifting US$400 billion worth of Treasury securities with maturities of 3 years and under into Treasury securities with maturities of 6 out to 30 years by the end of June 2012. While the Fed has acknowledged that the impact of the operation has been, and will continue to be, modest, it is the Fed’s view that lower borrowing costs will provide further support for the US economy, especially when fiscal policy is at a standstill.	The Bank of Canada (BOC) to remain on the side-lines until the end of Q3 2012, with the risk of an even longer holding period pending developments in Europe’s debt situation, US politics, and Canadian domestic growth. Indeed, continued financial market turmoil and a sharp reduction in both business and consumer confidence have put downward pressure on global economic activity, raising the risk of weaker growth prospects for Canada. Real GDP has already come in weaker than expected in Q2 with a mild contraction while the risks of another weak print in Q3 have increased. Inflation, on the other hand, has come in slightly higher than originally expected.	The Bank of Japan (BOJ) has a low interest rate policy for more than two decades as being export base country. The same interest will continue in the upcoming periods. The (BOJ) decided to extend the deadline for new applications for loans under the "Funds-Supplying Operation to Support Financial Institutions in Disaster Areas" by six months, up to April 30, 2012. It also decided to extend the effective period of the "Relaxation of the Collateral Eligibility Standards for Debt of Companies in Disaster Areas" by six months, up to April 30, 2013.

APPENDIX

Currency	Currency Pair	Actual 16-10-2011	Q2 - 2011	Q3 - 2011	Q4 – 2011	Q1- 2012	Q2-2012	Q3-2012	Q4-2012	Q1-2013
YEN	USD/JPY	77.24	81	77	78	79	80	81	82	83
Canadian Dollar	USDCAD	1.01	0.96	1.05	0.99	0.98	0.98	0.98	0.98	1

Source: Consensus Economics Inc. September 2011

Fed’s ‘Extended’ Pledge May End in 2011, Economists Say

Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

April 26 (Bloomberg) -- Michael Purves, chief market strategist at BGC Financial LP, and Steven Blitz, a senior economist at ITG Investment Research Inc., talk about the U.S. economy and Federal Reserve policy. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Federal Reserve officials will probably prepare to pull back from record stimulus by dropping a pledge this year to hold the main interest rate near zero for an “extended period,” according to a Bloomberg News survey.

Thirty-three of 44 economists surveyed said the central bank will remove the two-word phrase from its post-meeting statement in 2011, with 18 betting it will move by September. The Fed may wait until 2012 to announce sales of mortgage or Treasury securities it bought to reduce borrowing costs, with 26 respondents expecting a plan next year, according to the survey, conducted from April 20 to April 25.

Chairman Ben S. Bernanke, who gives his first press conference today after a meeting of policy makers, has signaled he wants to ensure the U.S. economy has achieved self-sustaining growth before the Fed starts to raise borrowing costs and trim its $2.69-trillion balance sheet. Regional Fed presidents, including Philadelphia’sCharles Plosser, have said the Fed may need to contain inflation by raising interest rates this year.

“They’re trying to walk this path, given all the economic uncertainties, between people who want to stay very, very easy and people who want to tighten up the grips pretty quickly,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

The Federal Open Market Committee will release its statement at 12:30 p.m. in Washington at the end of a two-day meeting, which resumed today at about 8:30 a.m. After prior meetings, the FOMC released the statement at 2:15 p.m. Instead, Bernanke is scheduled at that time to meet the press, and the Fed will release economic projections of policy makers, three weeks earlier than its practice since 2007.

End as Planned

Economists expect little change in the FOMC statement today compared with its post-meeting comments on March 15. The Fed will probably confirm that its $600 billion of Treasury purchases, dubbed QE2 for the second round of quantitative easing, will end as planned in June, Silvia said. All 83 economists in a separate survey predict the Fed will keep the main interest rate in a range of zero to 0.25 percent, its level since December 2008.

Since the Fed announced the second round of asset purchases on Nov. 3, yields on 10-year Treasuries increased to 3.31 percent as of yesterday from 2.57 percent, while the Standard & Poor’s 500 Index gained 12 percent, yesterday reaching the highest level since June 2008. The dollar has weakened by 3.5 percent to the lowest since August 2008 against an index of six currencies.

Top Lieutenants

Bernanke and his colleagues are debating how the central bank should respond, if at all, to the 1 percentage-point drop in the jobless rate since November and surging food and fuel prices. The chairman and his top two lieutenants, Vice Chairman Janet Yellen and Federal Reserve Bank of New York President William C. Dudley, indicated this month they don’t see an immediate need to tighten credit because the boost to inflation is likely to prove temporary.

“So long as inflation expectations remain stable and well anchored” and the rise in commodity prices slows, then “the increase in inflation will be transitory,” Bernanke said April 4 in response to audience questions after a speech in Stone Mountain, Georgia.

Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular, unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of April 25, the highest since 2008. One measure of inflation expectations, the yield difference between 10-year inflation- linked debt and comparable-maturity Treasuries, has traded within a range of 2.42 percentage points to 2.64 points since February, Bloomberg data show.

Inflation Gains

The inflation gains helped slow U.S. growth to a 2 percent pace in the first quarter, the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior quarter. The government releases preliminary figures tomorrow.

The Bloomberg survey focused on the “extended period” phrase and also found that 32 of 44 economists expect the Fed this year to halt its policy of keeping its portfolio level stable by replacing maturing mortgage-backed securities with Treasuries. Nine respondents see that happening in June; 12 in the third quarter; and 11 in the fourth period.

The responses indicate that economists expect the Fed to change the statement language and allow its portfolio to shrink before raising interest rates or actively reducing the balance sheet. The Fed began the reinvestment policy in August, aiming to avoid what Bernanke said was a “passive tightening” of monetary policy just as U.S. growth slowed.

Benchmark Rate

A separate Bloomberg News survey conducted from April 1 to April 7 found that just 17 of 74 economists expect the Fed to raise the benchmark overnight lending rate this year.

Ending reinvestment “would be a signal, we believe, that the tightening cycle has begun,” said Dana Saporta, a U.S. economist with Credit Suisse in New York. She forecasts the Fed will make the move in the fourth quarter, about a year before it raises interest rates.

Asset sales wouldn’t occur until at least 2014, Saporta said. “I don’t think Bernanke would necessarily want to be the first chairman to oversee the Fed selling assets at a loss, so I think they’ll delay that.”

The Fed may start preparing investors sooner for the policy shifts with a change in its “tone,” acknowledging economic improvement and risks to inflation, Eric Pellicciaro, head of global rates investments at BlackRock Inc. in New York, said in a Bloomberg Television interview. Pellicciaro wasn’t a respondent in the survey, though he said the “extended period” phrase may change in November.

“It’s going to need to move its policy from the fifth gear down to the third gear,” Pellicciaro said.

To contact the reporter on this story: Scott Lanman in Washington atslanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz atcwellisz@bloomberg.net

Predictions for penny stocks

 

S.No.	Scrip Name	Entry point	Target Profit	Get out
1	VTMS	0.3	0.4	0.25
2	TPAC	0.17	0.23	0.13
3	CPOW	0.15	0.3	0.1
4	STVI	0.15	0.25	0.1
5	WLGC	0.25	0.35	0.2
6	FTR	8.4	9.5	7.5
7	DIAAF	0.08	0.2	0.02
8	PFVR
9	SSOL	0.008	0.025	0.004
10	AMPW	1.2	1.6	0.899
11	IPRC	0.825	1	0.75
12	HRTE	0.065	0.12	0.04
13	NWBO	0.73	0.88	0.64
14	KNKT
15	TRDX	0.02	0.1	0.1
16	PVSP
17	CLGZ
18	SMKG
19	BLSP	0.65	0.9	0.53
20	MFTH	0.25	0.45	0.19
21	MKHD	0.22	0.32	0.18
22	MRES	0.288	0.45	0.22
23	UFVT	0.075	0.05	0.13
24	AXLX
25	INHC	0.125	0.5	0.05
26	CWNR	0.26	0.3	0.23
27	BSGC	0.045	0.12	0.037
28	RUU	1.3	2.15	0.7
29	SSOL	0.008	0.025	0.004
30	XNRG	0.175	0.325	0.15
31	SSPH	0	0	0
32	TITL	0.1	0.3	0.005
33	TRDX	0.04	0.2	0.01
34	VOD	24.75	30	22.75

Copper expectation by Reuters

Copper to outperform as metals prices diverge in 2011- Goldman

8:11am EST

 LONDON, Dec 13 (Reuters) - Metals prices will diverge to
follow their own fundamentals during 2011 as emerging market
economies drive ahead and demand recovers in developed nations,
pushing copper above $11,000, Goldman Sachs forecast on Monday.

 "Metals with tighter cyclical fundamentals (copper, and zinc
in the second half) will outperform those with readily available
capacity (aluminium) or receding tightness (nickel)," Goldman
Sachs said in a research note.

 Robust demand from top consumers such as China and improved
demand from developed nations against a mine supply shortfall
were expected to drive up copper prices and exhaust almost all
exchange stocks next year, Goldman Sachs said.

 "We maintain our 12-mo ahead copper price forecast of
$11,000/mt and believe that prices could spike substantially
above these levels, most likely in late 2011," it said.

 Exchange-based stocks in London and Shanghai sit at some
466,500 tonnes, down by around one third since early April.
MCU-STOCKS CU-STX-SGH

 This supply scarcity is expected to set a premium for near
dated copper prices that triggers demand rationing, Goldman
Sachs said.

 Premiums for cash copper reached their highest in over two
years above $63 a tonne in early December against the benchmark
contract and remain at elevated levels. MCU0-3

 Elsewhere, the market for refined zinc is expected to remain
in surplus near term, but constrained concentrate and scrap
supply against growing emerging market investment demand suggest
inventories will top out next year.

 Against this backdrop, rising demand for higher quality
steel in growth economies -- zinc is used for galvanising steel
-- is expected to improve zinc's fundamental picture in 2012.

 DOWNSIDE RISKS

 Aluminium price risk is skewed to the downside for early
2011 due to high stocks and excess capacity although prospects
improve for 2012, according to the Goldman Sachs note.

 "Higher trend aluminum demand and rising energy cost support
could deliver better price performance heading into 2012," it
said.

 Likewise, prospects for nickel see "significant" downside
risks in the year ahead as returning Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) supply, new
project commissioning and ramp up, and slowing emerging market
consumption growth into mid-2011 push the market into a "sizable
surplus," it said.

 A year long strike at Vale Inco's Sudbury and Port Colborne
nickel operations ended in July. ID:nN08128896

 Vale's operations in Sudbury, together with its sister
operations in Voisey's Bay, account for roughly 10 percent of
global nickel supply.

 "However, we believe that the outlook for dramatically
rising consumption demand from emerging markets will keep
long-dated nickel prices well supported," the note said.

 
 FORECASTS 

                  3-MTH        6-MTH       12-MTH
 *COPPER CMCU3    $8,800       $8,800      $11,000 
 ALUMINIUM  CMAL3 $2,125       $2,200       $2,200
 NICKEL CMNI3    $19,500      $19,500      $19,500
 ZINC CMZN3       $2,300       $2,400       $3,100 
 
 *Based on LME three-moth prices
 ** Prices per tonne of metal
 (Reporting by Melanie Burton; editing by James Jukwey)

Earthquake Damage May Force New Zealand to Delay Rate Increase

Reserve Bank of New Zealand Governor Alan Bollard in Wellington. Photographer: Mark Coote/Bloomberg

Buildings destroyed after an earthquake, in Christchurch, New Zealand. Photographer: Joseph Johnson/Getty Images

New Zealand will probably keep its benchmark interest rate unchanged tomorrow as the nation’s worst earthquake in eight decades curbs economic growth and slowing consumer spending reduces the threat of inflation.

Central bank Governor Alan Bollard will leave the official cash rate at 3 percent at 9 a.m. in Wellington, according to all 14 economists surveyed by Bloomberg News, after the Treasury Department projected the Sept. 4 temblor may cut as much as 0.8 percentage point from growth this quarter.

Bollard, who boosted borrowing costs for a second straight meeting in July, would join regional counterparts from Australia to South Korea to Malaysia in pausing on rates as they gauge the strength of the global economy. The magnitude 7 quake in the South Island city of Christchurch came as recent reports showed retail sales and manufacturing shrank and housing demand slowed.

“Neither growth nor underlying inflation appears to be tracking as firmly as the Reserve Bank projected when it began to raise the cash rate in June,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “The earthquake is likely to result in a measurable loss of output and confidence in the near term.”

Shops and factories closed after the quake, which cut power and damaged more than 100,000 homes and severed water and sewage lines in and around New Zealand’s second-largest city. The Treasury says reconstruction may spur a rebound in 2011, with growth projected to be 0.5 percentage point stronger in the year ending June 30.

‘Direct Lift’

“Activity will be directly boosted in 2011 as the rebuilding phase gets under way,” said Gibbs. “Construction will provide a sizeable direct lift to the regional economy.”

Stocks of New Zealand building materials companies have surged since the earthquake on expectations of increased demand during the reconstruction period. The NZX Building Materials and Construction Index gained 8.8 percent as of 11:45 a.m. in Wellington, more than three times the all-stocks index.

Prime Minister John Key’s government will also deliver a boost to the economy with income tax cuts on Oct. 1, which will match an increase in sales tax. Bollard said Aug. 19 he will monitor the response to the increase in sales tax to determine whether underlying inflation pressures are accelerating.

Even before the quake, the chances of the bank raising rates had diminished as evidence mounted of slowing domestic demand. In June, the central bank forecast growth of 1.1 percent in the second quarter. A month later, Bollard said the outlook had “softened somewhat” and the pace of further rate increases may be more moderate.

Regional Banks

Uncertainty over the global recovery has prompted other central banks in the region to pause on rates. The Bank of Korea left its benchmark rate unchanged on Sept. 9, saying a possible U.S. slowdown and persistent European fiscal problems are risks to economic growth. The Reserve Bank of Australia on Sept. 7 kept its overnight cash rate target unchanged for a fourth month, saying growth in the U.S. looked weaker. Malaysia also kept its overnight policy rate steady after three straight increases.

A Credit Suisse index based on swaps trading shows there is a 4 percent chance of Bollard boosting borrowing costs by a quarter point tomorrow. Just one economist expects a rate increase at the review on Oct. 28, while 10 expect a move in December.

Economic Forecasts

The central bank also updates its economic forecasts tomorrow and is likely to outline a slower growth path, economists say, in line with recent reports.

House sales fell for a fifth month in August, the Real Estate Institute of New Zealand reported yesterday. Prices rose 0.9 percent from the year earlier, the institute said, citing a monthly index.

Retail sales declined 0.4 percent in July, Statistics New Zealand said yesterday, as spending fell at 14 of 24 store categories, led by vehicle dealers, liquor retailers and department stores. Spending on credit and debit cards fell 0.2 percent in August, the agency said in a report today.

“We do expect in the medium to long term the gradual recovery will continue, but it’s likely in the next 12 months demand will remain patchy,” Ian Morrice, chief executive officer of Warehouse Group Ltd., the nation’s biggest discount retailer, said last week.

Manufacturing sales volumes slumped to a 10-year low in the second quarter, according to a Sept. 9 government report. Production was led lower by seafood, fruit, meat, dairy and textiles, adding to signs that global demand for some commodity exports has slowed.

Resumption of Moves

Even so, Bollard has to take a medium-term view of the economy and inflation, which suggest rates will start rising again later this year, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.

“The bank should still be nervous about keeping the cash rate too low for too long,” he said. He expects a quarter-point increase in December.

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, last month left unchanged how much it expects to pay New Zealand farmers supplying its milk because of signs that global prices may strengthen. Milk powder prices increased at an auction on Sept. 2, the Auckland-based company said.

To contact the reporters on this story: Tracy Withers in Wellington at twithers@bloomberg.net; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

Japan Intervenes for First Time Since 2004 to Rein in Yen

By Toru Fujioka and Aki Ito - Sep 15, 2010 9:14 AM GMT+0500

Finance Minister Yoshihiko Noda, center, confirmed the intervention, speaking to reporters today in Tokyo. Noda said that Japan had contacted other nations about the step, without specifically saying that today’s measure was taken unilaterally. Photographer: Tomohiro Ohsumi/Bloomberg

Play Video

Sept. 15 (Bloomberg) -- Bloomberg's Mike Firn reports from Tokyo about Japan's intervention in the foreign-exchange market for the first time since 2004 to curbe a surge in the yen that threatens an export-led recovery. Finance Minister Yoshihiko Noda told reporters in Tokyo that the move was unilateral. Bloomberg's Mark Barton also speaks. (Source: Bloomberg)

Play Video

Sept. 14 (Bloomberg) -- Christian Takushi, fund manager at Swisscanto Asset Management AG, talks about Japan Prime Minister Naoto Kan's victory in a vote for control of the ruling party. He speaks from Zurich with Maryam Nemazee on Bloomberg Television's "On The Move." (Source: Bloomberg)

Japan intervened in the foreign- exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.

Finance Minister Yoshihiko Noda told reporters in Tokyo that the move was unilateral. Chief Cabinet Secretary Yoshito Sengoku said the ministry “seems to think” 82 yen per dollar to be the line of defense, after it reached 82.88 earlier today. Government officials speaking on condition of anonymity have previously said volatility was a bigger concern than the level.

Prime Minister Naoto Kan was under pressure to intervene after business leaders’ calls for steps to arrest the yen’s gains, which undermine the exports propelling Japan’s growth. It may do little for the economy because Japan alone won’t be able to keep the yen from rising, said analyst Tohru Sasaki.

“In the medium-term it can’t change the overall direction” of the currency, said Sasaki, head of Japan rates and foreign- exchange research in Tokyo at JPMorgan Chase & Co., who yesterday said intervention odds had doubled after Kan’s reelection as head of Japan’s ruling party.

The yen tumbled 2.1 percent to 84.85 per dollar as of 12:42 p.m. in Tokyo, after reaching a high of 82.88 earlier today. The benchmark Nikkei 225 Stock Average climbed 2.6 percent to 9,543.38. The currency had climbed more than 13 percent against the dollar in the five months through yesterday.

Yen’s Climb

Japan’s currency has rallied amid concern about the durability of the U.S. recovery and the effect of Europe’s debt woes. The yen typically gains when investors avoid risk because of the country’s current-account surplus and deflation.

Authorities probably decided to intervene today because the yen’s climb yesterday and overnight was due to traders’ views that Kan wouldn’t take such a step, said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. Kan’s opponent to head the Democratic Party of Japan, former DPJ chief Ichiro Ozawa, had specifically called for yen sales.

It’s “pretty unlikely” officials will be able to return the yen to the level “that companies are basing their profit forecasts” on, Nishioka also said. Firms said they remain profitable as long as the yen trades at 92.90 per dollar or weaker, according to the Cabinet Office’s annual report released in February.

‘Bold’ Pledge

“Investors were starting to doubt the government’s commitment to its pledge that it would take bold action,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. Kan and Noda in recent weeks repeatedly said that Japan was ready to take “bold” measures to stem the currency.

U.S. Treasury spokeswoman Natalie Wyeth declined to comment on Japan’s announcement when reached by telephone. China’s Ministry of Commerce also declined to comment.

For China, Japan’s decision is a “favorable development,” said Tomo Kinoshita, co-head of Asia Economic Research at Nomura Holdings Inc. in Hong Kong. China has limited gains of its own currency to less than 2 percent since ending a two-year peg to the dollar in June.

U.S. lawmakers have criticized China’s currency policy for providing a subsidy to the nation’s exporters. The House Ways and Means Committee is scheduled to hold a hearing on the subject today in Washington.

Record Sales

Japan hadn’t intervened to sell yen in the foreign-exchange market since 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

Noda didn’t say how much was used in today’s action, while that figure will be released at a later date.

“We can’t overlook these movements that could have a negative effect on the stability of the economy and financial markets,” Noda said. “We conducted intervention to contain excessive movements in the currency market. We will continue to watch developments in the market carefully and we will take bold actions including further intervention if necessary.”

Bank of Japan Governor Masaaki Shirakawa said in a statement that the action should “contribute to a stable foreign exchange-rate formation.”

Until now, the government has pressed the Bank of Japan to step up liquidity injections to help address the gains in the yen. The central bank last month increased a credit program by 10 trillion yen ($119 billion) after an emergency meeting. The step had little impact on the currency.

Business Calls

Top business executives have been calling for government action to stem the yen’s rise.

“We want verbal or actual intervention if the yen appreciates more than the current level,” Hiromasa Yonekura, head of Japan’s Keidanren business lobby, said at a Sept. 13 press conference. “Rapid change should be managed,” Hiroaki Nakanishi, president of Hitachi Ltd., said this week in Tokyo.

Some analysts have said that official action by Japan might not weaken the yen for long unless it’s conducted together with overseas authorities. Kan said last week in a debate with Ozawa that getting international cooperation to halt the yen’s rise is “difficult.”

U.S. Treasury Secretary Timothy F. Geithner declined to comment about the prospects for currency intervention in an interview last week, instead saying that Japanese officials should do what they can to help their economy grow.

“They’re working through some difficult problems,” Geithner said on Bloomberg Television. “My view is they should be focusing like we are on how to make sure they’re reinforcing recovery in Japan and doing things that are going to help.”

Recent Japanese data have pointed to the expansion losing momentum. The government yesterday revised its July industrial output figures to show that output fell rather than increased from a month earlier. Japan’s economy expanded at a 1.5 percent annual rate in the second quarter, less than half the pace of the previous period, and consumer confidence slid to a four- month low in August.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg