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

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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)

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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

Wall street CFD Forecast

The red lines are reflecting the support.

First Trade: (I am shorting at  10458)

TP 10416

SL 10495

Second Trade: (I will long at 10373)

EL 10373

TP 10575

SL 10326

Noda Says `Difficult' for Japan to Win Coordination on Yen Intervention

By Keiko Ujikane - Sep 4, 2010 12:20 PM GMT+0500

Japanese Finance Minister Yoshihiko Noda said it would be “difficult” to gain support for international coordination to halt the yen’s gains, signalling any sales of the nation’s currency would have to be unilateral.

“This is about what options we have on the assumption coordination would be difficult,” Noda said on a TV Tokyo program today. “Our statements on taking ‘bold action when necessary’ cover everything.”

The yen’s advance to a 15-year high against the dollar threatens earnings at companies from Sony Corp. to Toyota Motor Corp. Sony Chief Executive Officer Howard Stringer said this week that the currency’s appreciation is a “huge handicap for us.” About half of Japan’s manufacturers say the yen’s recent gains are hurting their sales, according to a survey published yesterday by credit research agency Teikoku Data Ltd.

The currency’s advance, which threatens to stunt Japan’s trade-dependent economic recovery, has featured in Prime Minister Naoto Kan’s battle to fend off a challenge to his leadership of the ruling Democratic Party of Japan.

Ichiro Ozawa, former deputy leader of the DPJ and Kan’s opponent in party contest, said this week he would take “every measure,” including intervention, to keep the yen from rising. Kan said last week the government is “ready when necessary to take bold measures” in the currency market.

‘A Matter of Deciding’

“What they meant was the same,” Noda said today. “Ultimately, it’s a matter of deciding whether or not to intervene.”

Japan hasn’t stepped into the foreign-exchange market since 2004, when the yen was around 109 per dollar, and may not succeed in curbing the yen’s gains on its own.

While coordinated intervention helped set a floor for the euro in 2000 and the dollar in 1995, solo sales of yen in 2003 and early 2004 failed to arrest the advance.

Developed economies abroad are weaker than when Japan last intervened, and are themselves looking to boost exports, making it tougher for Japan to go it alone.

Japan views probable U.S. opposition to currency intervention as an obstacle to selling the yen, according to three Japanese government officials.

Sales without U.S. backing would be a challenge, the officials said on condition of anonymity because the government discussions are private.

Two of them also said volatility, rather than the current level, would be a more likely trigger for an end to the policy of refraining from sales of the currency, which last week hit a 15-year high at 83.60 against the dollar.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

USD/CHF Forecast

As long as the two red lines are intact we can see a upside in USD/CHF. There is a pin bar reversal on September 01, 2010. Giving the added evidence.

Small trade setup

Buy at 1.0122

Stop at 1.0080

Target profit 1.0220

AUD/USD Forecast

The price action on the first day of the month is too fast. We have seen the major gain in the pair. We believe that the price will get retrace up to 0.9000 (21 DMA) before making a further upside move. For a small trade short 0.9110 cover it at 0.9060. which is a pivot point for the current day.