Japan's Ministry of Finance reports Q4 (ended Dec.) capital spending increased 16.8%, beating the prior quarter's reading of 12.0% and analysts' estimates of 13.0% to 14.2% (Reuters). Up to a 1.0% revision to Q4 GDP is expected. Jesper Koll, chief economist at Merrill Lynch Japan, says annualized Q4 GDP will be revised to 5.1% from 4.8%, adding that "It is a trigger point for the Bank of Japan to normalize interest rates a little more aggressively." Bloomberg quotes Koll who also says, "The crisis of the 1990s is definitely over. Japan is in the process of building a strong platform for very strong, competitive economic growth." An economist at Nikko Citigroup however, says a revised GDP is not necessarily good due to concerns over rising inventories which "may prompt adjustments in production in coming months." The yen rose 1.7% today to ¥115.6/$1 as of the market's close in Tokyo. Japanese stocks meanwhile fell for a fifth straight day, as the Nikkei 225 lost 3.3% to 16,642.
The difference between Japanese and US interest rates is still large -- to the tune of 500+ basis points. However, even the hint of the carry trade (borrowing in Japan and lending in the US) going away has serious implications for the US and Japanese markets.
1 comment:
Bonddad:
Your columns are always very interesting. A rhetorical question for discussion: There was a period when the Japanese had difficulties expanding their money supply due to deflation, etc. (long argument we both know deleted). To what extent was the Japanese money supply depressed by the carry trade, and what did that do to Japan?
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