By: Mike Campbell
The Japanese stock exchange has been loosing ground compared to the other major indices. The yen is enjoying sustained strength against the other major currencies, yet the country is in a deflationary cycle; has a near zero interest rate policy and high unemployment. A strong Yen hits Japanese exports which are critical for the fortunes of the world’s second largest economy. Against this backdrop, encouraging noises are being made. The head of the Bank of Japan has promised to act “decisively” should there be further market turmoil. In an independent move, Naoto Kan, the National Strategy Minister has announced that the government will act to try to stop the rise of the Yen.
Details about these two initiatives were very thin on the ground, but some analysts believe that it is a coded message announcing the return to the quantitative easing policy which ran for five years until 2006 in the aftermath of the dot com debacle. The idea (also tried in the UK this year) is that by injecting more cash into the economy (by just printing it), money supply (i.e. lending) is improved and the economy will be stimulated. Time will tell. The message that the Japanese do not want to see the Yen continue to appreciate and will “act” could be enough to cool the Forex markets.
Australia is the one major developed economy to miss the worst excesses of the global recession and the only major economy to offer any real interest rate on bank deposits. Australia announced the third rate hike in as many months yesterday; a quarter point increase to 3.75%. The rate is still low, by historic standards, and analysts expect it to rise by a further 0.5% by the end of Q1 2010.