FXstreet.com (Barcelona) - Derek Halpenny, European Head of
Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes
that financial amrkets started the day in optimistic moods after
ECB President Draghi gave an upbeat press conference following the
upbeat monetary policy decision. Further, the Japanese Government
today presented its fiscal stimulus package to help support
economic growth there.
He notes that the USD/JPY rate broke new ground hitting an
intra-day high of 89.35 while the Nikkei advanced 1.4%. The total
size of the fiscal stimulus package is cited as JPY 20.2 trillion,
although central government funds for the package is put at JPY
10.3 trillion. In order to finance this, the government will
compile a JPY 13.1 trillion extra budget for the current fiscal
year. Halpenny sees that financing of this will include about JPY 8
trillion of debt issuance - just short of 3.0 trillion will be
through 'bridge loans' already planned to cover pension payments
and about JPY 5.0 trillion in construction bonds.
According to the Nikkei, some of these funds will go to "enhance
road safety on school-commuting roads" and for building more
quake-resistance roads and bridges. He writes, "Call us a sceptics
but we fail to see how this stimulus package will be any different
to any others in giving a temporary lift to economic activity
before fading. If that's the case, then altering inflation
expectations that could encourage greater outflows of funds from
Japan is unlikely to take place."
Still, the pro-active stance of the government puts the pressure on
the BOJ to follow with an inflation target when it meets on 21st
-22nd January. He notes that one candidate for the job of new
Governor, Kazumasa Iawata, stated that the BOJ should have a
flexible inflation target and also mentioned 95.00 as an ideal
level for USD/JPY. With USD/JPY now up nearly 15% in three months,
the government is at risk of coming under pressure from abroad. In
that regard Halpenny notes that St. Louis Fed President Bullard's
comment that he was "a little disturbed" by the direction Japan was
taking with its foreign exchange policy, which had become a lot
more explicit. He added that a beggar-thy-neighbour policy would
have a bad outcome.
He finishes by writing, "Finally the data from Japan today did lend
itself to yen selling. The current account deficit was larger than
expected at JPY 222.4bn but more interestingly, there was a very
sharp jump in the Eco Watchers' Survey to 51.0, the highest since
April 2007. If the household sector was to sustain this lift in
confidence it would certainly raise the prospects of greater risk
appetite and hence greater capital invested abroad which would be a
potential sustainable factor in weakening the yen."