Booming Asia is developing a few more growth twitches that question the sustainability of the recovery that has been holding global growth in the black for much of the past year or more.
Japan is grappling with a slowing economy and high currency, and an official attempt yesterday to start doing something about it (yet again) triggered a surge on regional markets off the back of a solid Friday’s trading in the US.
Singapore has joined Hong Kong in trying to cool a hot property sector and in complete contrast South Korea is doing the opposite, trying to stop a housing sector from cooling too quickly (see second story).
In Tokyo, the Bank of Japan held an emergency policy meeting yesterday and decided to expand an existing program to try help the economy, which is being battered by the slowing level of exports (from China’s slowdown) and the strengthening yen.
The news saw the Tokyo stockmarket rise and the yen fall, which was probably part of the reason why the central bank called the meeting.
The Nikkei was up 3.2% in Tokyo at one stage, but eased to be up 1.76%, after last week falling below the psychologically important 9,000 level as the yen hit a 15-year high against the US dollar.
The Australian market was up 1.9% on the ASX 200 with an 82.6 point rise to 4452 points, while South Korea’s Kopsi rose 1.6% after the move to try and stimulate housing (see second story).
The rally didn’t carry on offshore, the US fell, so markets will start today in the red.
The reaction in Europe and the US was that the central bank move was political rather than economic or an attack on the high yen and deflation.
The Bank of Japan said it will expand a special bank lending program by half to 30,000 billion yen.
That’s around $A390 billion in total with the extension yesterday.
The central bank’s decision came a day before Prime Minister Naoto Kan is due to reveal new economic stimulus measures later today.
The new 10,000 billion yen addition to the lending program will provide funds for six months.
The existing 20,000 billion yen program has a three-month duration and was doubled in March in similar circumstances where growing political pressures from a nervous new government forced the central bank to act.
Japan’s economy in the second quarter grew an annualised 0.4% (0.1% quarter on quarter), down from 4.4% annual in the first quarter (1.1% q/q).
The move is mostly symbolic as the earlier scheme was designed for political as much as economic consumption.
The Bank of Japan has had ample opportunity to make dramatic changes to monetary policy in the past year, has made one or two fitful policy changes, but in the end stood on the sidelines while the yen surged and the economy slowed largely for reasons outside its control.
The yen is rising (like the Swiss franc) because it is seen as a safe haven from the euro and the US dollar as the continuing speculation about the eurozone economies and the euro, and fears of a double dip recession in America, send the global herd of quivering money managers in search of safer fields.
And despite its awe-inspiring budget deficits and debt, Japan is one such haven, as is Switzerland.
And the Japanese economic recovery is fading as China slows; the US slumps and parts of Europe hardly even awoke from the recession.
This was recognised in the statement yesterday when the central bank said that while Japan’s economy “is likely to be on a recovery trend…uncertainty about the future, especially for the US economy, has heightened more than before, and the foreign exchange and stock markets have recently been unstable".
“In these circumstances, the bank judged it necessary to pay more attention to the downside risks to the outlook for Japan’s economic activity and prices,” the bank said.
And we are also seeing a decoupling in the Asian region, with South Korea increasingly fearful of a slowdown, Singapore worried about overheating (as is Taiwan) while Thailand, Indonesia and other economies are still solid
The Bank of Japan can’t do anything about that or the instability offshore, while the government is now slowly falling in on itself as a leadership brawl starts to take attention away from the fading economy where growth came close to falling off the edge in the second quarter.
Yesterday’s meeting came as the government prepares to announce an outline of a new stimulus package on Tuesday with an appreciating yen seen harming the nation’s fragile export-led recovery.
The BoJ policy meeting will "discuss monetary control matters based on recent economic and financial developments", the central bank said.
But exports are slowing because China and other Asian economies have started slowing.
Like China, imports into Japan have fallen faster than exports, which is a pointer to slowing demand, not the impact of a strong currency, such as the yen, in cutting the cost. Import volumes are falling.
Prime Minister Naoto Kan said Friday he would outline measures to counter the effects of the yen’s strength this week and implied possible intervention by saying he would take "determined steps when necessary".
