U.S. Outlook Prompts Warnings by Japan, Australia Central Banks
Japan's Finance Minister Yoshihiko Noda
Tomohiro Ohsumi/Bloomberg
Japan's Finance Minister Yoshihiko Noda today said that the government is concerned about the impact of the yen on corporate profits and reiterated that officials will take action on currencies when needed, according to Reuters.
Japan's Finance Minister Yoshihiko Noda today said that the government is concerned about the impact of the yen on corporate profits and reiterated that officials will take action on currencies when needed, according to Reuters. Photographer: Tomohiro Ohsumi/Bloomberg
Japan’s and Australia’s central banks signaled that the outlook for U.S. growth is deteriorating, making it tougher for them to set monetary policy.
The Reserve Bank of Australia extended a pause in raising interest rates “for the time being” today, even after the nation’s gross domestic product rose the most since 2007. The Bank of Japan said it’s prepared to add more monetary stimulus after last week’s emergency decision to expand a credit program that followed a tumble in the dollar against the yen.
Both banks singled out the U.S., with the RBA saying growth there looked “weaker” in the second half, and the BOJ citing “uncertainty about the future, especially for the U.S.” The statements highlight the threat of any return to recession for the world’s biggest economy, even for nations benefiting from surging demand in Asian emerging markets, led by China.
“If the U.S. economy slows more than forecast and if there is a double-dip, then clearly there are significant implications for policy elsewhere,” said Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB. “For Australia and Japan, the Chinese economy is more important and the bigger focus is whether China slows more than expected but they can’t ignore a slowing in the U.S. economy.”
The statements, released after central bank meetings in Tokyo and Adelaide, Australia, came after U.S. government data Sept. 3 showed companies hired more workers than forecast in August. Even so, the unemployment rate rose to 9.6 percent, compared with 5.2 percent in Japan and 5.3 percent in Australia.
Fed Meeting
Federal Reserve policy makers have themselves said they’re prepared to add monetary stimulus for the U.S., and last month set a $2.05 trillion floor for their securities portfolio. The Fed’s policy-setting Open Market Committee, led by Chairman Ben S. Bernanke, meets again in two weeks.
Stocks worldwide tumbled last month on evidence of slowing American growth. The MSCI World Index lost 3.9 percent, while the U.S. benchmark Standard & Poor’s 500 Index retreated 4.7 percent. Most Asian stocks fell today, led by Japanese automakers including Nissan Motor Co., on concern a stronger yen will hurt the value of overseas sales.
Japan’s currency has appreciated 9.5 percent against the dollar in the past three months as the U.S. currency retreated against all 16 of the most-traded currencies. It was at 83.88 at of 6:30 p.m. in Tokyo today. Prime Minister Naoto Kan said Sept. 2 that the yen’s gains are mostly due to dollar weakness.
Noda’s Worry
Finance Minister Yoshihiko Noda today said that the government is concerned about the impact of the yen on corporate profits and reiterated that officials will take action on currencies when needed, according to Reuters.
“Against the backdrop of increased uncertainty about the future, especially for the U.S. economy, and associated instability in the foreign exchange and stock markets, attention should be paid to downside risks to Japan’s economy,” Governor Masaaki Shirakawa and his colleagues on the BOJ’s board said in a statement today.
Shirakawa said in a press briefing that developments in the U.S. economy have been weaker than the bank had forecast earlier this year.
Japan’s central bank kept the size of a 30 trillion yen ($357 billion) credit program unchanged today after expanding it by 10 trillion yen in an Aug. 30 emergency gathering, and left the benchmark rate at 0.1 percent. Policy makers said they will take “policy actions in a timely and appropriate manner” if they are “judged necessary.”
Recovery Continues
The decision followed some signs of sustained growth in Japan, which lost its title as world’s No. 2 economy to China last quarter. Industrial production unexpectedly expanded 0.3 percent in July, a government report showed on Aug. 31. The unemployment rate fell in July for the first time in six months.
Exports have been the main source of growth during Japan’s recovery from its deepest postwar recession. Those gains are threatened by the yen, which reached a 15-year high last month. A 10-yen gain against the dollar trims GDP by 0.3 percentage point, according to an estimate by Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo.
“The BOJ must be afraid of the Fed taking more easing measures, as it will probably force them to implement more accommodative policies” themselves due to the yen appreciation that would likely result, said Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo.
Australian Strength
In Australia, policy makers led by Governor Glenn Stevens kept their benchmark rate at 4.5 percent for a fourth month today even as they saw evidence of easier credit growth and prospects for business investment to “grow strongly.”
The RBA altered its language in discussing the U.S. outlook today, saying the pace of expansion in the second half “is looking weaker,” compared with last month’s assessment that growth “may be somewhat lackluster.”
U.S. GDP rose at a 1.6 percent annual rate in the second quarter from the previous three months, down from a 3.7 percent pace in January to March. Australia’s economy grew 1.2 percent at a quarterly pace in April to June, the most since 2007, and 3.3 percent from a year before.
Another recession in the U.S. “is a risk -- it’s a somewhat unquantifiable risk,” Guy Debelle, assistant governor of the RBA, said in Sydney Aug. 31.
Rate Increases
Australia increased rates six times since early October, the Group of 20’s most aggressive monetary tightening, as the nation enjoyed a surge in exports stemming from China’s demand for its iron ore and coal, benefitting resources companies from BHP Billiton Ltd. to Rio Tinto Group.
Central banks across Asia have also raised borrowing costs this year from global-recession lows as the region led the world recovery. One exception is Indonesia, where officials are wagering that loan regulations and bank reserve requirements will both sustain growth and contain inflation.
Bank Indonesia Governor Darmin Nasution said in an interview late yesterday in Jakarta that “as long as we still can manage our monetary variables by other instruments, we will try to avoid changing the interest rate.”
Asian central banks should focus on domestic conditions when deciding on interest-rate movements because demand within their economies and intra-regional trade are still strong, said Kevin Grice, a London-based economist at Capital Economics Ltd.
The global economy is “gradually moving out from under a shadow” after China aided growth by keeping its economy open during the financial crisis, Chinese Vice President Xi Jinping said today at an investment forum in Xiamen, in southern Fujian province.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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