Yen Climbing for JPMorgan as U.S. Watch Limits Intervention Tool
Japanese officials concerned at the yen’s surge to an 18-month high now face the headache of being on a U.S. watch list for currency practices. JPMorgan Chase & Co. says the potential for U.S. opposition to exchange-rate intervention will probably help strengthen the yen more.
- The dollar-yen market is orderly and it’s important for countries to keep their Group-of-Seven and Group-of-20 currency commitments, the U.S. Treasury said Friday. The yen’s 13 percent surge this year has prompted Japan’s Finance Minister Taro Aso to say that authorities would act if moves were one-sided. Recent yen gains are “extremely concerning” and the U.S. report won’t limit how Japan can respond, he said Saturday, according to a transcript obtained by Bloomberg. Germany, China, South Korea and Taiwan were also included as countries to be monitored.
- “The risk of breaking 100 can’t be ruled out, and in that case Japanese authorities are likely to move,” said Tohru Sasaki, a former central bank official who’s now head of Japan markets research at JPMorgan. “If dollar-yen breaks 100, and even if Japanese authorities move, probably that’s not enough to provide significant support” for the greenback.
- The yen was little changed at 106.51 per dollar as of 3:02 p.m. in Tokyo Monday, following last week’s 5 percent advance that was the biggest since 2008. It climbed as high as 106.14, the strongest level since October 2014. Japan’s currency fell 0.2 percent to at 122.17 per euro from Friday, when it completed a 2.9 percent weekly gain.
- A number of markets are closed across Asia and Europe on Monday including those in China, Singapore, the U.K. and Russia. Japan’s markets will be closed from Tuesday to Thursday.
- The U.S. Treasury uses three criteria to decide if a country is being unfair, including the size of its trade and current account surpluses as well as whether it buys foreign assets equal to 2 percent of output over the year to depreciate its currency.
- That means Japan could intervene in currency markets by up to 10 trillion yen ($94 billion) a year, though the sum wouldn’t be enough to support the dollar-yen, JPMorgan’s Sasaki wrote in a report.
- “The message from the U.S. Treasury is important for Japanese currency policy,” JPMorgan’s Sasaki said. “Japan can’t ignore what the U.S. government says, because currency policy is bilateral.”
- Japan hasn’t sold its currency to limit gains since 2011. The finance ministry made a record daily sale of 8.07 trillion yen on Oct. 31, 2011, when the yen climbed to a post World War II high of 75.35 against the dollar. While the currency hasn’t retested that level since, it remained under 85 until it became clear in late 2012 that Shinzo Abe would win office as prime minister and carry out a massive program of monetary and fiscal stimulus.
- “The risk is high for markets to test beyond 105 yen this week,” said Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities Co. “It will be important whether Japan will act or not, whether it can act or not. Verbal intervention is only effective when it’s accompanied by the possibility of physical intervention.”
TODAY NEWS 02 May 2016
Iraqi Protesters to End Sit-In, Leave Baghdad's Fortified Zone
- Iraqi protesters wave national flags and shout slogans after breaking into Baghdad's heavily fortified 'Green Zone' on April 30, 2016..
- Protesters who breached Baghdad’s fortified Green Zone ended their sit-in on Sunday, a day after storming Iraq’s parliament building and prompting the government to declare a state of emergency..
- The backers of Iraqi cleric Moqtada Al-Sadr, who were protesting against corruption and the country’s political paralysis, have agreed to leave the secure zone, al-Sumaria reported, citing a statement issued by the protests’ committee. The zone includes many foreign embassies along with Iraqi government buildings..
- Mobile-phone video footage broadcast Saturday on Iraqi televisions showed hundreds of al-Sadr’s supporters inside the legislature. Al-Sadr earlier accused lawmakers of sectarianism in their selection of ministers and ordered his bloc to withdraw from the parliament session where members were preparing to finish voting on a new cabinet.
- Storming parliament and the Green Zone escalated a crisis that has undermined Prime Minister Haidar al-Abadi’s reform push and stymied efforts to defeat Islamic State militants. Abadi’s plan to set up a cabinet of technocrats has so far failed as parties fight to preserve a system of patronage.
- “The situation in Iraq has become very dangerous,” said Wathiq al-Hashimi, a Baghdad-based political analyst. “No one will be able to control thousands of angry protesters while the rest of residents in Baghdad are in panic and living in real fear.”
- Almost two years after Islamic State captured Mosul, the country’s biggest northern city, government forces are struggling in the fight against the militant group. The war, as well as the plunge in oil prices have battered the finances of OPEC’s second-largest producer. The government is in talks to secure a loan from the International Monetary Fund, which expects the nation’s non-oil economy to contract for a third year in 2016.
- Cabinet List
- The Iraqi parliament has failed to vote on Abadi’s cabinet list. Some lawmakers also staged a sit-in in parliament last month and voted to oust the speaker, though the move was later challenged on the basis of quorum.
- Former Prime Minister Nouri al-Maliki, who opposes Abadi, criticized attempts to force reform “under threat of weapons and by preventing the representatives of the people to enter the parliament.”
- A meeting between Abadi, Iraqi President Fouad Masoum and Parliament Speaker Salim al-Jabouri didn’t yield an immediate resolution to the crisis. Instead, the three condemned the storming of the legislature and said those who assaulted lawmakers during the protest should be brought to justice.
- Political blocs and parties will “intensify their talks in the coming days to guarantee reforming the political process,” they said.
- The Iraqi Kurdish bloc in the parliament is reconsidering its participation in the country’s political process, according to an e-mailed statement in which the it denounced the violence.
- U.S. officials including President Barack Obama have expressed concern Iraq’s leaders remain mired in sectarian divisions that may undermine the fight against Islamic State.
- Central Bank
- Protesters reached the cabinet headquarters inside the Green Zone, storming the general secretariat of the cabinet building, al-Sumaria reported, citing security officials. Security was boosted around the central bank, the Interior Ministry said in an e-mailed statement.
- The United Nations Assistance Mission for Iraq said it’s “gravely concerned” by Saturday’s developments and urged political leaders to work together to restore security in the country.
- “The mission condemns the use of violence, including against elected officials, and urges calm, restraint and respect for Iraq’s constitutional institutions at this crucial juncture,” it said in an e-mailed statement.
North Korea vowed to make rapid advancements on nuclear attack
- North Korea vowed to make rapid advancements on nuclear attack capabilities if South Korea and the U.S. continue with joint military drills, with the warning coming days before predictions that the nation may conduct its fifth nuclear test for the Worker’s Party Congress on May 6.
- “Our capability to make nuclear attacks will make fast advancement every time enemies conduct war exercises,” the regime’s official news agency reported, citing an unidentified spokesman at its foreign ministry. North Korea called a joint military drill between South Korea and the U.S. “the worst military provocation.”
- The statement came after North Korea’s failed attempts to fire missiles this week, and days before Kim Jong Un’s regime is scheduled to hold its first ruling party congress in decades. South Korean President Park Geun Hye said Pyongyang has completed preparations to conduct its fifth nuclear test and vowed to seek stronger sanctions against North Korea if it conducts the test.
- In an interview with the AP, North Korea offered to halt its nuclear test if the U.S. and South Korea would suspend defensive drills. U.S. President Barack Obama dismissed the proposal.
Aso Says Japan Will Take Action With Currency If Needed
- The recent jump in the yen is clearly a one-sided speculative move that is extremely concerning and Japan is ready to take action if needed, Japanese Finance Minister Taro Aso said on Saturday.
- "A 5-yen move in two days is clearly a one-sided speculative move and is extremely concerning," Aso told reporters at Haneda Airport late Saturday, according to a transcript obtained by Bloomberg. "So that these speculative moves don’t continue, we will watch foreign exchange market moves with a sense of vigilance, and will act if necessary."
- The yen touched an 18-month high of 106.21 against the dollar on Monday, after the Bank of Japan declined to increase monetary stimulus last week as markets had expected. The yen has climbed more than 13 percent this year against the dollar.
- "Even though I am away, there are phones and various ways we can communicate, and we are prepared to act appropriately if needed," Aso said as he departed to Germany for the annual meeting of the Asian Development Bank. Bank of Japan Governor Haruhiko Kuroda will also attend the meeting.
- Aso’s comments came as the U.S. is stepping up rhetoric on foreign-exchange practices. A semi-annual Treasury report included Japan on a watch list of nations whose foreign-exchange practices bear close monitoring to gauge whether they provide an unfair trade advantage over America.
- Aso said the April 29 report in no way constrains Japan’s ability to respond should any action be needed, according to the Nikkei report.
- Monitoring Policies
- The U.S. also put China, Germany, South Korea and Taiwan on the list, saying it will monitor policies to gauge whether they provide an unfair trade advantage over the U.S. The five countries have met two of three criteria used to judge practices. If a country meets all three criteria, it could eventually be cut off from some U.S. development financing and excluded from U.S. government contracts.
- China, Japan, Germany and South Korea were flagged as a result of their trade and current-account surpluses, the Treasury Department said. Taiwan made the list because of its current-account surplus and persistent intervention to weaken the currency, according to the Treasury.
- The report noted that Japan has not intervened in the foreign exchange market in more than four years.
- The Treasury said it’s increasingly important that Japan use all policy levers, including fiscal policy and structural reforms, to lift growth. Last month, Treasury Secretary Jacob J. Lew urged Japan to focus on boosting domestic demand instead of exports as the yen rises.
Australia's Ever-Growing Debt Pile Set to Peak Within Six Years
- Australia’s drive to balance the books will see the federal government’s debt pile top out within about five or six years and then start to shrink again, according to Treasurer Scott Morrison.
- Speaking in Canberra just ahead of his first budget on Tuesday, Morrison said he expects the fiscal deficit to narrow over the government’s four-year forecast horizon and pledged to keep expenditure under control.
- “To start reducing the debt you’ve got to get the deficit down. To get the deficit down you’ve got to get your spending down,” Morrison said in a Channel Nine television interview on Sunday. “The deficit will decrease over the budget and forward estimates and we will see both gross and net debt peak over about the next five or six years, and then it will start to fall.”
- The Australian budget was last in surplus in 2007-08 and attempts to rein in the deficit have been stymied by a slump in revenue as commodity prices fell. Morrison’s challenge is to maintain Australia’s public finances on a sound footing without increasing risks to the economy as it reduces its reliance on mining. He must also contend with the prospect of an upcoming election, which Prime Minister Malcolm Turnbull is expected to call for July 2.
- Total outstanding federal debt is now more than seven times larger than it was before the 2008 global crisis and net debt is predicted to increase to 18.5 percent of gross domestic product in 2016-17, according to the median forecast in a Bloomberg survey of economists. The underlying cash deficit is expected to reach A$35 billion ($27 billion) next fiscal year, A$1.3 billion more than the government had forecast in its December fiscal update, according to the survey.
- While the government confirmed on Sunday it would provide an additional A$1.2 billion of funding for schools over the forward estimates period, Morrison said that it was not a time to be throwing money around. He said the government was looking at measures related to retirement savings and also planned to crack down on tax avoidance by multinational companies, although he declined to confirm media reports of a possible reduction in income tax. Any additional spending measures in the budget will be offset by reductions elsewhere and the tax burden on the economy won’t be increased, he said.
- “You don’t get a sustainable path back to budget balance by increasing the tax burden on the Australian economy,” Morrison said. “That just retards growth over the longer term and it punishes the economy at a time when we need it to perform at its best.”
Oil Bulls Bet the Waning U.S. Shale Boom Will Curb Global Glut
- Hedge funds are rooting for a quick collapse of the U.S. shale boom.
- Money managers turned the most bullish since May as West Texas Intermediate crude climbed to a five-month high on optimism that falling U.S. production and rising fuel demand will trim the global glut. Investors shrugged off an inventory gain that left supplies at the highest since 1929.
- "The market’s focused not on current oversupply but on predictions of a balance in the second half of the year," said Mike Wittner, head of oil markets at Societe Generale SA in New York. "Managed money is just adding to the upward momentum."
- Speculators’ net-long position in benchmark U.S. crude climbed to the highest since May 12 in the week ended April 26, according to data from the Commodity Futures Trading Commission. Short positions dropped to a 10-month low.
- WTI futures surged 7.2 percent on the New York Mercantile Exchange in the CFTC report week, and settled at $45.92 a barrel Friday.
- Spending Cuts
- Energy companies responded to the lowest prices since 2003 earlier this year by cutting spending on exploration and developing new fields. The number of active oil rigs fell to 332 last week, the least since November 2009, according to Baker Hughes Inc. The total is down to less than one-fourth of the 2014 peak.
- U.S. crude production fell to 8.94 million barrels a day in the week ended April 22, the least since October 2014, Energy Information Administration data show. The agency on April 12 cut its average forecast for the whole year to 8.6 million barrels a day. Output from U.S. shale formations will drop in May to the lowest level in almost two years.
- "Supply in the U.S. is falling pretty quickly, and globally, in the second quarter of this year for the first time in more than three years we are going to have a contraction in global output," Francisco Blanch, head of commodities at Bank of America Merrill Lynch in New York, said on Bloomberg Television Friday. "That combination of lower supply and robust demand will lead to a change of inventory dynamics in the second half of the year."
- Consumption Gains
- U.S. drivers are doing their part. Gasoline consumption over the past four weeks was up 5.6 percent from a year earlier at 9.4 million barrels a day through April 22, EIA data show.
- Speculators’ net-long position in WTI rose 3,136 futures and options combined to 249,123, CFTC data show. Short positions, or bets that prices will decline, tumbled 6.9 percent, while longs slipped 0.5 percent.
- In other markets, net bullish bets on Nymex gasoline rose 11 percent to 25,964 contracts. Gasoline futures increased 5.8 percent in the period. Net bearish wagers on U.S. ultra low sulfur diesel decreased 93 percent to 529 contracts, the least bearish position since July 2014, as futures climbed 5.5 percent.
- OPEC Barrels
- Rising OPEC production leaves the oil market vulnerable to a correction, said Tim Evans, an energy analyst at Citi Futures Perspective in New York. The Organization of Petroleum Exporting Countries boosted production by 484,000 barrels a day to 33.217 million in April, the most in monthly data going back to 1989, a Bloomberg survey of oil companies, producers and analysts showed.
- "More buying now will result in more selling later," Evans said. "At some point rising OPEC production will be recognized as more than offsetting the drop in U.S. production."
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