Tuesday, 18 February 2014

Asian central bank excitements...Japan, Australia and China

Yesterday I mused about a number of global volatility boosting events in Japan, Brazil and (inevitably) China (link here).  A few more 'excitements' today this time out of three Asian central banks. 

Japan is getting more and more volatile.  Via Fast FT, today's news from the Bank of Japan that they will

'double the scale of two loan schemes that were set to expire. The facilities enable financial institutions to borrow funds at a fixed rate of just 0.1 per cent for four years....The Bank expects that these enhancements will further promote financial institutions' actions as well as stimulate firms' and households' demand for credit, with a view to encouraging banks' lending and strengthening the foundations for economic growth'

So after the weak GDP numbers yesterday (see the above link from yesterday), the Japanese authorities are going to use more QE to boost the economy?  Well...maybe not.  As this short but excellent report from MarketWatch noted:

'The strength of the ensuing rally seemed a little surprising, given that the BOJ didn’t touch its asset-purchase levels. One possible explanation is that the word “double” in the statement tricked algorithmic trading programs into a mad buying frenzy'

The number of 2%+ trading days (both up and down) in Japan seems to be increasing.  When volatility builds so does disappointment for some investors. 

Australia's central bank also spoke overnight.  I have talked before about how the RBA's upfront and clear commentary is always well-regarded by the investment community.  It was interesting then that a rise of 0.9% in the nation's CPI in Q413 to 2.7% (so getting near the top of the RBA's 2-3% target range) surprised them so much that despite considering the various potential drivers (lower FX impact, import inflation, higher housing prices, less spare capacity) they concluded:

'With the available information it was not possible at this stage to distinguish between these explanations, and it was likely that some combination of them was at work'

At least they are not fudging policy communications like certain other central banks are...

Finally, back to China.  Whilst interesting that the rise and rise of the yuan continues (link here) and key quote below...

'Australia's stock exchange operator ASX and Bank of China said on Tuesday that they will provide a yuan settlement service to Australian and Chinese financial markets by mid-year, marking the latest step in the yuan's development as a global currency'

...I also found the comment that the Chinese central bank had used, for the first time in 8 months, 14 day bond repurchase agreements to drain US$7.9bn from money markets.  Just post Chinese New Year 'fiddling'?

So far...taken well but one to watch to say the least.

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