Posted on 01/16/2008 8:05:27 PM PST by bruinbirdman
Japan's prime minister Yasuo Fukuda has pledged to intervene if necessary to prevent a disorderly plunge of the Tokyo bourse amid fears that the country may be sliding back into recession.
Mr Yasuo Fukuda underlined the gravity of fast-unfolding events in Japan by warning that the economy was now in such a "delicate" state that it would be unwise to call a general election.
The Nikkei index has dropped 11pc in barely two weeks, recording the worst start to the year since 1945.
It is down 24pc from its peak and is now in the grip of a fully fledged bear market. Yields on five-year government bonds have dropped to 0.86pc as investors search for safety.
A wave of selling has swept across Asia in recent days as it becomes clear the US downturn will cause more damage than originally thought, but Japan has been hit doubly hard as the yen surges against the dollar, euro, sterling and the yuan.
The trigger for the yen's rise has been an abrupt unwinding of bets on the 'carry trade'. Investors are withdrawing funds from high-yielding countries as far afield as New Zealand, Australia, South Africa, Iceland, and Britain, preferring safety at home.
Much of the carry trade money is borrowed at near-zero interest rates in Tokyo to speculate with high degrees of leverage, so a reversal on the scale seen in recent days is enough to set off stock market falls across the world.
It is unclear what set off the spectacular move in recent days but it appears linked to moves by Japanese insurers and pension funds shifting out of US and European two-year bonds as rates fell.
The yen has appreciated from Y251 to Y210 against sterling since July, with an accelerated move since Christmas.
The new element is a sudden sharp rise against the euro as well. "It's been dramatic," said Ian Stannard, a currency analyst at BNP Paribas. "People are closing leveraged positions and avoiding risk.
They've used so much of this money to fund stock markets that it is having a global spill-over effect."
The sudden surge is playing havoc with the profits of big exporters, led by Toyota, Honda, Sony and Toshiba. They were already facing strains from the sharp slowdown in US consumer demand.
Mr Fukuda said the government would "respond if necessary" to prevent a stock market rout. It is hard to see what the government can do. Massive deficits over the past 15 years have left the country with little margin for fiscal action.
Toshihiko Fukui, the Bank of Japan's governor, said contagion from the US sub-prime crisis was "growing beyond our initial expectations".
24% is beyond a bear mkt.
and...interestingly, low interest rates alone aren't enough to prop their market up. Of course, they import a ton of oil, do they not? That's money down the drain towards Putin's swiss bank accounts.
The last thing the Fed should do right now is a rate cut IMO. I’m trying to figure out what currency to buy to sock away.
Ambrose Evans-Pritchard would suggest gold. And, hey, you can get it on the dip.
yitbos
OK, so now it's some hick in a trailer park fault that Japan's market is crashing! Is every thing Americas fault?
bump
Gold at $900 is a dip? Dream on.
“The Nikkei index has dropped 11pc in barely two weeks, recording the worst start to the year since 1945.”
And that year didn’t end too well for them either.
A lot of “What the (insert PM’s name here) going on here?!!!
GOLD 100 OZ FUTR (USD/t oz.) 883.300 1.300 0.15 02:24
yitbos
I think a rate cut will probably happen, but not for the standard scripted reasons. A few million ARM mortgages will have to be renegotiated this year, or the homes will end up in foreclosure. Bush had a small plan earlier, but its effect will be minor. But having the homeowners refinance into fixed rate mortgages while the fed lowers rates could keep a lot more people in their homes. It would be the closest anyone in government can come to a "fair" bailout of troubled homeowners.
I have the impression there are a "few million" renters who took out low or no interest ARMs that will have to go back to renting. They will never be able to pay a regular fixed rate mortgage even if someone "helps them out" a little. That's what got them into their mess in the first place.
yitbos
New York is leading the world markets. Down 300 today and nearly back to 12000 which is where it was when Grandma Pelosi took the gavel in Congress.
If I want to know what stock to buy I will just mention it in front of the receptionist at my stockbrokers. If she laughs it is a sure bet. If she says good choice I know to run away as fast as I can.
is there a EURO meltdown thread for 1/21 yet?
I’ll put one up if not.
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