Tuesday, June 20, 2006


ZIRP Should End 'Without Delay': BOJ

More news on the end of Japans' zero interest-rate policy. "The yen gained against the dollar after Bank of Japan Governor Toshihiko Fukui said policy makers need to adjust interest rates from near zero percent 'without delay.' Inflation-adjusted interest rates are extremely low and could risk stimulating growth excessively, Fukui said. The yen later pared its advance after Fukui said he hadn't intended to give a specific timeframe for lifting borrowing costs."

"'With Fukui stating clearly that the BOJ will move forward, it raised expectations of interest-rate increases,' said Robert Sinche, head of global currency strategy at Bank of America Corp. 'You are seeing the yen rebound substantially.'"

"Japan's currency advanced to 114.87 per dollar at 9:38 a.m. in New York, from 115.54 late yesterday, and earlier rose to 114.63. The yen rebounded to 144.34 per euro after sliding to a record low of 145.84 yen yesterday on reports North Korea was preparing to fire a long-range missile."

"The yen fell back a bit after Fukui said he's not in a rush to raise rates,'' said Lee Ferridge, a proprietary trader in London. 'People thought a rate hike in July was a done deal, and now Fukui's thrown some uncertainty into that.'"

"The yen has risen 1.4 percent since finance ministers from the Group of Seven industrialized nations said April 21 it's 'critical' for China and other Asian nations to allow their currencies to gain. As 'the market starts to realize how serious the Bank of Japan is about wanting to renormalize rates we are going to see both dollar-yen move lower and euro-yen as well,' said Lara Rhame, a senior currency strategist at Credit Suisse."

"The dollar was little changed at $1.2562 per euro from $1.2575 after a government report showed U.S. housing starts rose a greater-than-expected 5 percent in May to an annual rate of 1.957 million, rebounding from a 13-month low. Building permits, a sign of future construction, fell 2.1 percent to an annual rate of 1.932 million, the Commerce Department said."

"'There has been concern the housing market may be the first to falter as the economy slows,' said Grant Wilson, a currency trader with Mellon Bank in Pittsburgh. 'This is providing a little bit of support for the dollar.'"

"The dollar has gained 2.7 percent against the euro since reaching a 13-month low on June 5 as traders have added to bets the Fed will lift rates at least twice more this year to contain inflation. Policy makers meet again on June 28-29, and interest-rate futures show odds of 100 percent the central bank will lift rates to 5.25 percent. The odds of a move to 5.5 percent at its next meeting on Aug. 8 have climbed to 72 percent, from zero percent at the end of May."

"'The market feels that the Fed has put more emphasis on inflation risks than on growth risks,' said David Powell, a currency strategist at IDEAglobal in New York. 'The increased inflation pressures have certainly helped the dollar.'"

If the BOJ takes interest rates up to one half per cent by the end of the year, the US housing market will crater. The Fed holds $1.6 trillion in mortgage backed assets, have of which are Japanese. Sell the dollar, by yen and watch mortgage rates pop!
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