The Bank of Japan (BOJ) expand its asset purchase programme by 10tn yen in an effort to boost growth. The BOJ also left the cost of borrowing unchanged at between zero and 0.1%.
Carmakers, such as Toyota, Honda and Mitsubishi, have been some of the worst hit by the strong yen as it makes their products less competitive abroad

Japan has also been hurt by a slowdown in its key export markets such as the US and the eurozone. “Special factors such as the earthquake last year, the nuclear problem and a temporary slowdown in the global economy as well as Japan’s new year holiday came together and pushed down the trade balance,” said Takeshi Minami of Norinchukin Research Institute.The earthquake and tsunami on 11 March last year caused substantial damage to the Fukushima Daiichi nuclear plant, resulting in radiation leaks at the facility. Some 80,000 people had to be evacuated from the surrounding areas. The leaks have raised concerns about the safety of nuclear energy in the country. As a result the majority of Japan’s nuclear plants have been shut and utility providers have had to turn to traditional thermal power stations to generate electricity. These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities. Imports of natural gas surged by 74% in January from a year earlier, while coal imports rose more the 26%, Japan’s Ministry of Finance said.

Japan’s exports have been hurt by a strong yen, which has risen more than 7% against the US dollar since April last year. A strong currency makes Japanese goods less attractive to foreign buyers as they have to pay more for them. Analysts also say that a strong yen had resulted in Japanese firms sourcing more parts from outside Japan, which had resulted in increased imports and impacted the trade deficit.
They said this trend was likely to continue in the short term. “Imports are likely to remain high due to solid demand for imports of fuel for electricity and brisk imports of parts,” said Yoshimasa Maruyama of Itochu Economic Research Institute. “Taking these factors together, a trade deficit will persist at least through the first half of this year, and how it narrows will largely depend on the recovery of overseas economies such as those in emerging markets in Asia.”

Week ending 17-Feb-12

The broad market mustered a modest gain on Friday, feeding a 1.4% gain for the week. The climb has the S&P 500 at a new nine-month high.
A steady climb in the prior session was followed by only modest buying. Many participants seemed hesitant to commit new money to the market now that it is up more than 25% from its October intraday low. The hesitation allowed stocks to drift lower, but the broad market was able to find support at the flat line. From there it gradually worked its way to a narrow gain, which helped feed the stock market’s sixth weekly advance in seven weeks.
Financials offered support by climbing to a 0.6% gain, but consumer discretionary stocks were the session’s best performers with their 0.8% climb.
Tech stocks, which represent the largest sector by market weight, lagged all session and settled with an incremental loss. Still, relative weakness among tech issues weighed on the Nasdaq, which had actually outperformed its counterparts in the prior session to book its best close since late 2000.

Hardly any commotion came in response to headlines that both the House and Senate have passed payroll tax extensions since both were widely expected to do so.
There weren’t any official updates on the dealings between officials from Greece and the eurozone, but the euro managed to attract some support. It finished the week near $1.32. That made for a 0.2% gain on Friday, but a 0.3% loss for the week. The expiration of monthly options drove share volume higher, but the number of shares exchanged on the NYSE still didn’t come anywhere close to breaking 1 billion.

Earlier this week China’s officials expressed their intent to expand their country’s investment in Europe. That helped bolster confidence in the precarious eurozone. Greece’s parliament approved austerity measures last weekend, but market participants became concerned that efforts to get the flagging country bailout funds will remain bogged down because of stories suggesting that eurozone officials question the sincerity of Greece’s commitment to measures intended to shore up fiscal and financial conditions.
Even though most of the market’s concern is on Greece, and other countries in the eurozone periphery, market participants were reminded of precarious conditions in the core of Europe when analysts at Moody’s issued negative outlooks on France, Austria, and the United Kingdom. Meanwhile, headline GDP for the fourth quarter featured a 0.3% decline for the eurozone, a 0.2% decline in Germany, and a 0.2% increase in France.

Responding to the ratings decision by Moody’s the Chancellor of the Exchequer said: “This is proof that, in the current global situation, Britain cannot waiver from dealing with its debts.” The coalition government has come under increasing pressure to ease up on its austerity measures in the face of growing unemployment and stalled economic growth. The Chancellor’s statement added: “Moody’s are explicit that it is only the Government’s ‘necessary fiscal consolidation’ that is stopping an immediate downgrade, which would happen if there were any ‘reduced political commitment to fiscal consolidation’. “This is a reality check for anyone who thinks Britain can duck confronting its debts.”
A negative outlook is not the same as negative watch which means a more than 50% chance of a downgrade.

The review involves 34 of the 37 banks covered by the agency.
Italy’s biggest financial institutions, including UniCredit, Intesa Sanpaolo, Banco Popolare, Banca Nazionale del Lavoro and Mediobanca, are among them. A credit rating affects the price of borrowing and the move follows S&P’s two-notch downgrade of the Italian government’s creditworthiness.
But despite the sovereign downgrade, which typically makes borrowing more expensive, Italy’s Prime Minister Mario Monti’s austerity plan has helped to bring down Italy’s 10-year borrowing rate closer to 6% from 7% for much of last year. The action came too late to prompt share price reaction as it came after the market closed.

The ECB is still assessing the affect of the huge loans it made to banks in December. Banks were able to borrow from the ECB at very low rates. The hope was that those loans would strengthen Europe’s banking industry and, in turn, help the banks lend money to businesses. “The use of these proceeds is a business decision,” said Mr Draghi. “Our primary interest is lending to the real economy and that’s where we see most of the credit tightening in all three sectors, namely corporate, household and consumption.” Banks will have a second chance to borrow from the ECB at the end of this month.
Strong demand is expected for the loans. Back in December banks borrowed 489bn euro.

In his news conference after the interest rate decision, Mr Draghi said the economic outlook remained “subject to high uncertainty and downside risks”. Economists say that could be significant, as last month Mr Draghi said the outlook was subject to “substantial” downside risks. That could indicate that the ECB chief is a little more optimistic about the eurozone’s prospects.Mr Draghi would not discuss the bank’s holding of Greek debt. There had been speculation that the ECB might be considering ways to take losses on those holdings. But the ECB chief brushed off those rumours, saying: “All this talk about the ECB sharing the losses, it’s ungrounded, it’s unfounded.” Mr Draghi said he would be attending the meeting of eurozone finance ministers on Thursday, where Greece will be under discussion.

The Bank said in a statement: “The underlying pace of recovery slowed during 2011, with activity falling slightly during the final quarter. “Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries.” It added that without another stimulus from QE, inflation was likely to fall from its current 4.2% to below its 2% target, as rising unemployment and falling import and energy prices fell away, and as the VAT increase from 17.5% to 20% last January also dropped from the annual comparison. Official economic data also released on Thursday showed import prices fell by 1.3% between November and December. Other figures showed that industrial production, which accounts for about 15% of the economy, grew by 0.5% on the month, against forecasts for a 0.2% rise. “Despite overall signs that activity picked up in January after GDP contracted 0.2% in the fourth quarter of 2011, the economy is far from out of the economic woods and it continues to face major obstacles to developing sustainable, decent growth,” said Howard Archer, chief UK economist at IHS Global Insight.

The new QE was greeted with dismay by the pensions industry.Joanne Segars, the chief executive of the National Association of Pension Funds, said while she could understand the need to boost the economy, QE was damaging the value of pensions: “Retirees who get locked into a weak annuity will find that the Bank’s money printing leaves them out of pocket for the rest of their lives. “For the companies that run final salary pensions, QE is a headache which pushes their pension funds further into the red. This means businesses have to put more money into their pension schemes, instead of spending it on jobs and investment. Our fear is that firms struggling with a weak economy will simply choose to close their pension schemes.” She called for help for pension funds from the Pensions Regulator.

The new figures released by the government’s Central Statistical Organisation on Tuesday updated its December projections for 7.25%-7.75% growth to the end of March. Agriculture is now expected to grow at just 2.5%, compared with 7% the previous year, while manufacturing should grow at 3.9% (7.6%). Mining could actually decline – by 2.2% – combated with growth of 5% in 2010-11.
Analysts point to global market uncertainty, particularly in the eurozone, and apparent policy paralysis in the Indian government as contributing to the slowdown.
On Monday, ratings agency Standard and Poor’s warned there could be a downgrade in India’s investment-grade credit rating. Andrew Kenningham, of Capital Economics in London, told Reuters: “Growth prospects are not looking good by historical standards.” Planning Commission deputy chairman Montek Singh Ahluwalia told the Press Trust of India the new figures were “consistent with what we have been saying”. Inflation has proved a persistent problem. Interest rates have been raised 13 times since March 2010 in an effort to slow price increases.
Despite the growth downgrade, the main Sensex stock exchange has continued to perform well – up nearly 15% this year – while the under-fire rupee has risen 8% on its 2011 close.

The data comes at a time when problems in the eurozone and the US have seen considerable uncertainty in the global economy. As the eurozone struggles to find a solution to its debt crisis and the US copes with a high rate of unemployment, demand from two of the biggest economic zones in the world has been falling. That has hurt many Asian economies that rely heavily on exports for growth.
However analysts said that Indonesia has benefited from the fact that a huge part of its growth is driven by domestic consumption.
“Indonesia is one of the least exposed economies in the region, with a vast domestic market and a relatively small share of exports to gross domestic product, so it is insulated from volatility in the global economy,” said George Worthington of IFR. Domestic consumption accounts for nearly 60% of Indonesia’s economy.

The Nasdaq index, which specialises in technology companies, soared to its highest level since December 2000 by the close of trading on Friday. In Europe, the FTSE 100 index hit its highest level since July 2011 rising 1.8% while Germany’s Dax closed up 1.6%. The Cac 40 in France was 1.5% higher.

Friday’s data from the Labor Department showed job growth had been widespread, with large gains in business services, leisure and hospitality, and manufacturing. Leisure and hospitality, which includes restaurants and hotels, added 44,000 jobs. Retailers added nearly 11,000 jobs, and professional and business services, which includes higher paying jobs in accounting, architecture and engineering, gained 70,000 – the most in 10 months.Factories added 50,000 workers, much more than expected and a one-year high. Retailers added 10,500 workers and construction employment rose by 21,000. Analysts believe the figure was helped by a mild US winter, which boosted employment in those sectors. The report was also buoyed by revisions to November and December data, which showed 60,000 more jobs created across the two months than previously reported.

Lindsey Piegza, economist at FTN Financial, said: “It was a better-than-expected report, the strongest report that we’ve seen in quite some time. “The big question is whether the reason we’re seeing the unemployment rate drop is because more and more people are dropping out of the labour force. “I know the market wants to rally on this number but remember we need a minimum of 250,000 just to cover demographic change.” The figures add to a range of data pointing to a gradual US economic recovery. On Friday, the US Institute for Supply Management said its services index rose to 56.8 last month from a revised 53.0 in December. It was the highest level since February 2011. The new orders index climbed to 59.4 from 54.6 while employment in the vast services sector was also strong, rising to the highest level in six years at 57.4 from 49.8. Last week, it was announced that the US economy expanded at a 2.8% annual pace in the October-December quarter, a full percentage point higher than in the previous quarter. Earlier this week, a survey from the Institute for Supply Management (ISM) indicated that the US manufacturing sector expanded at its fastest pace in seven months in January. Unemployment and economic recovery has been a dominant issue in the campaign for November’s US presidential elections. Although the downward trend in joblessness augurs well for Barack Obama’s prospects of a second term, he is still likely to face more voters out of work than any post-war president.
When Ronald Reagan won re-election in a landslide victory in 1984, joblessness in the US stood at 7.5%. In 1932, in the midst of the Great Depression, Herbert Hoover was voted out of office in a year when unemployment was at 23.6%. His successor, Franklin Roosevelt, faced joblessness rates of 16.9% in 1936 and 14.6% when he was re-elected four years later, according to data from the US Bureau of Labor Statistics.