Investigation of Motive Enhance China Japan Bond Purchase

Tokyo – Japanese Finance Minister said Thursday Yoshihiko Noda, the government is monitoring closely China’s increased purchases of Japanese government debt and will check in Beijing about his motivations.”We are giving careful attention” to the recent increase in purchases related to China against the Japanese government bond (JGB), “Noda said in a session of the parliamentary committee of financial problems, reported Dow Jones Newswires.

“I do not know the true intention” regarding China’s increasing appetite for JGB.But Tokyo plans to “work together closely (with Beijing) and assesses the point,” he said.China, in July, buying Japanese bonds worth 583.1 billion yen (6.9 billion dollars), Japan’s finance ministry said Wednesday, when the Asian giant will continue to increase purchases of Japanese debt.

This figure is higher than the value of securities purchased in June, 456.7 billion yen.The news came after the yen, Wednesday, 15 highest-reaching new year against the dollar. Currency traders said the yen berdenomiasi China’s purchase of property, even by itself too small to boost the yen, it can support the increase in the currency indirectly.

For the first half of this year, China bought debt worth 1.73 trillion yen, almost seven times over a full year’s record of about 253.8 billion yen in 2005.In May alone China investors buy Japanese government bonds net worth 735.2 billion yen.China seeks to diversify its investments out of the big bucks and Europe since the beginning of the financial crisis.Most bonds are purchased by the government of China is estimated to be used to manage foreign currency reserves.

This increase is in conjunction with the re-doubt recovery in the United States and Europe, and indicates China’s store more foreign currency reserves which as a result continues to expand into the Japanese bonds are relatively stable.With approximately 95 percent is held by domestic investors, the risk did not pay the debt of Japan is considered much smaller than the countries hit by the-debt, even though its public debt approaching 200 percent of gross domestic product, the highest among developed countries.

China’s foreign exchange reserves have swelled in recent years, soaring to a record 2.454 trillion dollars at the end of June.These reserves, has become the world’s largest, grew 15.1 percent from a year ago, China’s central bank said in its website.One way Beijing is diversifying its investment through an independent wealth fund China Investment Corp., which handles about 300 billion dollars and has invested heavily in resource companies.(AFP)

London Euro slumped back against the U.S. dollar on Monday

London Euro slumped back against the U.S. dollar on Monday, as investors adjust positions ahead of Federal Reserve meeting, which some believe could announce new measures to boost the sluggish recovery.Dealers said the euro rose in early trading very strongly supported by the German trade figures which show Europe’s economic giant will help drive growth across the region.As the day develops, markets anticipate that the Fed could announce new stimulus steps in a meeting on Tuesday which will be positive for the dollar with the increase in U.S. economic prospects.

However, choppy trade with investors reluctant to make big commitments awaiting the Fed’s statement after the closely watched U.S. jobs report on Friday is much worse than expected.In late trading in London, the euro was at 1.3236 dollars, the highest in the early retreat of around 1.3283 dollars, down from 1.3276 dollars late Friday in New York.

Against the Japanese yen, the dollar is stronger at 85.86 yen from 85.48 yen on Friday.Michael Hewson of CMC Markets in London said the attention of everyone there at the Fed.”The results that will dominate this week’s sentiment   What will become of certain records would be a tone of language used in the statement of work, especially after the data is weaker than expected on Friday,” said Hewson.Forex.com said Jane Foley of choppy trade “as the market grappled with the possibility of facing the Federal Reserve.”,”Payrolls Friday may have been disappointing, but the market still was not sure because if the data illustrate a major slowdown in U.S. economic sukup” which will prompt the Fed to take new action, he said.

With interest rates near zero percent, analysts had suggested the Fed could mempertimbangkankebijakan based monetary stimulus, including a new pumping money directly into the system to increase the demand for credit.Earlier, Germany’s second largest exporter in the world after China, said exports in June surged 28.5 percent to 86.5 billion euros (115 billion dollars), the highest level since October 2008.

Meanwhile, imports surged 31.7 percent to reach a new record of 72.4 billion euros, meaning that the German trade partners also work well.”This has increased the possibility of Germany’s economy grew faster in the second quarter from the previous assumptions,” said Commerzbank analyst, Simon Junker.In London trading, the euro changed hands at 1.3236 dollars against 1.3276 dollars on Friday, at 113.65 yen (113.50), 0.8297 British pounds (0.8326) and 1.3851 Swiss francs (1, 3788).Dollar stood at 85.86 yen (85.48) and 1.0466 Swiss francs (1.0378). The pound was at 1.5951 dollars (1.5941).On the London Bullion Market, gold prices slid to 1203 dollars per ounce from 1207.75 dollars per ounce on Friday. (  AFP) –

President Barack Obama welcomed China's announcement Saturday that it will allow a more flexible exchange rate for its currency

BEIJING  President Barack Obama welcomed China’s announcement Saturday that it will allow a more flexible exchange rate for its currency, saying it would help protect the economic recovery.The announcement by China’s central bank suggested a possible break from the yuan’s two-year peg to the U.S. dollar – a source of friction between the two countries – but ruled out any large-scale appreciation.The People’s Bank of China mentioned no specific policy changes, though markets will be watched closely Monday for the announcement’s effects. Chinese officials have said all along that reforms of the yuan, also known as the renminbi, or “people’s money,” will be gradual.”It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility,” the central bank said in a statement posted on its website.

The announcement, timed just before President Hu Jintao’s trip to the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier this week against making its currency policies a main focus of the meeting.Beijing kept the yuan frozen against the dollar to help Chinese manufacturers compete amid weak global demand. It faces pressure from the United States and other trading partners who contend the yuan is undervalued.

“China’s decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy,” Obama said in a statement.U.S. Treasury Secretary Timothy Geithner called the move an “important step.””But the test will be how far and how fast they let the currency appreciate,” he said.The European Commission also welcomed the decision, saying it would help achieve more sustainable global economic growth, reduce trade imbalances and strengthen the stability of the international financial system.

But the announcement is unlikely to satisfy critics in the U.S. Congress, who argue that an undervalued Chinese currency gives China’s exporters an unfair advantage, costing millions of American jobs.”This vague and limited statement of intentions is China’s typical response to pressure,” Sen. Charles Schumer, a New York Democrat, said in a statement. “Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules.”

Signs that a global economic recovery has taken hold have prompted speculation that China would begin letting the yuan resume a gradual appreciation against the U.S. dollar that began in 2005 but was halted abruptly in 2008 as the global financial crisis took effect.Since then, the yuan’s value has remained at roughly 6.83 to $1, although it is formally pegged to a basket of currencies that includes the U.S. dollar.

“It definitely sounds significant. They’re saying they’re going to press forward,” Stephen Green, an economist at Standard Chartered Bank in Shanghai, said of Saturday’s statement.”We didn’t ever think they were going to do a big one-off, so it looks like that’s not going to happen,” he said. “We’re going to see more movement around a basically stable exchange rate until the global economy is basically healthier. The proof will be in the pudding on Monday.”

Chinese officials have warned that any adjustment to the exchange rate is not other countries’ concern.The director of the international department of the People’s Bank of China, Zhang Tao, told a news conference Friday that Chinese leaders will not discuss the yuan at the G-20 summit.

Saturday’s statement pointed to economic growth both inside and outside China as a reason for the increase in exchange rate flexibility.”The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability,” the central bank said.However, it indicated no major policy changes, adding: “The exchange rate floating bands will remain the same as previously announced in the interbank foreign exchange market.”(AP)

World markets fell Friday after the U.S. Federal Reserve unexpectedly raised interest rates for emergency bank loans

LONDON  World markets fell Friday after the U.S. Federal Reserve unexpectedly raised interest rates for emergency bank loans, triggering fears that regular borrowing costs could also move higher soon, slowing the recovery in the world’s largest economy.The central bank said Thursday it will bump up the “discount” lending rate by one-quarter point to 0.75 percent effective Friday, part of a pullback of the extraordinary aid it provided to fight the financial crisis.Although the Fed said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses, markets were spooked.After sharp drops in Asia, Germany’s DAX stock index was down 0.2 percent at 5,671.28 and Britain’s FTSE 100 was flat at 5,326.84. France’s CAC-40 fell 0.2 percent to 3,742.09.Wall Street was also expected to fall on the open. Dow Jones industrials futures were down 50 points at 10,325.00 and Standard & Poor’s 500 futures were 8.2 points lower at 1,097.40.

Growing optimism about the strength of the U.S. economy had helped boost the Dow Jones industrial average rise by 3 percent over the past three days. But the surprise Fed announcement after Wall Street trading closed left traders wondering whether the so-called “exit strategy” from a loose monetary policy could come faster than expected and stifle U.S. consumer demand.”It begs the questions of why this was not done, or at least signaled at a regular Federal Open Market Committee meeting,” said Marc Ostwald, strategist at Monument Securities in London.”It certainly is the case that the Fed wants to see how money markets function without so much of the liquidity life support that the Fed has been providing, and as such one can term this a form of ‘kite flying’,” said Ostwald.The Fed move, which doesn’t change consumer borrowing rates, also helped boost the U.S. dollar and push the euro below nine-month lows – a sign traders may be turning away from higher-risk investments, analysts said.The euro fell to $1.3504 from $1.3529 late Thursday after trading at nine-month lows below $1.3400. After rising against the Japanese yen, the dollar was flat at 91.75 yen.

The euro has been under pressure in recent months over worries about the debt problems of Greece and other countries in Europe, such as Portugal and Spain. Although the EU said it was committed to helping Greece in case of a default, it did not provide any concrete plans for a bailout but limited itself to demand more spending cuts.Economic data in Europe, meanwhile, failed to shore up investor sentiment. The purchasing managers’ survey of the eurozone, an economic indicator published by Markit research group, was stable in February, suggesting the recovery from recession has stagnated somewhat.A rise in the manufacturing reading offset a drop in the services sector, providing “little hope that the much-needed domestic recovery is beginning to materialize,” said Ben May, European economist at Capital Economics in London.Markets in China and Taiwan are closed this week for the Lunar New Year holiday.Earlier in Asia, Hong Kong’s Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan’s Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58.”As the dollar strengthens, we see less appetite for riskier assets such as Asian stocks.” said Jit Soon Lim, head of equity research for Southeast Asia for Nomura in Singapore. “We’re bullish on the region’s economic growth, but bearish on risk.”

South Korea’s Kospi declined 27.29, or 1.7 percent, to 1,593.90. India fell 1 percent and Indonesia dropped 0.5 percent.Singapore’s stock measure retreated 0.9 percent despite an increase of the government’s 2010 economic growth forecast to between 4.5 percent and 6.5 percent from 3 percent to 5 percent.In the U.S. on Thursday, the Dow rose 83.66, or 0.8 percent, to 10,392.90 while the broader Standard & Poor’s 500 index rose 7.24, or 0.7 percent, to 1,106.75. The Nasdaq composite index rose 15.42, or 0.7 percent, to 2,241.71, its fifth straight advance.Oil prices slid to near $78 a barrel after the Fed’s rate hike sent the U.S. dollar higher.Benchmark crude for March delivery was down 90 cents at $78.16 in electronic trading on the New York Mercantile Exchange. The contract added $1.73 to settle at $79.06 on Thursday.(AP)