Saturday, 9 September 2006

BoJ keeps interest rates unchanged, OECD economies slowing

The Bank of Japan left interest rates unchanged yesterday, but is still expected to raise rates later this year. Bloomberg reports:

Bank of Japan Governor Toshihiko Fukui said consumer prices will keep rising, reinforcing speculation that the central bank will increase interest rates before the end of the year.

"Prices are basically on a positive trend," Fukui told reporters in Tokyo today. Last month's revision to the way consumer prices are measured "won't prompt us to change our basic stance."

The Bank of Japan kept its overnight lending rate at 0.25 percent earlier today, as expected by all 62 economists surveyed by Bloomberg News, and said the economy is expanding moderately. Fukui said the bank maintains its view that interest rates should be adjusted gradually depending on the economy and prices.

The Bank of Japan also reported gains in bank lending and money supply. Again from Bloomberg:

Japanese bank lending rose for a seventh month in August as companies in the world's second- largest economy sought cash to fund increases in capital spending.

Loans climbed 1.9 percent in August from the same month a year earlier, a Bank of Japan report in Tokyo today showed. Lending adjusted for factors including currency fluctuations, securitizations and bad-loan write-offs gained 2.7 percent...

Japan's money supply, or M2 plus notes in circulation, rose 0.5 percent in August, the same pace as July, the central bank said in a separate report. Broad liquidity rose 2 percent after gaining 1.8 percent the previous month.

Yesterday also saw the Federal Reserve report consumer credit growth. From MarketWatch:

Consumer credit grew at a 2.8% annual rate in July, slowing markedly from the fast clip of a month before, the Federal Reserve said Friday.

Consumer credit outstanding rose by $5.5 billion in July to $2.349 trillion, the Fed said.

Consumer credit rose by a revised $14.1 billion, or a 7.27% seasonally adjusted annual rate, in June. The June number was previously estimated as $10.3 billion.

A slowdown in US consumer credit growth would be consistent with a general slowdown in economic growth, which seems to be what the OECD composite leading indicators are signalling for the OECD countries.

The latest composite leading indicators (CLIs) suggest that slowing economic expansion lies ahead in the OECD area, with July data showing weakening performance in the CLI’s six month rate of change in all the Major Seven economies except Canada. The latest data for major OECD non-member economies point to a slightly weakening outlook for China and steady expansion in India, Russia and Brazil.

One thing that does not seem to be slowing is China's trade surplus. From Yahoo! Asia News:

China posted a record trade surplus of $18.8 billion in August, far exceeding forecasts and the previous record of $14.6 billion in July, Dow Jones Newswires reported on Friday.

Citing an unnamed source, the news agency said exports in August rose 32.8 percent from a year earlier to $90.77 billion, while imports rose 24.6 percent to $71.97 billion.

But Brad Setser reminds us that China does not have a monopoly on surpluses.

China’s July reserve increase [of] $14b total was topped by the combined $20b from its fellow BRICs...

For that matter, Russia and Saudi Arabia combined to add almost $25b to their central bank’s foreign assets in July... There are a lot of other oil exporters with an awful lot of cash on hand right now.

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