Carry trade, carry on

It looks like moves by European officials to halt the yen's slide has foundered. Bloomberg reports:

Japan's yen dropped for a fourth straight day against the euro, approaching a record low, as speculation faded that the Japanese currency's decline will be a focus of the Group of Seven meeting.

The yen also touched the lowest in more than a week against the dollar as German Finance Minister Peer Steinbrueck said today he doesn't think a weak yen has hurt German trade. France's Finance Minister Thierry Breton said the G-7 won't single out one currency in its statement. Traders cut bets on an interest-rate boost by the Bank of Japan.

Recent economic data reinforced the yen move. From Bloomberg yesterday:

Japan's machinery orders fell in December, signaling economic growth may slow this year as companies scale back spending on factories and equipment.

Non-government orders, excluding shipping and utilities, declined a seasonally adjusted 0.7 percent from November, the Cabinet Office said in Tokyo today. The result was in line with the median estimate of economists surveyed by Bloomberg News...

The drop in machinery orders is a reflection of the previous month's 3.8 percent gain, Economic and Fiscal Policy Minister Hiroko Ota said at a press conference in Tokyo today. The economy is on a mild recovery trend, she said...

The government said it expects orders, which point to capital spending in three to six months, to climb 2.2 percent in the first quarter of this year from the fourth quarter of 2006, when they rose 2 percent.

The day before had provided yet more indications that rate rises may not materialise as fast as previously expected.

January bank lending failed to accelerate.

Loans excluding trusts rose 1.8 percent in January from a year earlier, matching the increase in December, the Bank of Japan said in Tokyo today... Lending adjusted for currency fluctuations, bad loan write- offs and securitizations advanced 2.8 percent, matching the December gain, the central bank said. Loans including trusts increased 1.7 percent, also unchanged from December...

Japan's money supply, or M2 plus notes in circulation, rose 1 percent in January, the central bank said in a separate report. Broad liquidity, which includes bonds and investment trusts, gained 2.6 percent.

And views from a BoJ board member:

The Bank of Japan doesn't need to be hasty about raising interest rates as there's no threat that rising prices will cripple economic growth, policy board member Hidehiko Haru said.

"Given that there's no evidence of any inflationary risk, there's no need to rush," Haru, 69, said today in a speech to business executives in Shizuoka city, Japan. "Gradual adjustments will be needed and will be made based on improvements in the economy and prices."

So it looks like the yen will stay weak and continue to boost the Japanese economy. As Reuters reports:

As the yen's broad value has withered to a 21-year low, the boon to Japan's economy has been such that it's as if the Bank of Japan never lifted interest rates from zero last year.

The fillip from the weakening yen has proved so potent that some economists believe it has been the equivalent of a half-percentage point cut in rates, more than offsetting the BOJ's raising its key rate to 0.25 percent last July.