China's trade surplus fell in January compared to December, despite a late Lunar New Year. From AFP/CNA:
China's trade surplus remained high in January as exports rose 33 percent year-on-year to 86.62 billion dollars...
Imports reached 70.74 billion dollars in January, up 27.5 percent over the same period 12 months earlier, the customs bureau said on its website...
Based on Monday's data, the trade surplus stood at 15.88 billion dollars, up 67.3 percent from 9.49 billion dollars in January last year but down 24 percent from 21 billion dollars recorded in December.
Analysts attributed the rise compared with the same period a year ago due to seasonal factors involving the Chinese Lunar New Year, which in 2007 falls in the month of February instead of January.
A cheap currency helps boost China's exports, but Stephen Jen thinks that the Japanese yen is even more undervalued.
... Most economic theories predict that the JPY and the CHF should have appreciated in 2006. In fact, our valuation models, which are based on these economic theories, suggest that the JPY is now more under-valued than the Chinese RMB. For the JPY and the CHF to depreciate, their low cash yields have almost certainly played an important role.
That leads to the following conclusion:
... In the absence of structural pressures, the dollar will strengthen against some currencies and weaken against others. The re-rating of the US economic outlook since mid-December and the persistence of a ‘carry culture’ are the two main motivations for our forecast revisions, but our story for 2007 remains basically unchanged: (1) The EUR is overvalued against both the dollar and the yen. While overshoots are possible, EUR/USD above 1.30 or EUR/JPY above 155 should not be sustained. We still expect a downward-sloping trajectory for EUR/USD and EUR/JPY, but now see slightly flatter paths. (2) While we still believe that a stronger JPY makes more sense, and are retaining a downward trend in USD/JPY, we warn that our conviction level is no longer as high as before, since we are struggling to predict when the ‘carry culture’ will end. (3) In any case, we maintain our view that USD/AXJ will trend lower, led by USD/CNY.
According to Andy Mukherjee, a delayed strengthening of the yen could have negative repercussions on countries such as Vietnam and New Zealand.
Vietnam would probably not be losing the fight against inflation if global liquidity were correctly priced, which it might have been without Japan making it possible for hedge funds to borrow at half a percent for three months.
The monetary policy in Vietnam had been compromised, Standard & Poor's said in a Jan. 29 report...
It's facile to argue that Vietnam's central bank should have used higher interest rates to contain inflation. That would have exerted further pressure on the dong to strengthen. And appreciation in the home currency, if allowed by the central bank, would have further whetted foreign investors' appetites by giving them a higher return on their dollar investments...
In separate reports, analysts at Australia & New Zealand Banking Group and JPMorgan Chase & Co. last week raised the specter of capital controls in Vietnam...
It isn't just emerging markets that are reeling from cheap global money. New Zealand Finance Minister Michael Cullen's comment last week about a mortgage levy shows the frustration...
From South Korea to India and China, authorities are becoming aware that they must use tools other than interest-rate increases to meet their monetary-policy objectives...
"By the end of the year or next, capital controls would be fashionable," says Julius Baer's Anantha-Nageswaran.
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