Thursday, 17 May 2007

Japan cools and leaves rates unchanged, China stays hot

The Bank of Japan left interest rates unchanged today after the economy was reported to have slowed in the first quarter. Bloomberg reports:

Japan's economy, the world's second largest, cooled in the first quarter as companies cut spending on concern that exports to the U.S. will slow. The central bank kept its benchmark interest rate unchanged.

Gross domestic product grew at an annual 2.4 percent rate in the three months ended March 31, the Cabinet Office said in Tokyo today. The fourth-quarter figure was revised to 5 percent from 5.5 percent.

Consumer spending, accounting for more than half of GDP, rose more than expected and may cushion the economy from waning growth in the U.S., the nation's largest export market. Bonds had their biggest gain in five weeks on speculation slower growth and two months of falling consumer prices will delay an interest-rate increase from 0.5 percent.

Low rates would keep the yen carry trade going. And continue feeding liquidity elsewhere.

Perhaps that has something to do with why China's stock market is in a bubble. From Bloomberg:

China's stock valuations are "too high" at 50 to 60 times earnings and prices are likely to decline, according to Li Ka-shing, the world's ninth-richest man.

"There must be a bubble," Li, 78, said at a press briefing in Hong Kong following the annual general meeting of Cheung Kong Holdings Ltd., his flagship property company. "As a Chinese, I'm worried about the stock market in China."

But it is not just the stock market. Fixed-asset investment in China has also been surging. Again from Bloomberg:

Fixed-asset investment in urban areas rose 25.5 percent to 2.26 trillion yuan ($294 billion) through April, the National Bureau of Statistics said today. That compares with 24.5 percent in all of 2006 and beats the 25.3 percent median estimate of 19 economists surveyed by Bloomberg News.

This comes a day after China reported that industrial production rose 17.4 percent in April.

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