Fed delays stimulus exit

Bloomberg reports the latest decision from the FOMC on Tuesday:

Federal Reserve officials made their first attempt to bolster the economy in more than a year, saying they will maintain their holdings of securities to stop money from draining out of the financial system.

The central bank will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting today in Washington.

The FOMC decision helped stocks trim losses for the day and pushed bond yields lower, investors no doubt remembering that markets made a bottom the last time the Fed moved in a similar direction.

The Standard & Poor’s 500 Index fell 0.6 percent to 1121.06 in New York after dropping as much as 1.4 percent. Yields on 10- year Treasuries fell 7 basis points, or 0.07 percentage point, to 2.76 percent after declining below 2.75 percent for the first time since April 2009...

The Fed’s last move in favor of easier policy came in March 2009, when policy makers agreed to buy $300 billion of Treasuries and more than double planned mortgage-debt purchases to $1.45 trillion while starting a pledge to keep the benchmark rate close to zero for an “extended period.”

The conclusion of the Bank of Japan's monetary policy meeting earlier on Tuesday was not as eventful. Bloomberg reports:

Bank of Japan Governor Masaaki Shirakawa indicated the nation’s recovery has been resilient to the yen’s advance, supporting his board’s decision to keep policy unchanged today.

“We are well aware that the yen’s strength is a downside risk for corporate sentiment,” Shirakawa told reporters after the bank kept the benchmark rate at 0.1 percent and maintained the current size of its credit programs for lenders at a meeting in Tokyo today. “On the other hand, we have to assess the currency’s effect on the economy in a well-balanced manner.”

While the BoJ ponders the impact of the yen's strength, the lack of strength in a neighbour's currency will likely continue to be of concern to others as China's trade surplus expanded again in July. From AFP/CNA:

China's trade surplus ballooned to 28.7 billion dollars in July as exports hit a record high, government data showed Tuesday, which is likely to intensify pressure on Beijing for a stronger yuan.

Despite a slower growth in exports, the nation posted its biggest trade surplus since January 2009 as the value of China's overseas shipments reached a monthly record 145.52 billion dollars in July, customs authorities said...

Exports grew 38.1 percent from the same period a year ago, slower than in June, when they were up 43.9 percent as steelmakers and other raw material producers accelerated shipments before the government scrapped tax rebates on some products last month...

Imports gained 22.7 percent year-on-year to 116.79 billion dollars in July, marking a sharp slowdown in the pace of growth from June, when imports rose 34.1 percent.