Japan, Australia c.banks see improvement but IMF wary
Written on June 16, 2009
The central banks of Japan and Australia on Tuesday reported signs of improvement in their economies, but investors were shaken by poor data from Europe and the United States and by an IMF warning that governments have much to do to defend a recovery.
U.S. officials said the Obama administration would target critical weaknesses in the U.S. financial system — the heart of the downturn — such as thin capital cushions and poor lending standards, when it proposes a regulatory overhaul this week.
The Bank of Japan held its interest rate at 0.1 percent as its economy had stopped deteriorating and should recover in the latter half of the fiscal year ending next March.
But investors were looking to Governor Masaaki Shirakawa’s post-meeting news conference for clues on how worried the central bank is about rising bond yields.
Australian central bank minutes showed that policymakers saw no “pressing need” to cut interest rates at its recent monthly policy meeting given signs of stabilization at home and abroad, though it judged there was scope to ease further if necessary.
The statement reinforced market speculation that the Reserve Bank of Australia (RBA) was done cutting rates for some time to come, helping lift the Australian dollar.
The recession has forced central banks to intervene in credit and interbank markets and there is now a debate about when policymakers should retreat and cut stimulus spending.
A surge in long-term government bond yields over the past several weeks showed financial markets fear huge sums of money poured into economies through drastic stimulus packages will ultimately fuel inflation and cripple state finances cash til payday.
Asian stock markets fell, with Japan’s Nikkei .N225 down 2.4 percent and a broad measure of shares elsewhere in Asia down 2 percent, as investors worried a strong rally from March lows had run ahead of corporate prospects.
“I don’t see a lot of evidence of a really solid economic recovery. All I see is a moderation in the rate of decay,” said Frank Villante, chief investment officer at Souls Funds Management in Australia. .T .AX
MANUFACTURING SLOWDOWN
U.S. stocks suffered their worst slide in a month on Monday after a report on New York state’s factory sector showed manufacturing slowing again in June after some improvement in recent months. .N
The euro hit its lowest level in almost a month against the dollar on Tuesday after the European Central Bank said euro zone lenders would probably need to write down another $283 billion.
Separately, data showed the 16-nation bloc shed a record 1.22 million jobs in the first quarter of 2009.
Finance ministers from the Group of Eight nations agreed over the weekend that the global economy was showing encouraging signs of stabilization and started to consider how to unwind rescue steps.
Filed in: money.