Grand Central: BOJ Focused on the Full Half of the Glass – Real Time Economics

The Wall Street Journal’s Daily Report on Global Central Banks for Tuesday, August 5, 2014:

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Last Thursday, Japan’s Nikkei reported that the consensus of economists surveyed by the business newspaper now think the economy contracted at a whopping 7% annual pace in the three months following an April 1 sales tax increase.

That’s two points worse than a respected forecaster poll had estimated just three weeks earlier. It would more than wipe out the growth spurt in the first quarter of the year as consumers rushed to spend in advance of the tax. It would exceed the immediate economic blow from the 2011 triple disaster of earthquake, tsunami and nuclear disaster, and mark the country’s worst performance since a 15% collapse in early 2009 following the Lehman shock.

On Friday, Bank of Japan Gov. Haruhiko Kuroda told a research institute in a speech: “Japan’s economy  has continued to recover moderately….. The virtuous cycle among production, income, and spending has been continuing.”

And when the BOJ policy board wraps up its two-day meeting this Friday, it’s likely to keep its current stimulus trajectory without modification, and its basic upbeat economic outlook intact – though officials may tweak their description of current economic conditions to acknowledge that a string of recent data has been weaker than expected.

It’s the latest chapter in the ongoing disagreement between Mr. Kuroda, who thinks his campaign to break deflation is working just fine, and the many private economists who doubt him.

To be sure: the BOJ doesn’t deny the second quarter GDP figure will be bad when formally announced Aug. 13. But a change in the hole’s depth doesn’t alter their assessment the economy is steadily crawling out of it, and remains on track to resume solid growth and inflation later this year.

Private economists highlight how wage growth has continued to lag inflation, meaning workers are absorbing an effective pay cut, threatening consumption. BOJ economists prefer to focus on data that combines income per worker and the rising number of workers, which shows total compensation in the economy now rising faster than prices.

Weak exports and, more broadly, tepid factory output, have also been a mounting concern for Japan recovery skeptics. BOJ officials hold onto corporate surveys indicating more capital spending in the pipeline.

“Favorable developments in the corporate sector have been continuing,” Mr. Kuroda said in the Friday speech, waving away the negative numbers.

–By Jacob. M. Schlesinger


Fed Survey: Mortgage Standards Ease for First Time Since Housing Bust. Nearly 1 in 4 U.S. banks said they had eased mortgage-lending standards for borrowers with strong credit during the second quarter, the largest such movement by lenders since the housing bust hit nearly eight years ago. The Federal Reserve’s quarterly survey of banks’ senior loan officers also showed that nearly half of large banks and foreign institutions believed lending standards for riskier syndicated loans to companies with noninvestment-grade, or junk, credit ratings were easier than the post-2005 norm.

Fed’s Lacker: Market May Be Underestimating Pace of Fed Tightening -Bloomberg. Richmond Fed president Jeffrey Lacker says investors may be underestimating the pace of Federal Reserve interest rate hikes over the next two years, noting that short-term interest-rate markets have for months priced in a slower rate of increases than policy makers have forecast.

Employment Trend Index Signals ‘Solid Job Growth’ Ahead. The employment trend index increases to 120.31 in July, up 6.6% from year-ago levels, says The Conference Board today. Falling jobless claims lead the July increase of the index which is a compilation of various labor-market data. The report says “The six-month growth rate in the Employment Trends Index is the strongest in over two years, suggesting solid job growth is likely to continue in the coming months.”—Dow Jones Newswires

“Rejoice”: BOE Showcases WWI Correspondence with Fed. Among a trove of documents and other exhibits on display at the Bank of England to mark the centenary of the outbreak of the First World War are a few that shed light on the close relationship between Britain’s central bank and its U.S. counterpart, the Federal Reserve.

BOE’s Haldane Asks Where Next for Central Banking? Central banking was once a dull and secretive affair. These days its practitioners are rarely out of the limelight. In an article for Central Banking Journal, Bank of England chief economist Andrew Haldane lays out two possible visions of central banking’s future. In one scenario, central bankers once again fade into the background. In the other, they are never far from the front pages. In Mr. Haldane’s analysis, the outcome will depend on how the financial system evolves.

Bank Indonesia: Focus Remains Combating Inflation. Indonesia’s slowing economic expansion remains in line with Bank Indonesia’s efforts to contain inflation and the current-account deficit, a central banker said Tuesday. Bank Indonesia Deputy Governor Perry Warjiyo told The Wall Street Journal that reining in inflation and the current-account deficit remains the central bank’s policy focus.

Kuroda Urges Kids to “Experience” Life. For a group of about two dozen lucky elementary school kids, Bank of Japan Gov. Haruhiko Kuroda revealed some of the inner workings of his often inscrutable thought processes. The main message that Mr. Kuroda had for the kids, who were at the BOJ’s Tokyo headquarters on Monday as part of a special summer vacation tour, was that books don’t tell you everything: it’s also important to “experience” life.

Hollande Pressures ECB, Germany to Act for EU Economy – Report. French President Francois Hollande stepped up the pressure on Germany and the European Central Bank to do more to boost the European economy, telling French daily Le Monde that there is a real risk of deflation- Dow Jones Newswires

Euro-Zone Retail Sales Growth Highest Since Early 2007. Retail sales rose in June across the 18 countries that share the euro, and at the fastest annual rate since early 2007, an indication that consumer spending may start supporting the economic recovery as unemployment falls slowly but steadily. However, a separate survey of 5,000 businesses, also released Tuesday, showed private-sector activity in the euro zone picked up less rapidly than first estimated in July, while businesses continued to cut their prices, an indication that the currency area won’t soon emerge from a lengthening period of very low inflation.

India’s RBI Leaves Key Rate Unchanged. The Reserve Bank of India left its benchmark lending rate unchanged Tuesday, resisting calls from the country’s businessmen and policy makers to cut interest rates to help revive economic growth.

Australia Holds Key Rate at Record Low. Australia’s central bank left interest rates unchanged after a monthly policy meeting Tuesday, marking a full 12 months with rates at record lows, as mining investment cools and the country’s currency remains stubbornly strong. The Reserve Bank of Australia left its cash rate target steady at 2.5% saying the outlook for the economy remains challenging.

Economists Cut View Again For Brazil Economic Expansion in 2014. The forecasts come amid weak economic indicators so far this year, according to a weekly central-bank survey published Monday. The survey’s 100 respondents reduced their estimates for economic growth this year to 0.86% from 0.90%, while they keep their 2015 estimate at 1.5%. It was the 10th-consecutive reduction of the growth outlook for this year.


A shakeout in the junk-bond market is drawing only cautious interest from bargain-hunters, underscoring investor fears that many once-hot securities could prove hard to sell in an increasingly difficult trading environment. U.S. funds investing in debt rated below investment grade lost an average 1.33% last month, according to a Barclays index, their second-worst monthly performance since November 2011. In June 2013, after the Federal Reserve began hinting that it would scale back its monetary easing, they lost 2.62%.



U.S. Bank Lending Still Tight Despite Loose Fed, S.F. Fed Study Finds. Banks are still reticent about making new loans more than five years into the U.S. economic recovery, suggesting business borrowing remains relative costly despite the Federal Reserve’s prolonged policy of low interest rates. Those are the findings of a new study from the San Francisco Fed, which says interest rates on commercial and industrial loans are still fairly high relative to benchmark borrowing costs set by the central bank.

UK May be Further from Full Employment than BOE Thinks. The Bank of England may be underestimating the amount of slack left in the U.K.’s rapidly-growing economy, according to new research published Tuesday, which suggests the central bank could hold off raising interest rates for longer than expected. A paper published by the U.K.’s National Institute for Economic and Social Research, a nonpartisan think tank, argues that central bank officials have misjudged how much slack remains in the economy because of assumptions about long-term unemployment and the number of “underemployed,” or those working fewer hours than they would like.


The Federal Reserve should remain in no rush to raise interest rates despite the uptick in inflation and the strengthening labor market, says Frederick Waddell, chairman and CEO at Northern Trust. Speaking in an interview Monday on the MoneyBeat show, Mr. Waddell said his bank is forecasting the central bank to raise rates sometime in the second half of 2015. And within that time frame, he expects a move will happen closer toward the end of the year.

Vincent Reinhart, Morgan Stanley economist and former Fed staffer, takes issue with the central bank’s suggestion that there is still substantial slack in the US labor market despite a falling unemployment rate. “Despite the Fed’s push to decommission the unemployment rate as the single best indicator of labor market tightness, we believe it suggests we are close to reaching full employment,” Reinhart argues. “Moreover, other labor market indicators point to trends that don’t support the Fed’s contention that the unemployment rate is significantly overstating the extent of labor market improvement.”—Dow Jones Newswires


– The United Nations’ Economic Commission for Latin America and the Caribbean estimates that the region’s economy will expand 2.2% this year, a sharp decline from a previous forecast of 2.7%.

– Romania’s central bank Monday revised its inflation forecast down sharply to 2.2% this year from 3.3% previously, saying the inflation rate is expected to decelerate at a faster pace than initially estimated, news agency Mediafax reports.—Dow Jones Newswires

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5 August 2014 | 11:22 am – Source:

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