Re: Japan

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>   Japan's Eifuku Investment Management has
> liquidated its Tokyo-based
> hedge fund after it plunged 98 per cent ($300
> million assets)  in seven
> trading days, the fund's manager told investors.

Do you know what trades they did?

>
>
> Japanese rates in 'one-off' fall below zero -
> Financial Times
> By Mariko Sanchanta in Tokyo  Jan. 24, 2003
> Japan ventured into uncharted territory on Friday as
> overnight call
> rates fell below zero for the first time in the
> country's history.

>
>
>
>
> The overnight call rate on Y15bn of funds traded
> between foreign banks
> fell to minus 0.01 per cent.

This is indicative of a credit limit problem between
institutions.  An institution may be up to its limits
at one bank and attempt to move funds to another bank
even though it may give up .01% per day (trivial
amount in absolute terms for a day).  It is also
probably the bid side of the market.  I haven't
heard of funds offered at negative interest rates
yet, but it could happen for the same reasons.

Additionally, some institutions have even become
wary of deposits at the BOJ, and could elect to
pay an intermediary rather than keep deposits
at the BOJ directly.  Thought the logic is
obviously flawed, the decisions are real.

 Because of the negative
> rate, borrowers are
> in effect being paid for borrowing funds because
> they will have to pay
> back less than they were lent.
> With long-term interest rates already virtually nil
> under the Bank of
> Japan's "quantitative easing" policy, bankers said
> on Friday the move
> into negative territory was more a symbol of the
> country's decade-long
> economic malaise rather than an indicator of future
> financial chaos.
> The situation, said bankers, was likely to be a
> one-off and pointed out
> to the relatively small size of the transaction.
> Critics say that the BoJ's ongoing zero interest
> rate policy and it
> decision to flood the market with liquidity has been
> ineffective in
> stimulating the economy.

They should have anticipated this.  See 'Quantitative
Easing is a Bank Tax' at www.mosler.org.

> "In terms of monetary policy, the BoJ is not doing
> enough," said Hisashi
> Sitow, director at Credit Suisse First Boston in
> Tokyo. "It has to buy
> more JGBs or foreign bonds to affect the market.

Not.  As above.

> Monetary policy is
> clearly ineffective, as base money is increasing but
> growth in the money
> supply is stagnant."

Of course, the causation is the reverse, as all pks
know.

> Current record low yields on Japanese government
> bonds indicate that
> investors are not betting on an economic rebound
> anytime soon.

Indirectly that's the bet.  The actual bet is that the
BOJ won't raise rates anytime soon.

 The
> 10-year JGB has been skirting new four-year lows for
> some weeks, while
> the yield on the five-year bond fell to a record low
> on Friday.
> "This is all part and parcel of a growing loss of
> faith in Japan's
> future," said Marshall Gittler, strategist at
> Deutsche Bank in Tokyo.
> "JGB movements are telling a story that deflation is
> set to continue
> indefinitely."

So much for the arguments that deficits 'cause' high
interest rates, and that low interest
rates are inflationary and depreciate a currency...

Japan is recovering, in my estimation, due to the
multi year budget deficits that have restored
holdings (savings) of non govt net financial assets.
Of course, when the recovery is apparent, the credit
will never go to fiscal policy, it will go to
the quantitative easing, or something of the sort.
They may start 'inflation targeting' soon, or buy
a few stocks or bonds, and give that the credit as
well.

Warren Mosler
>
>


=====
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