Bank of Japan eyes change of policy? FT.com / Asia-Pacific

Somebody up there hates Japan.

How else do you explain this action, nearly fifty years after Friedman's MHotUS?

* * * * * J B K * * * * *

San Francisco

The Bank of Japan on Friday promised "new efforts" to support economic growth but it is unlikely to make the big changes to monetary policy demanded by its critics in Japan's ruling party.

The bank forecast an end to deflation next year, predicting that prices will rise by 0.1 per cent in the year that starts April 2011, and sharply increased its median growth forecast for this year from 1.3 to 1.8 per cent.

http://www.ft.com/cms/s/0/c1dcc3f8-5415-11df-b75d-00144feab49a.html

Yellen Anti-Inflation Credentials Defended by Gramley, Blinder - Bloomberg.com

Greenspan in a skirt.

The bubble princess.

Too low for too long, and too tight too quickly.

* * * * * J B K * * * * *

San Francisco

When Janet Yellen was first reported to be President Barack Obama's choice for Federal Reserve vice chairman early last month, the dollar weakened on speculation she would help keep interest rates at a record low through the end of the year.

Less than two weeks later, the former professor at the University of California, Berkeley told reporters that she'd be ready to tighten policy to avoid kindling inflation. She pointed out that she had supported interest-rate increases 20 times in her years as a Fed governor from 1994 to 1997 and as president of the San Francisco Fed starting in 2004.

http://www.bloomberg.com/apps/news?pid=20601068&sid=atQYxcq8KG6k

Europe Inflation Quickens, Jobless at 11-Year High (Update1) - Bloomberg.com

And this happened while the Euro was weakening against the dollar.

The virus of inflation will soon be here.

* * * * * J B K * * * * *

San Francisco

European inflation accelerated to the fastest pace in more than a year while the region's unemployment rate remained at an 11-year high.

Consumer prices in the 16-nation euro region rose 1.5 percent in April from a year earlier after a 1.4 percent gain in March, the European Union statistics office in Luxembourg said today in an initial estimate. That's the fastest inflation since December 2008 and is in line with economists' estimates in a Bloomberg News survey. Unemployment held at 10 percent in March, the highest since August 1998, a separate report showed.

Oil prices have surged 16 percent in the past three months, pushing up inflation even as companies are cutting costs and eliminating jobs. While European economic confidence improved to the highest in more than two years in April, concern that the Greek crisis is spreading may prompt delays in hiring plans.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a11X4yUYAd8M

Bond Rally Teeters as Yield Spreads Blow Out: Credit Markets - Bloomberg.com

So it begins.

As always, corporates lead the way, and Treasuries are sure to follow.

* * * * * J B K * * * * *

San Francisco

The record rally in corporate bonds is showing signs of cracking, with yields rising the most in 13 months relative to government debt and new sales falling to the lowest level this year.

The extra interest investors demand to own company bonds widened 6 basis points this week to 149 basis points, according to Bank of America Merrill Lynch's Global Broad Market Corporate Index. Global company bond issuance tumbled 56 percent from last week to $19.6 billion, data compiled by Bloomberg show.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aIRe_zHb6CfU&pos=4

U.S. Economy Expands as Consumer Spending Accelerates (Update2) - Bloomberg.com

Consumers feels wealthier, so they start spending even before income grows.

Reasons?

The stock market is booming.

Interest rates are still low.

Home values are stabilizing.

The dollar is strong.

But,...

All this is about to change as the Fed starts to unwind its massive asset position.

If you're not hedged, do so. If you are hedged, it might be time to take some additional risk.

* * * * * J B K * * * * *

San Francisco

Consumer spending, which accounts for about 70 percent of the economy, rose at a 3.6 percent pace last quarter, compared with the 3.3 percent rate forecast by economists and a 1.6 percent gain in the prior three months. The increase was the biggest since the first quarter of 2007.

Consumer Spending

Spending added 2.55 percentage points to GDP. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_5weT0lkjp0&pos=1

Federal Open Market Committee April 28 Statement: Full Text - Bloomberg.com

We'll have a detailed analysis of the statement later in the week over at the analysis weblog.

No obvious surprises.

* * * * * J B K * * * * *

San Francisco

The following is a reformatted version of the full text of the statement released today by the Federal Reserve in Washington:

Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aqZlwZ85EjzE

BlackRock Joins Blackstone in Loan Fund Frenzy: Credit Markets - Bloomberg.com

This must drive banks crazy.

The world wants to borrow money for expansion, and the banks can't help.

Banks are confused by incompetent regulators, and dare not take risks.

* * * * * J B K * * * * *

San Francisco

BlackRock Inc., the world's largest asset manager, and Blackstone Group LP's GSO Capital Partners LP are forming mutual funds to invest in loans as the London interbank offered rate rises to the highest level since August.

The firms have joined Goldman Sachs Group Inc. in announcing funds investing in leveraged loans pegged to short- term interest rates. Investors poured more than $2.5 billion into bank-loan mutual funds in March and the first three weeks of April, more than triple the amount for March and April last year, according to Lipper FMI data.

http://www.bloomberg.com/apps/news?pid=20601010&sid=anQNxxSm8VyU