✂ Fed’s first rate cut since 2020: Use our free Stock Screener to find new opportunities fastExplore for FREE

TOPWRAP 1-Japan, Australia c.banks see improvement but IMF wary

Published 06/16/2009, 12:29 AM
Updated 06/16/2009, 01:08 AM
TGT
-

* IMF chief says much to be done for global recovery

* Bank of Japan leaves rates unchanged, sees improvement

* RBA sees signs world economy stabilising

* Asian stocks fall as caution takes hold

* Obama reform plans target banks, securitization

By Leika Kihara and Wayne Cole

TOKYO/SYDNEY, June 16 (Reuters) - 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 stabilisation 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.

Asian stock markets fell, with Japan's Nikkei 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.

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.

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 stabilisation and started to consider how to unwind rescue steps.

International Monetary Fund Managing Director Dominique Strauss-Kahn said that he largely agreed with the G8 ministers' position but he appealed for caution in assessing the state of the global economy.

"Their stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," Strauss-Kahn said. "The large part of the worst is not yet behind us."

His comments, along with the downbeat data from Europe and the United States, threw some cold water on the growing conviction that the global economy is starting to heal.

SIGNS OF STABILISATION

Nonetheless, minutes from the Reserve Bank of Australia's June policy meeting, showed the bank saw signs of stabilisation, noting in particular a strong recovery in Chinese industrial production and improvements in other east Asian economies, including Japan.

"While some uncertainty about the durability of China's economic recovery inevitably remained, there were reasonable grounds to expect that the Chinese economy would continue to record solid growth outcomes," the RBA concluded.

The worst economic slump in six decades was triggered by bank failures and market turmoil that followed big losses on risky home loans when a U.S. housing boom turned sour in 2007.

In the fullest summary yet of Obama's plans to overhaul financial regulation, U.S. Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers urged stronger consumer and investor protection, new "systemic risk" policing powers for the Federal Reserve and less reliance on credit ratings.

The plan was outlined by the officials in the Washington Post ahead of the release on Wednesday of a detailed package of proposals that has been under discussion for six months.

Geithner and Summers said a key goal will be "raising capital and liquidity requirements for all institutions," with tighter standards for the biggest, most interconnected firms.

The officials said the plan will also propose new reporting requirements for issuers of asset-backed securities, as well as a rule saying securitizers must "retain a financial interest" in the asset-backed securities they are involved in issuing.

Securitization, or the packaging and selling of loans as securities, has been blamed by critics for eroding lending standards in the mortgage and other lending businesses. (Writing by Alex Richardson; Editing by Jan Dahinten)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.