💎 Fed’s first rate cut since 2020 set to trigger market. Find undervalued gems with Fair ValueSee Undervalued Stocks

TOPWRAP 3-Japan recession deepens, c.bankers look beyond rates

Published 12/22/2008, 05:26 AM
Updated 12/22/2008, 05:30 AM
TM
-

* Japan's Nov exports plunge, sentiment at all-time low

* BOJ chief says economy likely to worsen further

* UK rate setters say rate cuts alone no panacea

* Toyota slashes profit, sales forecasts; cuts spending

By Tomasz Janowski and Ralph Boulton

SINGAPORE/LONDON, Dec 22 (Reuters) - Japan warned on Monday it was sliding deeper into recession after exports and business sentiment tumbled, and British central bankers said interest rate cuts alone would not cure global economic ills.

The world's second biggest economy, which slashed interest rates to a rock-bottom 0.1 percent last week, reported the biggest ever drop in exports in November.

Japan's industrial champion and the world's top carmaker, Toyota Motor Co forecast its first ever group operating loss -- of 150 billion yen ($1.7 billion) -- due to a collapse in global demand and a crippling rise in the yen.

Interest rates were lowered almost to zero in the United States and Japan last week, but British central bankers -- who have cut rates by three percentage points since October -- warned that policy alone would not solve the financial crisis.

Bank of England Deputy Governor Sir John Gieve said Britain needed some form of new policy tool beyond the "blunt instrument" of interest rates and his colleague, Tim Besley, said monetary policy was not enough to bring Britain's flagging economy back to life.

"We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy ... and individual supervision and regulation of individual banks," Gieve told the BBC, without elaborating.

Traders and analysts polled by Reuters believe the Bank of Japan will early next year return to a policy, which it abandoned only in 2006, of flooding banks with cash to inflate the economy.

The U.S. Federal Reserve already ventured into that territory last week, slashing its benchmark funds rate to a range from zero to 0.25 percent and promising to supply banks with unlimited cash and keep rates low over an extended period.

IRISH BAILOUT

In Ireland, shares in the three main banks soared following a 5.5 billion euros ($7.7 billion) government injection that leaves one of them under state control.

The government announced late on Sunday it would make an initial investment of 1.5 billion euros in Anglo Irish Bank, giving it 75 percent control of the lender.

Dublin will also invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks.

Pessimism about the global auto market, as well as banks and oils, contributed to a 1.8 percent fall in European shares.

Adding to the gloom, a Reuters Tankan survey showed business sentiment at the lowest in its 10-year history and Bank of Japan Governor Masaaki Shirakawa said the worst was yet to come.

"The Japanese economy is deteriorating and for the time being its conditions are likely to become more severe," he told business leaders.

The government's monthly economic report summed it up in a similar vein. "Economic conditions are worsening," it said, the first time it used such an expression since February 2002.

Japan's November exports plunged 26.7 percent from a year earlier, hit by a strong yen and sagging demand for its electronics, cars and other goods in key U.S. and Asian markets, including China.

(For a graphic on Japan's exports, click on https://customers.reuters.com/d/graphics/JP_EXP1208.gif)

Nonetheless, Tokyo stocks bucked the downward trend, rising 1.6 percent, encouraged by the government's spending plans and Friday's $17.4 billion bail out of U.S. carmakers.

China, the world's fourth-largest economy and the only major one that is still growing, has its share of economic blues with expansion rapidly slowing from turbocharged double-digit rates.

In the latest sign of changing fortunes, a source said China's mammoth $1.9 trillion reserve stockpile shrank in October, which some economists say may mark a potentially worrying reversal to capital outflows.

Frantic global efforts may still fall short of what was needed to stave off the worst economic downturn since the 1930s, International Monetary Fund chief Dominique Strauss-Kahn warned. "Our forecast, already very dark ... will be even darker if not enough fiscal stimulus is implemented," he said in an interview with BBC radio on Sunday.

In Moscow, the Russian central bank widened the rouble trading band for the sixth time this month, allowing the currency to weaken by 30 kopecks to 33.45 against a dollar/euro basket, a central bank source said. The move brings the rouble's losses to almost 14 percent since an Aug. 4 peak. (Reporting by Reuters bureaus around the world; Editing by Mike Peacock)

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.