Central bankers claim that they aren’t starting a currency war. They deny that their policies are aimed at the competitive devaluation of their currencies. Let’s call it competitive ultra-easing. Consider the following:
(1) BOJ is going wild. On April 4, Japan’s central bank announced a plan to double the monetary base over two years from 138 trillion yen at the end of 2012 to 270 trillion yen at the end of 2014. (That would be $2.7 trillion at an exchange rate of 100 yen per dollar.) Reserve balances jumped 13.3 trillion yen during April. The yen has plunged from 79.39 on November 13, 2012 to 101.6 on Friday. The Nikkei is up 68.7% over this same period.
(2) China loans are still going strong. On Saturday, Bloomberg reported: “China’s new local-currency loans exceeded estimates last month while money supply expanded at a faster pace, a sign policy makers are maintaining credit support for the economy after first-quarter growth unexpectedly slowed.” Lending was 792.9 billion yuan ($129 billion), and M2 rose 16.1% y/y in April.
Last Thursday’s WSJ included an interesting article about China’s slowing economy, noting: “A sharp fall in factory prices--the 14th straight monthly decline--signals further trouble for a Chinese economy already facing mounting debt and slowing growth, as old-line industries struggle with growing overcapacity. Producer prices…dropped 2.4% in April, the sharpest decline since October, paced by particularly steep falls in the metals and chemicals sectors. That could add to concerns about China's slowdown in growth…because falling producer prices make it tougher for makers of industrial goods and commodities to make profits, pay off their debts and pay their suppliers on time.”
Last week, the People's Bank of China (PBOC) said that it will use various tools to guide “stable and reasonable” growth in money supply and credit. “The negative spillover effects from loose monetary policy in major economies are growing, which has helped pro-cyclical credit expansion at home,” the PBOC said.
Today's Morning Briefing: Managing Exuberance. (1) A leak at the Fed’s favorite leak outlet. (2) The Fed’s exit strategy. (3) How will they know the difference between rational and irrational exuberance? (4) What is prudent risk-taking? (5) The Fed’s Financial Stability Monitoring Program. (6) Big Ben is watching. (7) Competitive devaluation leads to competitive ultra-easing. (8) BOJ starts going wild in April. (9) China’s loans and M2 growing fast as PPI drops fast. (10) Reaching for yield in Rwanda. (11) Another test for the bull. (12) Soaring industries. (13) “The Great Gatsby” (+). (More for subscribers.)