Crashing in on the carry trade! The Bank of Japan, backed by leaders of the world's largest economies, sold the yen in an attempt to stop the buying frenzy in anticipation of massive yen repatriation. Global central banks are trying to quell irrational yen exuberance before it creates a bubble that could bring the global economy down with it.
As reported by Bloomberg, "China raised banks' reserve requirements for the third time this year after inflation and industrial output exceeded economists' forecasts in February. The proportion of lenders' deposits parked with the central bank will increase half a percentage point from March 25, the People's Bank of China said on its website today. Premier Wen Jiabao has set taming inflation as the nation's top economic priority this year, citing "exorbitant" house-price increases and risks to social stability. Today's move was even as Japan's earthquake, tsunami and nuclear crisis cloud the outlook for the Asian and global economies. ‘Inflation risk is very high as oil prices and food costs are rising, and wages have increased substantially,’ Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. said before the announcement.
“Before today's move, reserve ratios stood at 19.5 percent for the nation's biggest banks. The central bank has also said that it may impose extra requirements on individual lenders as part of efforts to rein in liquidity in the fastest-growing major economy. People's Bank of China Governor Zhou Xiaochuan said this month that interest rates will be used to curb inflation, and played down the role of currency gains, which U.S. officials have encouraged China to use. The central bank has boosted borrowing costs and deposit rates three times since mid- October."
Upside risks abound. The China news may temper bullish enthusiasm and we may reverse if Japan has a nuclear set back.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.