2014-11-25

Kuroda Says Dump Yen, Yuan to Fall

ADXY is below 114 and DXY is on the verge of breaking out, signaling global U.S. dollar rally is ready to begin.

Kuroda Tells Japan Inc. to Stop Hoarding Cash as Costs to Rise
Bank of Japan chief Haruhiko Kuroda urged business leaders to use profits more productively, saying hoarding cash will become costly as the central bank stamps out deflation.

Yesterday, there were reports of trouble in the interbank market. Liquidity Alert? China's Interbank Market Delays Close By 30 Minutes

Also, reports that Chinese bond sales are being pulled: China’s Companies Scrap $1 Billion in Bond Sales as Yields Jump
China’s companies scrapped or delayed at least 7.55 billion yuan ($1.2 billion) of bond sales since Nov. 20 as borrowing costs jumped, flagging fundraising strains even as the central bank eased monetary policy.

The yield on AAA rated corporate securities due in three years rose 17 basis points last week, the most in a year, to 4.43 percent. The increase comes as investors held more cash ahead of planned new share sales this week, with initial public offerings to lock up at least 1 trillion yuan, according to Australia & New Zealand Banking Group Ltd.

Has the PBOC blown the devaluation horn? Survey says not so much: 人民币对美元暴跌200点 央行降息吹响贬值号角?
China Merchants Bank Head of Financial Markets analyst Liu Dongliang also pointed out: "After the theoretical existence of downward pressure on the RMB exchange rate cut, but China's current implementation of the" managed floating exchange rate system "will not allow this to happen, The central bank will not secure the exchange rate depreciation, interest rate double loose situation also does not appear, the RMB exchange rate will only be a mild correction, on the whole will remain strong, not even rule out the possibility of further appreciation. "

November 24, UBS (UBS) issued to China 2015 ~ 2016 economic outlook is expected in the context of a strong dollar, the RMB against the US dollar will be a slight devaluation of the RMB against the US dollar by the end of 2015 will reach 6.35 by the end of 2016 amounted to 6.40 , it is still possible during the periodic revaluation and two-way volatility increases.

And then there's the old economic argument for the rate cuts: News Analysis: China's interest rate cuts set to support property demand

China cannot simultaneously cut interest rates and expect the yuan to appreciate because hot money will flow out of the country. Short of igniting an economic boom, a yuan rally isn't going to happen. Since the leadership does not want an investment led boom, which is the only way the current economy would be able to deploy massive capital inflows/credit growth, the hot money will leave if rates continue to slide. The other option is to let the tight credit conditions deflation do its work. The painless short-term solutions are gone. Long-term, reforms will lift the economic growth rate, but short-term there are no painless or costless options.

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