Interview: Currency
>> welcome back, everyone. we saw asian stocks rising in u.s. trading. that plunge in oil prices easing concern a bit today about economic growth in asia. asia is a net importer of the commodity. the bank of new york’s indices, there you see the asia 50 a.d.r. index up .8% -- toyota and honda are among the rising shares there. stocks also rose on expectation a report may show japan’s industrial production increased last month. nikkei futures closed down in singapore, just slightly there, .04%. japanese industrial production probably grew for the first month in three in november because companies expanded output to meet overseas demand. economists surveyed by bloomberg expect factory output climbed 1.8% in november. the report is released at 8:50 a.m. tokyo time. also today, november data on consumer prices, employment, household spending and retail sales. those reports may offer plans about whether japan’s economic expansion picks up pace this quarter. the dollar weakens against the euro, hitting a record low of 1.36. investors really speculating that the u.s. and europe won’t do anything to stop the dollar’s decline. record u.s. budget and trade deficits have deterred foreign investors, pushing the dollar to a third straight annual loss against the euro and yen. toru umemoto joins us. the u.s. currency climbing 7-- dropping sen.5% -- 7.5% against the euro and declining against the yen. will we see more dollar decline?
>> i think so. 10% dollar decline against the euro and yen in the coming six months.
>> considering that we may see the dollar dropping against the currencies like that, do you think it’s a good time for investors to pick up the yen?
>> i think so. it’s a very good chance to increase japanese equity. equity or real assets, it’s a very good idea for foreign investors to increase their japanese allocation.
>> the continuing story has been the twin deficits in the united states. has concerned about that been priced into the dollar?
>> i believe the account deficit and fiscal deficits are the main drags on the economy.
>> we have seen interest rates in the u.s. heading higher. do you think that will lend support to the u.s. dollar next year?
>> in the second half it could because the federal reserve is likely to increase the fed funds rate, i think, by 25 basis points in every fomc meeting in the coming year. as a result, the fed fund rate will be 3.5% or 4% by the end of the year and e.c.b. and japanese monetary authority could leave the rates unchanged. the reserve will be 3.5% or 4% interest rate differential between the japan and the united states. this will appreciate the dollar to some degree. secondly, i think the dollar will recover against the major currencies.
>> a lot of the exporters planning on 106 to the dollar for their earnings. really haven’t seen a lot of intervention by the bank of japan. some analysts we spoke to really looking for the yen to hit as low as 90 as we head into 2005. when are we going to start seeing intervention by the bank of japan?
>> i don’t think the b.o.j. would intervene. in real effective exchange rate of the year, yen is not expensive. historically speaking, for example, after 1985, the yen is relatively cheap in the real exchange rate basis so this is not confirm for the authority at all i think.
>> we want to talk about what happened with the earthquakes over the weekend. the nikkei did slide on concern that reduced tourism would affect the market . do you think there will be any effect of the earthquake on the yen?
>> very limited effect. asian global factory relationship, this will have a limited impact on the asian economy as a whole.
>> we have to end it there, thanks so much for your thoughts. speaking with the market analyst with keio university’s global research center. and still to come, an executive with jetstar asia.
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Listen Interview: U.B.S.
officials say aftershocks may cause more flooding and tsunamis from thailand to india. the u.s., europe and india pledged a combined $53 million in aid. thai prime minister talked about his country’s recovery efforts.
>> i am concerned about people’s lives. i am trying to help those still suck in some places. we are trying to recover the dead bodies and trying to send tourists back to their home, rejoining their family, wife, children. we’ll help them to do that. we’ll take care of all of them.
>> sri lanka was the hardest hit country. police report 10,000 there dead. the magnitude nine earthquake occurred sunday morning, centered just north of sumatra. economic growth in australia is starting to slow down. the government and investors say the recent gains in the australian dollar are cutting exports, which do make up 1/5 of gross domestic product. peter costello says higher oil prices and continuing drownt are hurting the economy there. u.b.s.’s chief economist, scott haslem, says it is a concern for the asia-pacific region.
>> i think 2005 will be a period of rebalancing growth. 2004 had a very strong domestic economy driven by the housing and consumer sectors. looking into 2005, there are certainly signs now that the consumer is slowing down a bit and housing is going through a downturn. so, yes, i think it will be a period of slower growth and consolidation.
>> upturn on the consumer side. the jobs picture just continues to brighten. i don’t think we’ve seen employment levels in australia like this since the 1970’s so more and more people have jobs and more discretionary income.
>> that’s certainly the case. the unemployment rate now is at a 27 year low. it hasn’t been this low for a long time. people are employed and have income growth. the consumer sector will do regiony well―reasonably well. the last two years consumers have enjoyed the wealth effects of 20% house value growth but those effects are fading and we think we’ll see a reduction in the pace of consumer spending,ing in precipitous, but a slowdown from 6% to 3% from the consumer.
>> we saw business confidence, after a roar in 2002, has fallen to a six-month low. what implications do you think that has for corporate investment in australia and any possible effects in the wider economy?
>> i think the business confidence indicator you refer to does tend to lead overbusiness continue―overall business continues conditions by six months. i think it is telling us there is moderation coming through in the domestic economy. i think it will be a more challenging year for corporate in terms of the fact that the domestic economy is likely to be slower. but i don’t think it will a material effect on investment. the amount of products in the pipeline is substantial and i think the investment story is probably going to be the most positive part of the australian economy over the next year or so.
>> how is the commodities picture looking? sales of raw materials to other countries, mainland china, for example, reaped a great deal of revenue for australia in the last 12 months or so. there seems to be little sign of waning in demand for things like poking―coke and coal and other materials.
>> for the coal and iron ore exports, there doesn’t seem to be an end to demand there. those exports are doing exceptionally well on a reasonably solid upward trend over the past year. looking forward, the prices are likely to drift up in those commodities even in an environment with overall commodities topping out. that will continue to be a significant positive for australia. i also think australia has struggled in terms of the infrastructure and supply issues this year and quite possibly next year we’ll see better exports even within an environment of a slowing world economy.
>> what’s going to happen with the australian dollar? here’s a subject of perennial discontent among many people doing business in australia. do you expect any rapid movements in the a.u.d.?
>> you need to think about the aussie dollar in two different ways, you need to think about it against non-u.s. dollar currencies like the euro and yen and there, i think, after several years of the economy running here domestically at a 5% to 6% pace, that things will be slower. i think we will merge to the next view of interest rates more likely to be down than up in australia next year and in that environment, i would expect the australian dollar, as the commodity price cycle is probably topping out, that we would underperform most non-u.s. dollar currencies. however, against the u.s. dollar, you can’t escape the fact that the u.s. dollar is on a structural weakening trend and against the u.s. dollar, i expect the aussie dollar will creep higher.
>> when the final numbers are tallied, what kind of growth will there be for australia in 2004 and what do you expect for 2005?
>> i think 2004, you’re going to be looking at something around 3% to 3.5%. for this year, i think when you look out to next year, we’re pencilling about 3%. given the recent data, the risks are on the downside and it more than likely will end up with something a touch lower, somewhere in the 2.5% to 3% range.
>> that was scott haslem from u.b.s. australia. coming up, is the dollar going to keep falling against the euro and yen in 2005? we’ll ask that question of an analyst in tokyo.
