Major Australia investors urge quick action on climate

June 26, 2010 By Leave a Comment

(Reuters) – A group of major investors on Friday urged Australia’s new Prime Minister Julia Gillard to take swift action to fight climate change and cut carbon emissions blamed for heating up the planet.

Green Business | COP15

Gillard should outline her road map on climate change as soon as possible and set priorities for consensus building over the issue, said the Investor Group on Climate Change (IGCC) that represents institutional investors with more than $500 billion under management.

“We consider that climate change presents real risks to the Australian economy, which must be addressed,” the group said in a statement.

Gillard moved to revive a stalled carbon trading scheme on Thursday, within hours of becoming prime minister after incumbent Kevin Rudd stepped down. Opinion polls had shown a slump in support for Rudd and he was also unpopular within his own party.

Gillard pledged more consultation with industry and voters to win support for a price on carbon pollution, an issue that has split the nation.

Rudd had championed the carbon trading scheme but it was rejected by a hostile Senate for a third time in March.

His decision in April to shelve the scheme till 2013 angered voters who wanted action on climate change and was a major reason for the plunge in his popularity in opinion polls.

IGCC said its members would continue to support strong climate change policy action but neither the government or the main opposition party had an adequate policy to address risks to the Australian economy from global climate change.

Australia is the world’s top coal exporter and among the highest per-capita emitters of planet-warming carbon dioxide, with coal used to generate about 80 percent of electricity.

While the government has embraced renewable energy and energy efficiency, analysts say putting a price on carbon emissions is the most effective way for Australia to cut greenhouse gas pollution.

“We see indications of significant policy progress in China, Europe and in many U.S. states and do not accept that stalled international progress is sufficient reason for further policy delay in Australia,” said IGCC chief executive Nathan Fabian in the statement.

U.N. climate talks on a successor to the Kyoto Protocol, whose first phase ends in 2012, have bogged down and agreement on a broader pact covering all of the world’s major greenhouse gas emitters is now thought to be more likely by the end of 2011.

(Reporting by Bruce Hextall; Editing by David Fogarty)

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FOREX-Yen near 1-mth peak on quarter flows, econ doubts

June 26, 2010 By Leave a Comment

TOKYO, June 25 (Reuters) – The yen rose broadly and stayed near a 1-month high against the dollar on Friday on short covering, and as falls in regional share markets prompted traders to further sell risky currencies such as the Australian dollar.

The euro and Australian dollar fell against the greenback on investor doubts about the strength of a global recovery, and were also dragged lower by their weakness against the yen.

The yen and dollar were also supported by concerns that leaders of the Group of Eight and Group of 20 rich and developing nations may not produce a strong and unified response to help the economic recovery at their weekend meetings in Canada.

“It’s all about cutting risky positions with falls in yen crosses leading the market,” said a trader for a Japanese trust bank.

Traders said quarter-end inflows were lending support to the yen JPY=, with Japanese exporters selling the euro.

Dollar/yen options barriers at 89 yen and below are likely to check gains for the Japanese currency in the near-term but some traders said momentum indicated the yen would eventually test 87.95 yen, a high hit on May 6.

Traders said many investors who had gone short on the yen this month on speculation that Japan’s new Prime Minister Naoto Kan will support a weaker yen were unwinding those positions.

Also helping the yen was the Federal Reserve’s dovish statement this week, which contributed to a further fall in already low Treasury yields.

The dollar stood at 89.52 yen JPY=, down 0.1 percent from late U.S trade on Thursday, when it lost about 0.4 percent and hit a 1-month low of 89.22 yen on trading platform EBS.

Japanese exporters are expected to move quickly to sell the dollar early on Monday if dollar/yen finishes Friday trade below 90.00 yen as they have to convert overseas earnings towards the end of the month, traders said.

The dollar index was flat on the day at 85.77 .DXY, with traders expecting it to test support at 85.09, this week’s low, in the near term as softer Treasury yields keep it on the defensive.

U.S. economic reports on weekly initial jobless claims and durable goods orders for May on Thursday were relatively firm yet could not lighten the market gloom. [ID:nN24110731]

The euro fell 0.1 percent to $1.2320 EUR=, giving up some gains made on Thursday when quarter-end buying by portfolio managers helped the currency despite worries about the euro zone’s debt and financial sector.

Gains in the euro were likely to be checked by losses in stock markets, with the currency remaining highly correlated with the S&P 500 index .SPX at a solid 63 percent.

S&P 500 stock futures SPc1 inched up 0.3 percent on Friday in Asia, while Tokyo’s Nikkei stock average .N225 dropped 2 percent, prompting investors to feel more nervous about taking on risk.

Against the Japanese currency, the euro fell 0.2 percent to 110.27 yen EURJPY=R after falling as low as 110.04 yen on EBS.

The Australian dollar slid 0.5 percent to $0.8625 AUD=D4, having lost 0.9 percent on Thursday as investors booked profits in high-yielding currencies after a rally this week.

Uncertainty over Australia’s mining tax after remarks from the country’s new Prime Minister Julia Gillard was also seen as a negative for the currency, traders said.

Gillard said she was open to genuine negotiations with global miners over the government’s planned mining-profits tax, but declined comment on the 40-percent headline rate.[ID:nSYU010129]

Some market players hope a change of leadership would lead to a softening in policy on the 40-percent proposed mining tax.

China’s central bank set the yuan’s daily mid-point CNY=SAEC at 6.7896 par dollar on Friday, the highest level since the July 2005 revaluation. It meant China has allowed its reference rate to rise 0.6 percent this week since it announced a change in the yuan exchange regime at the weekend. [ID:nECB000556]

The euro and the Australian initially edged up on the news then quickly gave back gains. (Additional reporting by Anirban Nag in Sydney and Satomi Noguchi in Tokyo; Editing by Edwina Gibbs)

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FOREX-Dollar on defensive but euro gains limited

June 25, 2010 By Leave a Comment

LONDON, June 24 (Reuters) – The dollar struggled on Thursday after the Federal Reserve reiterated its pledge to keep rates low, though its losses against the euro were limited by persistent doubts about the euro zone economy.

The dollar’s broad weakness helped sterling to extend gains to a six-week high and underpinned the euro, yet traders remained reluctant to chase those advances with more signs of fragile recovery tempering appetite for risky positions.

“There was a little disappointment in the market from the Fed statement but the euro has struggled to rally. The market remains sceptical about problems in Europe and that feeling won’t go away soon,” said Antje Praefcke, currency analyst at Commerzbank.

At 0720 GMT, the euro EUR= was broadly unchanged on the day at $1.2315 having stalled at $1.2351 in Asia.

Versus a basket of currencies .DXY, the dollar slipped to 85.595 in Asia, bringing it closer to a five-week low hit on Monday of 85.091. It later steadied to trade broadly unchanged at 85.829.

“If the market was hoping for re-assurance from the FOMC they would soon be disappointed as the Federal Reserve signalled that growth was likely to disappoint over the course of the next 12 months, due in no small part from the problems in Europe,” said Michael Hewson, currency analyst at CMC Markets.

In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile markets in light of Europe’s debt woes. [nN22150078]

The dollar was also undermined by data showing sales of new U.S. single-family homes tumbling more than expected in May.

NEW AUSTRALIAN PM

The Aussie dollar AUD=D4 rose as high as $0.8771 after Australia’s ruling Labor Party elected a new prime minister in Julia Gillard, in a bid to avoid election defeat later this year. [ID:nSGE65M0LY]

Gillard immediately offered to end a bitter dispute over a controversial “super profits” mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax. [ID:nSGE65M0LY]

The Aussie later trimmed gains to stand at $0.8725, steady from late U.S. trading on Wednesday.

“We expect new PM Gillard to announce a watered down version of the Resource Super Profits Tax in the coming weeks,” said RBC analysts in a note to clients.

“The Australian dollar, resources, and equities will be the likely beneficiaries and should find immediate and longer term support from today’s change of PM,” they said.

Sterling rose to $1.5001 GBP=D4, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England’s minutes. The pound subsequently eased to trade with slight losses at $1.4940.

Against the yen JPY=, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.

“Price action in dollar/yen remains poor and my order board suggests some more weakness to come, with an initial target of 89.10. Option related offers above 90.30 should see us capped,” said a London-based spot trader from a U.S. bank. (Additional reporting by Satomi Noguchi, editing by Mike Peacock)

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Australia miners want tax rate cut-Minerals Council

June 25, 2010 By Leave a Comment

June 24 (Reuters) – Mining companies will push Australia’s new prime minister to drop the rate on a new tax on the industry below the proposed 40 percent level, the Minerals Council of Australia said on Thursday.

Basic Materials

“The rate is very important. It’s a real destroyer of value,” the council’s chief executive Mitchell Hooke told a business forum.

He added the miners will also look closely at a “package deal,” indicating there were other areas where it hoped the new leader Julia Gillard will be open to negotiate. (Reporting by Sonali Paul; Editing by Ed Davies)

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European shares turn negative; miners fall

June 25, 2010 By Leave a Comment

June 24 (Reuters) – European shares turned negative on Thursday morning, with miners giving up gains from early in the session, having risen on hopes Australia’s new Prime Minister would compromise on proposed taxes on resource firms.

Stocks | European Markets | Global Markets

At 0730 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.4 percent at 1,035.76 points.

BHP Billiton (BLT.L), Kazakhmys (KAZ.L), Rio Tinto (RIO.L) and Xstrata (XTA.L) were between 1 and 2.7 percent lower. (Reporting by Brian Gorman)

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Australia’s first woman PM an old-school Labor leader

June 25, 2010 By Leave a Comment

(Reuters) – Australia’s new prime minister, Julia Gillard, has become the first woman to lead her country, but her leadership style evokes the past, not the future.

World

A quick-witted politician, with a broad Australian accent and a working-class pedigree, Gillard is in many ways an old-school Labor Party politician, more reminiscent of Labor prime ministers from the 80s and 90s than her bookish predecessor, Kevin Rudd.

Like previous Labor prime ministers Bob Hawke and Paul Keating, Gillard stands in stark contrast to Rudd, a Mandarin-speaking ex-diplomat who broke the mold as a Labor leader in 2006 when he took control of a then demoralized opposition.

Rudd won a landslide election victory in 2007, ousting veteran conservative leader John Howard, and then dominated the opinion polls until, suddenly, last April the fairy tale ended.

Thanks to a few big policy failures, Labor’s “Prince Charming” began losing the confidence of voters and, just as suddenly, Gillard was emerging as a new but much more familiar Labor hero, a working-class politician with a talent for plain-speaking.

Where Rudd once told lawmakers about “evidence-based policy” and explained in heavy detail the complexities of his tax or climate-change policies, Gillard stood in parliament on Thursday and launched straight into vintage Labor rhetoric.

“I grew up in a home of hard-working parents,” began the 48-year-old daughter of a former policeman and rail clerk.

“I believe in a government that rewards those who work the hardest, not those who complain the loudest,” she added.

“I believe in a government that rewards those who, day in and day out, work in our factories and on our farms, in our mines and in our mills, in our classrooms and in our hospitals, that rewards that hard work, decency and effort.”

Gillard arrived in Australia, aged four, in the 1960s from south Wales, a cradle of Britain’s own Labour movement. Her father had gone to work before finishing school, his family too poor to support him through higher education.

Gillard initially lived in a migrant hostel in the rural town of Adelaide before her father bought a house. She studied law at university, where she got involved in politics and then became a partner in a law firm specializing in class actions and personal injury cases before working as a political adviser.

CONSENSUS BUILDER

Gillard was first elected to parliament in 1998, and quickly rose to become a leading light of the Labor left, becoming shadow health minister in 2003 and then backing Rudd for the leadership in return for the deputy Labor leadership.

Gillard kept in Rudd’s shadow until this year’s opinion-poll meltdown when, without apparent hesitation or squeamishness, she made her move just months away from a general election, just as Hawke did on the eve of another election in the early 1980s.

Gillard seems to model her leadership style on the Hawke era, when cabinet forged policy by consensus — another departure from Rudd, whose corporate-style management rankled Labor MPs.

“Her consultation skills are fantastic,” said one senior industry figure who negotiated opposite Gillard on labor-market reforms. “She is bloody good,” he told Reuters.

That will be good news for global miners that are threatening to pull more than $20 billion in investment unless the government overhauls its proposed 40 percent mine-profits tax. Gillard has refused to drop the tax so must negotiate a solution quickly.

Even if Gillard shares Hawke’s famed negotiating skills, and Keating’s sharp wit, she also faces a challenge that no previous Australian leader has ever known: being a woman in power.

She has long attracted headlines for her hair, which she recently restyled and dyed an auburn shade instead of its natural ginger, her partner who is a hairdresser and her decision not to have children.

One conservative lawmaker even once remarked her unmarried status made her unfit to govern. He later apologized for the comment but, in the socially conservative heartland of middle-class Australia, it can be an issue.

“She’s not married is she? No children either,” remarked Elvie Santos, a legal secretary, when asked during her lunch break on Thursday whether she liked Gillard.

But she added: “Let’s give her a try. You never know.”

(Additional reporting by James Grubel; Editing by Ed Davies and Miral Fahmy)

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RPT-GLOBAL MARKETS-Asian stocks steady, dollar down after Fed

June 25, 2010 By Leave a Comment

HONG KONG, June 24 (Reuters) – Asian stocks mostly steadied while the dollar eased on Thursday amid concerns over the global outlook after the Federal Reserve said the economic recovery was faltering.

European shares are expected to open firmer after two consecutive sessions of losses, with futures for the STOXX Europe 50 STXEc1, Germany’s DAX FDXc1 and France’s CAC 40 FCEc1 gaining as much as 0.7 percent.

In Asia, South Korean shares outperformed its regional peers and rose 0.8 percent while Australian miners gained after the ruling party chose a new leader, spurring hopes that the government would compromise on a controversial mining tax. [ID:nSGE65N003]

But other markets were mostly steady to weaker, with the MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up just 0.2 percent.

“It’s not as if investor sentiment has worsened dramatically, but gains look limited as there’s uncertainty about the outlook for the global economy,” said Yutaka Miura, a senior technical analyst at Mizuho Securities.

Japan’s Nikkei .N225 ended flat as a key support level held.

The euro EUR= and sterling GBP= rose but investors remained reluctant to chase them higher as sings of fragile economic recovery tempered appetite for risky positions.

Oil prices steadied, stabilising after two days of losses under the influence of modest gains in regional equities and dovish comments from the U.S. Federal Reserve. [ID:nSGE65N03H]

STOCK RALLY FIZZLES

South Korea’s KOSPI rose 0.8 percent as the government lifted its 2010 growth forecast to 5.8 percent from 5 percent and announced a gradual return of economic policy to pre-crisis settings. [ID:nTOE65N03N]

Global miners BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) rose around 1.5 percent, encouraged by new Prime Minister Julia Gillard’s comments seeking negotiations with the miners over the tax. [ID:nSGE65N003] Fortescue Metals Group (FMG.AX) rose 2.5 percent.

Asian stocks are on track to post their first quarterly decline in over a year as fears of the euro zone debt crisis derailing a global economic recovery prompted a sharp selloff in risky assets.

The MSCI index of Asia Pacific shares outside Japan is down 5.5 percent this quarter versus a 6.6 percent decline in the Standard & Poor’s 500 Index .SPX over the same period.

The heightened volatility across financial markets in May spooked investors who have remained largely on the sidelines keeping stock exchange volumes lethargic.

Optimism over China’s move to allow the yuan to be more flexible quickly dissipated after the move failed to ignite a sustained rally in risky assets as realisation set in that any appreciation in the yuan would be slow at best.

Barring unexpected events, the markets’ focus for the second half of the year looks set to be firmly on policy around exit strategies from the global financial crisis, Alastair Newton of Nomura said in a note. (Additional reporting by Aiko Hayashi in Tokyo; Editing by Kazunori Takada)

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JGB 10-yr yield falls to 7-yr low on bank bids, Kan

June 25, 2010 By Leave a Comment

TOKYO, June 24 (Reuters) – The yield on 10-year Japanese government bonds fell to a seven-year low on Thursday, as domestic banks bought the notes to put excess cash to work and amid hopes for the government to make good on its vow to rein in debt.

The Japanese government’s fiscal austerity stance has added to the decline in yields, which had already been falling this month in the wake of Europe’s sovereign debt crisis and on the prospect of the global economic recovery losing steam.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 2.5 basis points to 1.140 percent, its lowest since 2003.

It has fallen about 8 basis points since new Prime Minister Naoto Kan said a week ago that doubling the sales tax rate would be an option to curb the nation’s massive debt. [ID:TOE65M03K]

“How much fiscal reform he can achieve is another question. But for now, his stance is clearly helping the market,” said a fund manager at a U.S. asset management firm.

Kan said last week that his ruling Democratic Party of Japan will call for the sales tax to be hiked in a few years, in a sharp turnaround from his predecessor.

The 10-year yield’s fall to a seven-year low was also helped by purchases from banks seeking higher yields of longer-dated debt. Banks have surplus cash to invest due to a slowdown in lending.

Superlongs, meanwhile, saw buying by life insurers looking to extend the duration of their portfolios to match their assets with their liabilities.

The 30-year yield JP30YTN=JBTC declined 4.5 basis points to 1.950 percent, its lowest since March 2009.

The 20-year yield JP20YTN=JBTC also fell to a March 2009 trough, dropping 4 basis points to 1.890 percent.

The five-year yield JP5YTN=JBTC was flat at 0.385 percent and the two-year yield JP2YTN=JBTC was also unchanged, at 0.145 percent.

An auction of 2.6 trillion yen ($28.9 billion) of two-year JGBs drew firm investor interest on Tuesday, with the demand-indicative bid-to-cover ratio rising to 4.31 from 3.68 at the previous auction in May.

“It is the familiar situation of financial institutions buying short-end JGBs, as they would with financing bills, as they cannot let their cash sit idle,” said Keiko Onogi, a senior JGB strategist at Daiwa Securities Capital Markets.

“The Bank of Japan’s easy monetary policy is helping but a more pressing driver behind the demand is the surplus cash they have on their hands.”

The two-year/10-year yield spread tightened 2.5 basis points to 99.5 basis points, the tightest in 15 months.

Focus was on whether the benchmark 10-year yield would decline further.

“The 10-year yield may blip below 1.1 percent but I don’t think banks will keep buying beyond that level. You can’t expect much in the way of capital gains from there,” said a trader at a European brokerage.

September 10-year JGB futures 2JGBv1 rose 0.14 point to 141.06 but failed to break above their two-year peak of 141.19 hit earlier in June due to profit-taking by short-term speculators including momentum-following funds. (Additional reporting by Shinichi Saoshiro; Editing by Chris Gallagher)

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European stock index futures rise, miners eyed

June 25, 2010 By Leave a Comment

June 24 (Reuters) – European shares were set to rise on Thursday, snapping two consecutive sessions of losses, tracking gains in Asia on hopes new Australian Prime Minister Julia Gillard would compromise on a controversial mining tax.

Stocks | Global Markets | Financials

At 0601 GMT, futures for the STOXX Europe 50 STXEc1, Germany’s DAX FDXc1 and France’s CAC 40 FCEc1 were up 0.4 to 0.7 percent.

Mining stocks were expected to be a focus, after mining shares in Australia gained around 1.5 percent, encouraged by new Prime Minister Julia Gillard’s comments about seeking negotiations with the miners over the super tax. (Reporting by Joanne Frearson)

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Fortescue chief cheers move to negotiate on mine tax

June 25, 2010 By Leave a Comment

June 24 (Reuters) – Australian iron ore miner Andrew “Twiggy” Forrest on Thursday welcomed overtures by Australia’s new prime minister Julia Gillard to negotiate over a proposed new mining tax.

Basic Materials

Forrest, chief executive of Fortescue Metals Group (FMG.AX), has been at the centre of attacks on a tax that he described as a veiled act of nationalisation of Australia’s mining sector by former Prime Minister Kevin Rudd.

“Ms Gillard and her new government have realised that government policy is best effected through open and honest consultations with the Australian people and industry,” Forrest said in a statement. (Reporting by James Regan; Editing by Ed Davies)

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FOREX-Dollar dips; Aussie inches up on new PM

June 25, 2010 By Leave a Comment

TOKYO, June 24 (Reuters) – The dollar stayed on the defensive on Thursday after the Federal Reserve reiterated its pledge to keep rates low, while the Australian dollar edged up after the country’s ruling party chose a new Prime Minister, reducing political uncertainty there.

The dollar’s broad weakness helped the euro to trade firmly and sterling to extend gains to a six-week high, yet traders remained reluctant to chase those advances with more signs of fragile economic recovery tempering appetite for risky positions.

“The dollar is clearly under pressure after the FOMC indicated that interest rates will not rise anytime soon. But there is no other currency good enough to buy against the dollar either,” said Nobuhiko Akai, senior manager of the forex trading group at Bank of Tokyo-Mitsubishi UFJ.

“The euro’s limited gains against the dollar reflect deep-seated market concerns about more bad news from the region’s debt or banking sector.”

The Aussie AUD=D4 rose as high as $0.8771 after Australia’s ruling Labor Party elected a new Prime Minister in Julia Gillard, in a bid to avoid election defeat later this year. [ID:nSGE65M0LY]

“Clearly this is a positive for the Australian dollar and stocks in the short and medium term,” said Su-Lin Ong, a senior economist at RBC Capital Markets.

“It removes the political uncertainty that had been growing and would have only got worse. We assume Gillard will negotiate on the mining tax and produce a watered-down version.”

Gillard immediately offered to end a bitter dispute over a controversial “super profits” mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax. [ID:nSGE65M0LY]

The Aussie later trimmed gains to stand at $0.8742, steady from late U.S. trading on Wednesday.

The U.S. dollar was on the backfoot after the Fed softened its view on the U.S. economy in its statement, noting pockets of weakness in certain sectors and warning against volatile financial markets given the euro zone debt crisis.

For the Fed statement, double-click on [ID:nTRU002480]

The interest rate futures market is pricing in the Fed’s next rate increase by the middle of next year.

The dollar index .DXY dipped 0.1 percent to 85.694 after posting an outside day reversal the previous day, suggesting more losses might be in store.

Sterling rose to $1.5001 GBP=D4, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England’s minutes. After trimming some gains, sterling stood at $1.4979 for a gain of 0.1 percent on the day.

Its rise on Wednesday pushed sterling up above the cloud on daily Ichimoku charts, a bullish signal for the currency.

Sterling is now likely to find support at the top of the cloud at $1.4876, while facing resistance near $1.5000 and $1.5050, said Hiroyuki Tanaka, chief technical analyst at Mizuho Corporate Bank.

Against the yen JPY=, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.

The dollar was undermined as U.S. Treasury yields fell with data showing sales of new U.S. single-family homes tumbling more than expected in May.

The euro rose 0.2 percent to $1.2331 EUR=.

China’s central bank set the yuan’s daily mid-point at 6.8100 per dollar on Thursday, little changed from Wednesday’s close, and shrugged off renewed calls by U.S. lawmakers for legislation to press China to allow the yuan to appreciate. [ID:nECB000555]

Major currencies showed muted reaction to the yuan as the yuan-linked trading fad faded after choppy price actions earlier this week following China’s initial announcement on yuan flexibility. (Additional reporting by Anirban Nag in Sydney and Masayuki Kitano in Tokyo; Editing by Joseph Radford)

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Australia’s minerals council suspends anti-tax ads – TV

June 25, 2010 By Leave a Comment

June 24 (Reuters) – Australia’s minerals council will suspend advertisements opposing government plans for a new tax on mining after new prime minister Julia Gillard pledged to open the door to miners for negotiations, Sky TV reported on Thursday.

(Reporting by Ed Davies; Editing by Michael Smith)

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Australia’s Santos: welcomes PM pledge on mine tax

June 25, 2010 By Leave a Comment

June 24 (Reuters) – Australia’s Santos Ltd (STO.AX), which plans to build a coal-seam gas export plant in Queensland state, welcomed on Thursday new Prime Minister Julia Gillard’s commitment to negotiate openly on the proposed mine tax.

Energy

“Santos has participated in the government’s consultation process since the new tax was announced, but remains concerned over its potential impact on both existing operations and new investments,” it said in an e-mailed statement. (Reporting by Fayen Wong; Editing by Ed Davies)

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JGBs rise on stock fall, fiscal reform hopes

June 23, 2010 By Leave a Comment

TOKYO, June 22 (Reuters) – Japanese government bond prices rose on Tuesday, drawing support as Tokyo shares pulled back from a one-month high and from hopes for the government’s strategy to fix the country’s tattered finances.

The benchmark 10-year government bond yield dropped to 1.190 percent JP10YTN=JBTC, a critical level that has blocked market rallies in the past few years.

Japan unveiled ambitious fiscal targets on Tuesday, including a goal to halve its primary budget deficit by fiscal 2015, setting the stage for politically contentious tax hikes. [ID:nTFD006451]

In a sharp turnaround from his predecessor, new Prime Minister Naoto Kan has made fiscal reform a top priority ahead of a July 11 upper house election, vowing to consider doubling the 5 percent sales tax in a few years.

“A hike in consumption tax was politically taboo in the past. Now it is becoming more realistic. That’s one reason behind JGBs’ firmness,” said Katsutoshi Inadome, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“That’s not to say investors are convinced that fiscal reform will succeed. They are watching whether the government can carry out the reform.”

The price of benchmark 10-year futures 2JGBv1 rose 0.34 point to 140.82, its highest since June 9 when it hit a two-year peak of 141.19

The 10-year yield’s 2.5 basis points drop to 1.190 percent matched a low it has hit twice in the past month and once in December.

Every rally in JGBs since 2004 ended when the 10-year yield fell below 1.19 percent — in February 2004, June 2005 and December 2008.

“I think banks will lighten their positions to take profits at this level,” said Takeo Okuhara, portfolio manager at Daiwa SB Asset Management.

But Okuhara also said persistent worries euro zone debt woes and prospects of a slow global economic recovery are likely to limit JGB price falls.

Tokyo’s Nikkei stock average .N225 fell 1.2 percent on profit-taking a day after it hit a one-month high. [.T]

The five-year yield dipped 1.5 basis point to 0.385 percent JP5YTN=JBTC, edging near a seven-year low of 0.365 percent touched earlier this month.

The 20-year JGB yield also dropped 3 basis points to 1.955 percent JP120YTN=JBTC, a low it has hit three times so far in June.

“The key going forward is whether the government can further the consumption tax hike debate, which is currently centred on raising it to 10 percent (from 5 percent), maybe pushing it to an even higher tax rate,” said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets.

Japan is the most indebted industrialised country with its outstanding public debt approaching 200 percent of the country’s GDP, and the recent sovereign debt crisis in Europe has further raised awareness of its fiscal situation. (Additional reporting by Shinichi Saoshiro; Editing by Joseph Radford)

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Okinawa governor tells Japan PM U.S. base deal hard

June 16, 2010 By Leave a Comment

(Reuters) – The governor of Japan’s Okinawa told new Prime Minister Naoto Kan on Tuesday that a U.S.-Japan deal to move a U.S. base on the southern island will be tough to implement, in a sign the issue will keep haunting the government ahead of a July election.

Japan

Voter perceptions that Kan’s predecessor, Yukio Hatoyama, had mishandled a feud over the U.S. Marines Futenma airbase on Okinawa slashed government support and distracted close allies Washington and Tokyo.

Under an agreement forged shortly before Hatoyama quit earlier this month, the two nations agreed to implement a 2006 deal to shift Futenma airbase to a less crowded part of Okinawa, host to about half the U.S. forces in Japan.

“We greatly regret that statement (between the two countries on the agreement) and I said that the realization is extremely difficult,” Okinawa Governor Hirokazu Nakaima told reporters after meeting Kan.

Kan, whose rise to the top job last week has boosted voter support, repeated that he would honor the bilateral deal, Deputy Chief Cabinet Secretary Motohisa Furukawa said.

But Kan, Japan’s fifth premier in three years, will have trouble implementing the agreement given stiff local opposition.

Opposition parties are likely to highlight the Democratic Party-led government’s handling of the base feud and relations with Washington during the campaign for an upper house election expected on July 11.

The Democrats, who took power last year pledging more equal ties with the United States, have a big majority in parliament’s lower house but need to win a majority in the upper chamber to avoid policy paralysis as Japan struggles to keep a fragile economic recovery on track and rein in its bulging public debt.

Hatoyama had raised the hopes of Okinawa residents during his successful election campaign last year that a replacement for Futenma could be found off the island but he failed to find a solution acceptable to all parties by end-May as he had vowed.

U.S. Secretary of State Kurt Campbell will be visiting Tokyo on Thursday, where he is expected to discuss the details of the base relocation with Japanese officials.

Washington and Tokyo have agreed to work out by end-August a more detailed plan, including the exact location of the new base, but Japan’s defense minister has expressed doubts about how smoothly the deal can proceed.

An election for the governor of Okinawa is scheduled for around November and the result could affect the airbase deal just near the time when U.S. President Barack Obama is expected to visit Japan for an Asia-Pacific leaders summit.

Kan, who has said U.S-Japan ties are the core of Tokyo’s diplomacy, will visit Okinawa on June 23 to attend a ceremony commemorating the 1945 Battle of Okinawa, one of World War Two’s bloodiest battles, in which some 140,000 Okinawan men, women and children were killed.

(Editing by Edwina Gibbs)

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FACTBOX-Policymakers’ key quotes on Japan fiscal policy

June 15, 2010 By Leave a Comment

June 14 (Reuters) – Japan’s new Prime Minister Naoto Kan has vowed to tackle the country’s huge public debt, but his commitment to fiscal austerity could be tested with the economic recovery still fragile.

Bonds

Kan, in his first policy speech, warned that the country risked defaulting on its borrowing if it failed to rein in its massive public debt. [ID:nLDE65A052]

He has spoken in favour of fiscal discipline and during his five-month stint as finance minister pledged to cap new bond issuance for the fiscal year from next April at the record 44.3 trillion yen ($483 billion) set for the current fiscal year’s budget.

Following are key quotes from Kan and his ministers:

KAN

June 11, in first policy speech in parliament:

“We cannot sustain public finance that overly relies on issuing bonds.

“As we can see in the euro zone confusion that started from Greece, there is a risk of default if the growing public debt is neglected and if trust is lost in the bond market.”

June 8, in news conference:

“Having weak finances means we can’t make bold moves. Restoring our fiscal health is indispensable for economic growth.

“If we keep up the current pace of spending for the next three to four years, the ratio of public debt to GDP will go up to over 200 percent in a few years.

“In that sense, this problem is the biggest issue this country must tackle … We need bipartisan debate now on what really needs to be done to restore finances, in terms of the extent and time.

“If we just raise taxes to pay back debt, then this would accelerate deflation. Spending must be allocated to areas that lead to economic growth.

“The reason why Japan’s finances have worsened this much, simply put, is that over the past 20 years, because we couldn’t raise taxes, we tried to make up for this by borrowing.”

May 17, in parliament:

“Limiting bond issuance doesn’t mean I am saying we will shrink fiscal spending …

“Japan is in deflation, so we need a certain amount of fiscal spending to keep money circulating.” [ID:nTOE64G063]

May 11, in news conference:

“Markets are becoming sensitive to sovereign risk, so in order to prevent this from happening we need to make as much effort as possible so that (new government bond) issuance does not exceed 44.3 trillion yen.”

May 3, in news conference:

“We have been making efforts to draw up a fiscal reform bill by the end of April but further coordination is needed. I have been told by the prime minister to proceed carefully on the matter.”

FINANCE MINISTER YOSHIHIKO NODA

June 12, in television programme:

“It’s a very severe situation,” Noda said, referring to the country’s public debt that is nearly twice the size of its GDP.

Noda said the government would consider which of the spending plans pledged earlier by the Democratic Party to prioritise.

“We can’t change everything (pledged by the party) all of a sudden. But we’ll do it steadily.”

June 9, in interview:

“Long-term interest rates remain stable at low levels at the moment … but we cannot be content with this forever. We must conduct debt management with a sense of crisis while communicating with markets to have JGBs smoothly absorbed …

He pledged that Japan will report its fiscal reform plans to the June 26-27 meetings of Group of 20 leaders in Toronto so as to win international trust in its efforts to fix its debt woes.

“Our debt stock stands at the worst levels in the world, so we must show a time frame in reducing the debt pile and win an evaluation that Japan takes heed of the need for fiscal discipline.”

June 8, in news conference on assuming the post:

“Prime Minister Kan has recently said he wants to keep government bond issuance under 44.3 trillion yen and I would like to make the utmost efforts in that direction.”

May 17, in news conference:

“I think the Japanese people understand well the dangers of losing fiscal discipline when they look at news about Greece’s crisis. It is important to show a path to fiscal reform with the mid-term fiscal framework and secure the funding to implement our campaign pledges.

“This is not just what the markets or the Ministry of Finance want, this is also basically what the Japanese people want.

“Up until now, our rule has been that we can’t enact a policy if we don’t have the funding. Basically, I want to continue with this approach. In that regard, Kan’s target of 44.3 trillion yen is an appropriate figure.”

April 5, in news conference:

Asked if the government needed to compile an extra budget:

“The economy is steadily recovering. The government’s role is to monitor the economic situation and respond flexibly when needed. In terms of sequencing, the government would use budget reserves first.”

NATIONAL STRATEGY MINISTER SATOSHI ARAI

June 11, in news conference:

“We want to complete the growth strategy and the medium-term fiscal framework sometime June 18-22, as the fiscal framework will become the basis for discussions at the G20 summit …

“We’re still working on the framework so I cannot say much but I think it should be created based on the pay-as-you-go rule (which would keep spending in line with tax revenues) and the promise to limit bond issuance for next fiscal year at 44.3 trillion yen.”

June 8, at news conference after assuming the post:

Arai said he intends to compile the medium-term fiscal framework and long-term fiscal management strategy by June 24 before Kan leaves for the Toronto G20 summit.

“It would be difficult to show specific tax reform plans in the fiscal framework.” (Reporting by Rie Ishiguro and Leika Kihara; Editing by Chris Gallagher)

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UPDATE 1-Japan business mood, capex improve despite yen rise

June 14, 2010 By Leave a Comment

TOKYO, June 14 (Reuters) – Big Japanese manufacturers grew more optimistic about the business environment in the April-June quarter in a sign corporate sentiment is weathering a rising yen and market turmoil stemming from Europe’s debt crisis.

Companies also sharply raised their capital expenditure plans for the fiscal year to March 2011 in a sign that corporate appetite to spend is gradually picking up.

“Sentiment is gradually improving both for underlying conditions and the outlook,” said Takeshi Minami, chief economist for Norinchukin Research Institute.

“The euro’s decline triggered by the Greek debt crisis doesn’t seem to have had much impact, at least for now.”

The business survey index (BSI) of sentiment at large manufacturers rose to plus 10.0 in April-June from plus 4.3 in the previous quarter, a joint survey by the Ministry of Finance and the Cabinet Office’s Economic and Social Research Institute showed on Monday. [JPBUSC=ECI]

Large manufacturers expect their sentiment index to improve to plus 13.8 in July-September, compared with plus 10.3 in the previous survey.

Companies also see capital spending in the year to March 2011 rising 9.2 percent from the previous year, a sharp improvement from a 5.5 percent drop forecast in the previous survey.

The improvement bodes well for new Prime Minister Naoto Kan, who plans to lay out plans to boost Japan’s potential growth as well as a medium- and long-term target to fix the country’s tattered finances.

The Bank of Japan is expected to announce details of a new loan scheme aimed at redirecting money to industries with growth potential after a policy meeting ending on Tuesday. [ID:nTOE65D004]

The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen.

The survey was conducted in May, when the euro EUR= tumbled, the yen JPY= jumped and global stock markets fell sharply as Greece’s debt crisis fanned fears of contagion to other European countries and the euro-zone banking system.

Japanese business sentiment has been improving as exports and industrial output recovers due to strong demand from Asia.

Economists forecast robust exports to Asia and other emerging economies will keep supporting Japan’s recovery from its worst postwar recession, but growth may slow later this year as gains in consumption could moderate due to a lacklustre jobs market.

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Japan to review spending to rein in debt

June 14, 2010 By Leave a Comment

(Reuters) – Japan’s government will review some of the spending plans pledged by the ruling party as part of an effort to rein in the country’s huge public debt, new Finance Minister Yoshihiko Noda said on Sunday.

Japan

Prime Minister Naoto Kan, a fiscal conservative who took over the nation’s top job last week after the abrupt resignation of his predecessor, has made tackling Japan’s huge public debt a top priority amid market concerns about sovereign debt risk.

“It’s a very severe situation,” Noda said in a television program on Sunday, referring to the country’s public debt that is near twice the size of its GDP.

Noda said the government would consider which of the spending plans pledged earlier by the Democratic Party to prioritize.

“We can’t change everything (pledged by the party) all of a sudden. But we’ll do it steadily,” he said.

The Democratic Party won power in a lower house election last year with a manifesto pledging generous spending plans, such as payouts to households with children and aid for farmers.

But analysts have said the Democrat-led government needed to scale back the spending plans, as rating agencies threatened to downgrade Japan’s sovereign debt rating unless it came up with a credible plan to fix the country’s finances.

Kan seemed to have got the message.

He told reporters on Saturday he may consider reducing the amount of child allowances paid to households in cash due to fiscal constraints, Japanese media reported on Sunday.

The government is also set to unveil this month medium- and long-term targets to fix Japan’s finances, as well as a strategy to boost the country’s economic growth.

Noda said the government hoped to announce the fiscal targets and the growth strategy on Friday.

Japan’s new prime minister has been more willing to debate tax hikes and review spending plans than his predecessor, although he needs to convince some ruling party lawmakers who are opposed to them for fear of scaring voters away ahead of an upper house election next month.

(Reporting by Leika Kihara; Editing by Alex Richardson)

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Analysis: Japan sovereign CDS may start to shake JGB market

June 12, 2010 By Leave a Comment

(Reuters) – Hedge funds and foreign investors are building up protection on Japanese government bonds in the credit default swaps market, underscoring persistent worries about Japan’s poor fiscal health and suggesting that JGBs could be shaken by CDS moves in the near future.

Japan

The outstanding volume of CDS written on JGBs has doubled in the past eight months as Europe’s sovereign debt crisis has made anxious banks and investors hedge their exposure to Japan, the most heavily indebted of the major economies.

Japan’s public debt — totaling nearly 200 percent of GDP — has long been financed domestically from the country’s massive pool of savings that mostly sits in the banking system and is recycled into JGBs.

But fears are growing that the aging population will start drawing on that pool of savings, forcing Japan to rely on foreign investors to fund its debt and potentially creating market instability.

New Prime Minister Naoto Kan, who has vowed to start fixing the tattered finances, warned on Friday Japan risked default if it failed to act, and investors are not convinced it has been taking enough steps to head off a crisis down the road.

While other sovereign CDS spreads have shrunk this week along with a rebound in stock markets, Japanese sovereign CDS spreads have edged out to 99 basis points, pushing back toward a record peak of 130 basis points and up from 3 basis points just three years ago.

Some analysts are wary the big increase in volume on Japanese sovereign CDS may spark a volatile widening of spreads that could even prompt domestic investors to start shedding their JGB holdings.

“Fear is what drives CDS, big upticks take place when sentiment is weak. It is a game of increasing fear as much as possible and then getting out,” said a senior credit trader at a U.S. bank.

Foreign commercial banks, which have loan business with Japanese companies and swap houses exposed to yen products, are among the buyers of protection, traders said.

“There are participants out there scared enough to buy protection. People really drive hard on fear. It is ‘hedge when you can, not when you have to’.”

CDS VOLUME INCREASE

Net notional volume of Japan’s five-year sovereign CDS stood at $4.45 billion on June 4, data from the Depository Trust & Clearing Corporation (DTCC) shows, up from $2.94 billion at the end of November.

Traders said some investors have made handsome profits over the past two years thanks to extreme moves in CDS, which is the best scenario for dealers.

The Japanese government is doing little to give a sense of security to the markets in managing its public debt, and this could be used by speculators to create market volatility and opportunity for profits, the trader at a U.S. bank said.

Potential disappointment or a downgrade of the sovereign credit rating following Japan’s expected medium-term outlook on fiscal restructuring due later in the month could be their trading incentives.

Volume has also grown in U.S. sovereign CDS and UK sovereign CDS in the past year, a research paper released by the Bank of Japan in April showed, reflecting market concerns over the fiscal state of major economies after a blow-up in government spending following the global credit crisis.

But the volume in Japan sovereign CDS remained about 1 percent of a total of $2.17 trillion, in which Italy’s sovereign CDS had the biggest share at 10 percent.

Traders said the biggest advantage of CDS was its low cost enabling speculators to make bets. Protection against Japan’s default risk was bought and sold almost entirely by overseas investors, they said.

For that reason, some analysts warned that price movements in Japan sovereign CDS may become very volatile and that in turn could sour sentiment among domestic investors toward JGBs, resulting in higher costs for Japan to finance its debt.

“A boost in trading activity may come sooner than we’re now anticipating if more foreign players recognize the trend of falling domestic savings and an expected rise in foreign JGB holdings in the coming years, and find motivation to sell protection now,” said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, in a client note in April.

DOMESTIC INVESTORS MAY BE MORE PIVOTAL

Market experts argue that Japan’s sovereign CDS market, despite the recent jump in volume, is still a drop in the bucket compared to the huge JGB market dominated by real money domestic investors who invest trillions of yen.

It will be the domestic investors, not overseas players, who would rock the JGB market if they decide to react negatively on fiscal concerns, they say.

Japan’s five-year CDS spread rose to a 14-month high of 98 basis points in late May as fears escalated that the euro zone’s debt crisis was spreading to its banking system.

That was a day after the benchmark 10-year JGB yield dropped to a five-month low of 1.190 percent.

“A sort of correlation between CDS spreads and JGB yields may exist but when you are talking about a hundred million on one side and a trillion on the other, it is like smoke and mirrors. I am skeptical that the CDS market can move JGBs,” said the trader at a U.S. bank.

(Editing by Eric Burroughs)

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Fate of climate bill uncertain as Japan poll nears

June 11, 2010 By Leave a Comment

(Reuters) – Japan’s government could run out of time to enact a climate bill before upper-house elections expected next month, fuelling worries it might drop a plan to trade carbon emissions by setting obligatory caps on firms.

Green Business | Japan

Japan is the world’s fifth-biggest greenhouse gas emitter and a pledge to cut emissions by 25 percent from 1990 levels by 2020 has become a cornerstone of the government’s long-term economic growth strategy.

The target is among the most ambitious of all rich nations but has also sparked nationwide debate over how to attain it without hurting the world’s No.2 economy.

The powerful lower house passed the climate bill last month, including the emissions cut goal and a shortlist of steps to reach it, such as the launch of a compulsory emissions trading scheme. Upper house debate has just started.

Here are some scenarios for the climate bill after new Prime Minister Naoto Kan formed a cabinet this week.

PARLIAMENT EXTENDED LONG ENOUGH TO PASS BILL

Prospects: Possible

Japanese media have reported that the new government could extend parliament’s current session beyond June 16 to enact a bill to scale back postal privatization.

The postal bill is strategically more important than the climate bill for Kan’s ruling Democratic Party of Japan (DPJ) to keep a tiny coalition partner happy ahead of the election.

But if passed, the climate bill would give the government a year in which to craft rules for a new emissions trading scheme. The rules would then take effect as early as next year if an emissions trading bill is enacted when the government holds the next regular parliamentary session in early 2011.

When trading will actually start remains unclear, with analysts divided between 2012 and 2013.

SESSION ENDS WITHOUT PASSAGE, SAME BILL SUBMITTED LATER

Prospects: Likely

If parliament is not extended, the climate bill may be shelved ahead of the upper house poll.

The DPJ will stay in power regardless of the poll’s outcome because of its huge majority in the lower house, and would likely compile a bill later with the same 2020 goal.

The same bill might be submitted to the lower house during a parliament session due to start after the July election.

But the risk of the DPJ falling short of a majority in the upper house means the bill could be changed to appease new coalition partners.

SESSION ENDS WITHOUT PASSAGE, BILL TO GET WATERED DOWN

Prospects: Possible

The government will keep the 2020 goal but could revise the bill as complaints rise from industry worried tough carbon caps would hurt firms’ global competitiveness.

Currently, Japan only has a voluntary carbon market at the national level based on companies’ pledged goals, which are mostly caps on emissions per unit of production and leave room for rises in emissions when output grows.

A report by a trade ministry panel of energy experts this week showed how tough it would be for Japan to achieve a 25 percent cut in emissions by 2020 solely through domestic cuts. Offsetting could be crucial and Japanese companies are among the top buyers of carbon offsets from abroad.

The report showed policy initiatives to enhance low-carbon energy and fuel saving could make the difference two decades later, resulting in a major fall in CO2 emissions from energy use, the main source of Japan’s greenhouse gas pollution.

Energy supply-side plans for 2020 have already been fixed, so it is easily understood that Japan’s pledged 2020 goal is likely out of reach, said Masahiro Kuroda, head of the committee and president of Tohoku University of Community Service and Science.

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