Wednesday, February 18, 2009

British Pound In Focus Ahead Of Bank Of England Minutes

Daily Forex Fundamentals | Written by DailyFX | Feb 18 09 06:30 GMT |

The British Pound may see selling pressure in European hours if minutes from the last meeting of the Bank of England hint at a dovish bias for the March interest announcement. Overnight trading saw Australian retail sales improve in the fourth quarter, bolstered by monetary and fiscal stimulus, though Westpac's leading index continued to point to recession in 2009.

Key Overnight Developments

Australian Retail Sales Improve But Leading Index Points to Recession
Euro Falls Most in 5 Weeks Against US Dollar as Traders Dump Risky Assets

Critical Levels

The Euro consolidated losses near the 1.26 mark in overnight trading having sold off to test as low as 1.2561 in New York hours. The single currency lost -1.7% to the greenback, the largest intraday drop in 5 weeks, as stock markets compounded losses and sent traders scrambling to the safe haven of the Dollar. The British Pound was little changed, oscillating around the 1.4230 level. Technical positioning favors continued EURUSD and GBPUSD downside going forward.

Asia Session Highlights

Australia's Westpac Leading Index fell -0.4% in December, the second consecutive month in negative territory. The index is comprised of eight separate gauges of performance that look to gauge the economy's trajectory over the coming three to nine months. The measure's annualized growth rate slipped to -1.2% suggesting the antipodean nation is on pace to see its first recession since 1991. Retail Sales added 0.8% in the fourth quarter, the most in a year, as a series of aggressive interest rate cuts (totaling 4% since September), a fiscal stimulus package worth nearly A$88 billion, and a sharp drop in oil prices (down close to 70% since peaking in July) all helped support spending amid the global slowdown. Spending is likely to falter through 2009 however as consumer confidence fell to the lowest level in 4 months while the unemployment rate rose to 4.8% in January to issue the largest monthly gain since February 2001. The markets continue to expect the Reserve Bank of Australia to deliver at least a 0.50% interest rate cut in March and 75-100 basis points in total easing over the next 12 months.

Euro Session: What to Expect

Minutes from the last policy meeting of the Bank of England top the economic calendar in European hours. Bank Governor Mervyn King recently noted that further rate cuts 'may well be required' as the economy slogs in a 'deep recession' and CPI falls below the central bank's target of 2% by the end of May. Still, overnight index swaps show the markets are pricing in no change in borrowing costs in March. A particularly dovish tone to today's release may well upset these expectations, weighing on the Pound as markets re-price the yield outlook.

DailyFX

Disclaimer

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Daily Forex Fundamentals | Written by DailyFX | Feb 18 09 06:30 GMT |

British Pound In Focus Ahead Of Bank Of England Minutes

Key Overnight Developments

Australian Retail Sales Improve But Leading Index Points to Recession
Euro Falls Most in 5 Weeks Against US Dollar as Traders Dump Risky Assets

Critical Levels

Asia Session Highlights

Euro Session: What to Expect

DailyFX

Disclaimer

Daily Forex Technicals | Written by iFOREX.bg | Feb 18 09 06:19 GMT |

Technical Analysis Daily: EUR/USD

EUR/USD 1.2600

EUR/USD Open 1.2591 High 1.2798 Low 1.2562 Close 1.2583

Yesterday Euro/Dollar made another hesitating movement due to lack of market catalyst. The currency couple tried to decrease, reaching a bottom at 1.2562, but closed the day higher at 1.2583. On the 1 hour chart there is a formed symmetrical triangle showing the consolidation phase. The break down of the triangle during the Asian session gave us a clear downward movement direction. After breaking the 1.2600 support too earlier this morning, the signals have further decreasing scenario with targets towards 1.2500. The currency pair seems to be still fluctuating, moving under the basic support and ex resistance 1.2600. The CCI indicator went down the 100 line on the 1 hour chart, suggesting a potential descending pressure.

Technical resistance levels: 1.2670 1. 2750 1.2865
Technical support levels: 1.2500 1.2415 1.2305

Trading range: 1.2610 - 1.2550

Trend: Downward

Sell at 1.2600 SL 1.2630 TP 1.2560

iFOREX.bg Forecasts and Trading Signals
http://www.zifx.com

Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Feb 18 09 05:03 GMT |

EUR/USD

Today's support: - 1.2557 and 1.2538(main), where correction is possible. Break would give 1.2511, where correction also may be. Then follows 1.2480. Break of the latter would result in 1.2455. If a strong impulse, we would see 1.2426. Continuation will give 1.2403.

Today's resistance: - 1.2622, 1.2656 and 1.2693(main). Break would give 1.2732, where a correction is possible. Then goes 1.2757. Break of the latter would result in 1.2781. If a strong impulse, we'd see 1.2826. Continuation will give 1.2863.

USD/JPY

Today's support: - 91.80, 91.57 and 91.33(main). Break would bring 91.11, where correction is possible. Then 90.98. If a strong impulse, we would see 90.62. Continuation would give 90.35.

Today's resistance: - 92.72, 92.91, 93.16 and 93.48(main), where a correction may happen. Break would bring 93.60, where also a correction may be. Then 93.83. If a strong impulse, we would see 94.06. Continuation will give 94.25 and 94.46.

DOW JONES INDEX

Today's support: - 7542.13 and 7513.00(main), where a delay and correction may happen. Break of the latter will give 7494.50, where correction also can be. Then follows 7472.43. Be there a strong impulse, we would see 7436.30. Continuation will bring 7412.75 and 7385.62.

Today's resistance: - 7675.46 and 7708.26(main), where a delay and correction may happen. Break would bring 7738.20, where a correction may happen. Then follows 7762.50, where a delay and correction could also be. Be there a strong impulse, we'd see 7806.46. Continuation would bring 7830.33 and 7897.40.

FXtechtrade
http://www.fxtechtrade.com

Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

A Drop In U.S. Housing Starts Would Confirm Bullish Dollar Technical Outlook

Daily Forex Technicals | Written by DailyFX | Feb 18 09 05:50 GMT |

Fundamental Outlook

U.S. housing starts are expected to have declined to fresh record low of 530,000 in January from 550,000 the month prior. New construction has dried up as the lack of demand due to tight credit markets and the glut of existing homes for sales. Although we have started to see the market work through some of the inventory and the declining contributions of new home to those totals will only help. However, the U.S. economy may not be able to see a rebound in growth until home builders see an incentive to increase activity which will add jobs and increase demand for materials. The dour report will add to the prevailing pessimism which may increase risk aversion and add to current dollar strength. This would confirm the bearish euro/dollar technical outlook which is calling for the pair to test support at 1.2378.

I wrote yesterday that 'the bottom line is that a corrective advance is due soon. Whether or not 1.27 is broken before the advance begins is another question. Dropping below 1.27 would complete a small 5th wave in a terminal thrust from a triangle. Bigger picture, the next leg of the multi year bear is underway from 1.47. A countertrend rally is expected and initial resistance is at 1.33.' 1.27 broke, the floodgates opened, and price is now below 1.26. Chart support is not until the October low at 1.2327. There is measured support at 1.2378; which is the 161.8% extension of 1.3077-1.2719/1.2947

DailyFX

Disclaimer

California Foreclosure Epicenter Shows Challenge Facing Obama

By Dan Levy

Feb. 18 (Bloomberg) -- It has taken Susan Erb just three years to see the value of her Merced, California, home plunge by more than half to $350,000. Next month, her mortgage payment jumps 20 percent to $3,321 and she knows she can’t afford it. Her bank won’t rework the loan unless she stops paying altogether.

“Now I know how people feel when I go knocking on their door,” said Erb, 53, a real estate agent who works for a company that notifies residents in foreclosed properties that they must vacate. “I’m in their shoes.”

Merced, the epicenter of the U.S. foreclosure crisis, demonstrates the steep challenges President Barack Obama will face in trying to stem defaults. One in 59 housing units in the Merced metropolitan area received a foreclosure filing in January, the highest rate in the U.S., according to RealtyTrac Inc., an Irvine, California-based seller of default data. For- sale signs are everywhere and a building boom fueled by subprime mortgages has been brought to a standstill. Just 18 construction permits were issued last year. In 2005, there were 1,427.

“We’re ground zero,” said Merced Mayor Ellie Wooten, 75. The city, population 81,000, had an unemployment rate of 15.5 percent in December, “and it’s going to get worse,” she said.

Obama is scheduled today to unveil a series of measures in Phoenix to reduce record home foreclosures and halt the erosion of property values. The plan may use $100 billion in emergency government funds to accelerate loan modifications for distressed homeowners and change the bankruptcy system for foreclosures, according to Housing Secretary Shaun Donovan.

Rate Reductions

One proposal involves using government money to subsidize interest-rate reductions for struggling borrowers, according to a person briefed on the discussions. The measures come amid a worsening economy and plunging home values that have put 17.6 percent of mortgage holders underwater, or owing more than their property is worth, Seattle-based Zillow.com said Feb. 3.

Modifying loans and reducing principal may not be enough to keep people in their homes and fix the housing market, said Ethan Harris, co-head of U.S. economics research for Barclays Capital Inc. in New York, in an interview.

“There’s a chunk of these loans that are unsustainable, where people have gotten divorced or lost their jobs, or the loans were way beyond the borrowers’ capability to pay in the first place,” said Harris. “A lot of the loans were not designed to be repaid, they were designed to be refinanced. That works only when housing prices are going up.”

Bad Loans

The “sheer volume of bad loans” is also a challenge, said Harris. “Getting the process going is very tough to do with such volume, even when it’s in everybody’s best interests.”

U.S. homeowners lost an estimated $3.3 trillion in house value last year, real estate valuation service Zillow said. In California, the state with the most foreclosure filings, the share of underwater owners will rise to a third of all mortgage holders by the end of the year, according to data provider First American LoanPerformance of Santa Ana, California.

Merced, located about 110 miles southeast of San Francisco in California’s agricultural Central Valley, became a housing boom town in the early part of the decade as buyers with subprime loans sought affordable property within commuting distance of Bay Area job centers, said Jeff Michael of the University of the Pacific’s Eberhardt School of Business in Stockton.

Median home prices in Merced rose from $150,000 in January 2002 to a peak $382,750 in December 2005, according to MDA DataQuick, a San Diego-based property research firm. In December 2008, the median stood at $120,500, down 52 percent from a year earlier, as four out of five resales involved properties that had been foreclosed on in the prior 12 months.

Subprime Loans

“There were a lot of young families and first-time buyers with not a particularly high income, so it was perfect ground for subprime lending,” said Michael, who directs the school’s business forecasting center. “You had people streaming in from the Bay Area. This was their chance to get in.”

Many of the people coming to town were immigrants priced out of other parts of California. About 17 percent of Merced’s population is of Laotian descent and 52 percent is Hispanic, city spokesman Mike Conway said.

Homebuilders constructed subdivisions to the north, west and east of the downtown, and today “no area is untouched” by the foreclosure crisis, said Brad Grant, city finance director.

Merced’s general fund revenue, mostly from property and sales taxes, will drop 12 percent to $38.6 million for the fiscal year ending June 30, and will probably decline a further 7 percent next year, Grant said. The city won’t fill 35 jobs and department managers are to cut budgets by 12 percent.

Job Losses

Bankrupt retailers including Mervyn’s LLC, Circuit City Stores Inc. and Linens ‘n Things Inc. have cut almost 200 jobs in town, and Quebecor Inc. may close its Merced printing plant and fire about 100 workers, Wooten said.

Rina Serrano, 35, an after-school program supervisor for the Merced County Office of Education, may lose her job next year due to budget cuts. The value of her house, built by Calabasas, California-based Ryland Group Inc. in the Bellevue Ranch development, fell by at least a third since she purchased it in 2007. Her husband’s cabinetmaking business is down by half.

“Nobody has given us any options, but my feeling is there should be some assistance,” said Serrano, 35, a mother of four. The couple took out a 30-year fixed loan and aren’t behind on payments but they are underwater by about $70,000.

Speculators helped drive up Merced prices during the boom, said Greg Parle, co-owner of the Branding Iron steak house on Main Street, not far from a historic courthouse built in 1875, three years after the city was established.

‘Tremendous Wave’

“We had a tremendous wave of Bay Area people coming through, and they were rolling houses,” Parle said. “You couldn’t touch a two-bedroom condo for less than $600,000 there. But you could buy a three-bedroom house for $250,000 here.”

The Obama plan probably can’t help Merced residents Bountay and Khamtanh Rattanavongsa, who walked away from their adjustable-rate home loan last year and were foreclosed upon after monthly payments jumped to $3,500 from $1,800.

They’re now renting a Bellevue Ranch house constructed by Kimball Hill Homes, the Rolling Meadows, Illinois-based homebuilder that filed for Chapter 11 bankruptcy protection in December. Across the street, wooden frames of partially built two-story homes, with no windows or doors, are clustered in a former cattle pasture.

Khamtanh, 63, a retired school aide, came to the U.S. from Laos in 1978 with her husband, 60, who works as a custodian. Their son lives with them and helps pay the $1,500 rent.

“I loved my house, I never thought I’d lose it,” Rattanavongsa said. “Now I have no credit. I’ve got nothing.”

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net.

Industrial Output, Homebuilding Probably Fell as Slump Deepened

By Timothy R. Homan

Feb. 18 (Bloomberg) -- U.S. industrial production probably fell in January and homebuilding dropped to a record low amid the recession and credit crisis, economists said ahead of government reports today.

Figures from the Federal Reserve will show output at factories, mines and utilities dropped 1.5 percent last month, according to the median estimate in a Bloomberg News survey of economists. A Commerce Department report will probably show builders broke ground on the fewest homes since record-keeping began in 1959 and construction permits also slumped.

With consumers unable to secure credit for purchases, slow sales of homes and factory goods such as automobiles are causing builders and manufacturers to scale back on production. President Barack Obama yesterday signed into law a $787 billion stimulus package designed to jolt the economy through a mix of government spending and tax cuts for families and businesses.

“We expect a reduction in production across most manufacturing industries, compounded by a sharp reduction in motor-vehicle production,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said in a note to clients before today’s report. IHS also projects “the slide in single-family starts and permits will continue,” he said.

The Fed’s industrial production report for January is due at 9:15 a.m. in Washington. Estimates by the 75 economists surveyed ranged from a decline of 3.1 percent to a gain of 0.5 percent.

Housing, Permits

The Commerce Department’s housing starts report, due at 8:30 a.m., may show work began in January on 529,000 homes at an annual pace. Survey estimates from 73 economists polled ranged from 480,000 to 578,000.

Permits, an indicator of future residential construction, are forecast to fall to a record low 525,000 on an annual basis.

Plummeting demand for automobiles in January helped drag down overall production in the U.S. Unit sales for the month were the fewest since December 1981, while the annualized sales rate was the lowest since June 1982, according to Woodcliff Lake, New Jersey-based Autodata.

The drop-off in sales is spurring payroll reductions at other companies. Delphi Corp., the bankrupt auto-parts maker, said this week it is cutting 775 jobs, or 20 percent of the workforce, at the company’s steering components operation in Saginaw, Michigan.

General Motors Corp. and Chrysler LLC, already relying on government aid to survive, took their case to the U.S. Treasury yesterday that they can undo past mistakes and justify more U.S. aid to return to profit. Obama’s chief spokesman, Robert Gibbs, said the administration can’t rule out a restructuring through bankruptcy for struggling automakers, while adding the industry is “tremendously important” to the economy.

Deflation Threat

As another sign of falling demand from U.S. consumers and companies, a Labor Department report today may show the cost of products from overseas fell for a sixth straight month in January, the longest series of declines since 2001. Figures from the import-price index are due at 8:30 a.m. in Washington.

Some policy makers are worried the deceleration in prices, or disinflation, may lead to outright deflation. The level of concern among Fed officials about the economic downturn and its pressure on prices will be reflected in minutes of their January Federal Open Market Committee meeting, due today at 2 p.m.

Another Labor report at the end of this week may show consumer prices in the U.S. posted their first year-over-year decline since 1955.

Fed Bank of St. Louis President James Bullard yesterday said the U.S. faces a risk of “sustained deflation” and called on the central bank to avert a decline in prices by growing the money supply.

“By expanding the monetary base at an appropriate rate, the FOMC can signal that it intends to avoid the risk of further deflation and the possibility of a deflation trap,” Bullard said in the text of remarks to the New York Association for Business Economics.

                        Bloomberg Survey

================================================================
                           Import  Housing Building     Ind.
                           Prices   Starts  Permits    Prod.
                             MOM%   ,000’s   ,000’s     MOM%
================================================================

Date of Release              02/18    02/18    02/18    02/18
Observation Period            Jan.     Jan.     Jan.     Jan.
----------------------------------------------------------------
Median                       -1.2%      529      525    -1.5%
Average                      -1.0%      528      522    -1.5%
High Forecast                 1.2%      578      565     0.5%
Low Forecast                 -4.2%      480      480    -3.1%
Number of Participants          52       73       51       75
Previous                     -4.2%      550      547    -2.0%
----------------------------------------------------------------
4CAST Ltd.                   -1.5%      530      490    -1.4%
Action Economics             -1.7%      530      530    -1.3%
AIG Investments              -0.4%      525     ---      0.5%
Aletti Gestielle SGR          ---       540      520    -1.5%
Ameriprise Financial Inc     -0.6%      520      515    -2.2%
Argus Research Corp.         -0.2%      505     ---     -1.0%
Bank of Tokyo- Mitsubishi     1.0%      480      510    -1.3%
Barclays Capital             -0.5%      500     ---     -1.8%
BBVA                          0.2%      570      540    -0.9%
BMO Capital Markets          -1.0%      528      525    -1.5%
BNP Paribas                  -1.5%      530     ---     -1.2%
Briefing.com                  ---       525      520    -1.5%
Calyon                        ---       515      520    -1.5%
Castlestone Management LT     0.2%      520      515    -1.8%
CIBC World Markets            0.5%      500      500    -2.5%
Citi                         -0.3%      530      525    -1.7%
Commerzbank AG                ---       520      500    -1.5%
Credit Suisse                -1.8%      525     ---     -2.1%
Daiwa Securities America      ---       540     ---     -1.5%
Danske Bank                   ---       560      500    -1.0%
DekaBank                     -1.7%      520      525    -1.5%
Desjardins Group              0.0%      550      565    -2.5%
Deutsche Bank Securities     -2.0%      530      530    -1.7%
Deutsche Postbank AG         -1.3%      540     ---     -1.1%
DZ Bank                      -1.9%      500      510    -1.7%
First Trust Advisors         -1.9%      520     ---     -1.4%
Fortis                        ---       550     ---     -0.5%
FTN Financial                 ---       530      530    -1.0%
Goldman, Sachs & Co.          ---       578     ---     -1.5%
Helaba                        ---       540      530    -1.3%
Herrmann Forecasting          ---       529      517    -1.3%
High Frequency Economics     -2.0%      550      550    -1.8%
IDEAglobal                   -1.5%      540      535    -0.8%
IHS Global Insight            ---       533      545    -3.1%
Informa Global Markets        0.5%      555      560    -1.5%
ING Financial Markets        -1.5%      530      515    -1.6%
Insight Economics            -0.5%      550     ---     -1.7%
Intesa-SanPaulo              -1.5%      500      500    -1.3%
J.P. Morgan Chase            -1.7%      510      520    -2.3%
Janney Montgomery Scott L    -0.7%      520      505    -1.7%
JPMorgan’s Private Wealth     ---       560      550    -0.6%
Landesbank Berlin             0.8%      515      490    -0.8%
Landesbank BW                -1.0%      520      530    -1.5%
Lloyds TSB                   -1.8%      530      530    -1.5%
Maria Fiorini Ramirez Inc    -1.5%      525     ---     -1.5%
Merrill Lynch                 1.2%      525      525    -2.7%
MFC Global Investment Man    -2.0%      520      515    -1.5%
Moody’s Economy.com          -1.5%      520      530    -2.5%
Morgan Stanley & Co.          ---       500     ---     -1.7%
National Bank Financial       ---       520      530    -1.5%
Natixis                       ---       530     ---     -1.6%
Newedge                      -0.8%     ---      ---     -1.7%
Nomura Securities Intl.       ---       565      540    -1.7%
Nord/LB                      -1.0%      540      530    -0.6%
Okasan Securities             ---       560     ---     -2.0%
PNC Bank                      ---       510     ---     -1.4%
Raymond James                -4.2%      560      550    -1.9%
RBS Greenwich Capital         ---       510     ---     -1.4%
Ried, Thunberg & Co.         -1.5%     ---      ---     -1.0%
Schneider Foreign Exchang     ---       541      487    -1.3%
Scotia Capital               -1.0%      500      500    -2.0%
Societe Generale              ---       530     ---     -1.3%
Standard Chartered           -1.5%      515      510    -1.5%
Stone & McCarthy Research     0.6%      540      530    -1.6%
TD Securities                 ---       550     ---     -0.9%
Thomson Reuters/IFR          -2.0%      490      480    -1.5%
Tullett Prebon               -1.5%      520     ---     -1.6%
UBS Securities LLC           -1.3%      525     ---     -1.6%
Unicredit MIB                -0.5%      550      550    -0.5%
University of Maryland       -2.5%      510      510    -1.2%
Wachovia Corp.               -0.5%      500     ---     -0.8%
Wells Fargo & Co.            -1.1%      530      530    -1.3%
WestLB AG                    -0.5%      530      525    -1.5%
Westpac Banking Co.          -1.0%      506      503    -1.8%
Wrightson Associates         -1.5%      530      510    -1.2%
================================================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Obama Housing Plan to Cut Mortgage Payments, Stem Foreclosures

By Margaret Chadbourn and Rebecca Christie

Feb. 18 (Bloomberg) -- U.S. President Barack Obama will today outline an estimated $50 billion plan to stem a surge in home foreclosures that will subsidize cuts in mortgage payments for millions of struggling borrowers.

Obama intends to make loan modifications the centerpiece of plan that also gives bankruptcy judges more power to help borrowers keep their homes, said people familiar with the matter. Obama, in Phoenix on the second stop of a two-day swing through the U.S. West, will announce details at 10:15 a.m. local time as he campaigns for his economic recovery package, deputy White House spokesman Jen Psaki said.

“We must stem the spread of foreclosures and falling home values for all Americans and do everything we can to help responsible homeowners stay in their homes,” Obama said yesterday in Denver, where he signed legislation providing $787 billion in spending and tax cuts intended to revive the economy.

Record foreclosures in the past year are swelling the glut of properties on the U.S. market, forcing down home values and undermining homebuilders’ efforts to revive demand and lighten inventory by cutting prices. The housing market lost an estimated $3.3 trillion in value last year and almost one in six owners owed more than their homes were worth, online data provider Zillow.com said Feb. 3. The U.S. economy shrank 3.8 percent in the fourth quarter, the most since 1982.

The administration on Feb. 10 presented an overhaul of a $700 billion financial rescue plan, passed last year under former President George W. Bush, to shore up bank balance sheets and revive lending to businesses and consumers. The Treasury Department will use the remaining funds, at least $50 billion, on the housing relief plan to prevent millions of foreclosures, said a Democratic official briefed on the plan.

Banks Suspend Foreclosures

Banks including Citigroup Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Bank of America Corp. have agreed, at the request of lawmakers, to suspend foreclosure proceedings until the Obama plan is adopted. The Office of Thrift Supervision last week urged the lenders it oversees to suspend foreclosures.

The new housing program will set a common standard for mortgage modifications, and will operate along with programs started last year including Hope Now and Hope for Homeowners, a person familiar with the plan said. Obama’s plan will be voluntary for lenders and investors, the person said, and borrowers wouldn’t have to be in default to qualify, a condition in previous plans, according to people briefed on the plan.

The government will subsidize interest-rate reductions by working with the companies that handle mortgages, known as servicers. The proposal will provide incentives for those companies to cut the monthly payments for households without shortchanging investors, said one person familiar with the plan.

Servicers

The plan will probably compensate servicers, or the investors holding the loans, if they reduce the payments to about 31 percent of the borrower’s pretax income, said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. He said 31 percent would be a “good target” for using government assistance.

The administration wants banks to offer loans with easier terms to borrowers in danger of defaulting on their mortgages. The aim is to reduce monthly mortgage payments for beleaguered homeowners, rather than principal owed on the property, Obama’s top economic adviser said.

“Going directly at the problem means addressing affordability by addressing payments,” National Economic Council Director Lawrence Summers said Feb. 13, on Bloomberg Television’s “Political Capital with Al Hunt.”

Bankruptcy Help

Loan modifications will be combined with a push for more authority from Congress, including a proposal that would let bankruptcy court judges cut loan rate for borrowers, the person said. The Obama administration also wants to permit modifications on Federal Housing Administration and Veterans Administration loans, which currently can’t be changed.

Community groups support efforts to let judges cut mortgage rates for borrowers in bankruptcy, a provision that the banking industry opposes. Investors have said this provision could cripple the secondary mortgage market and raise interest rates for all borrowers.

During all of last year, more than 2.3 million homeowners faced foreclosure proceedings, an 81 percent increase from 2007, and analysts say that number may soar to as much as 10 million in the coming years.

Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan courted banks and housing industry groups last week to gather support ahead of the housing policy announcement. The Cabinet officers used a one-hour meeting to discuss strategies for preventing foreclosures and modifying mortgages for struggling homeowners.

Bank of America, JPMorgan, Wells Fargo & Co. and Citigroup were represented at the meeting with Geithner and Donovan, along with Fannie Mae and Freddie Mac, the government-backed mortgage companies, and banking industry and consumer advocacy groups, the people said. The attendees offered ideas to help homeowners survive the recession.

To contact the reporters on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.

China Urges U.S., Europe to Protect Value of Debt in Reserves

By Belinda Cao

Feb. 18 (Bloomberg) -- China, whose $1.95 trillion in currency reserves are the world’s largest, called on the U.S. and Europe to protect the value of its overseas investments and said it plans to spend more foreign exchange on imports and acquisitions.

“We hope countries whose currencies are the main holdings in our international reserves will take effective measures to cope with the financial crisis,” Fang Shangpu, deputy director at the State Administration for Foreign Exchange, told a press conference in Beijing today. “They should work to maintain economic and financial stability, and protect the interests and confidence of investors.”

China increased its purchases of U.S. Treasuries last year by 46 percent to $696.2 billion, data released by the U.S. Treasury Department yesterday showed. Premier Wen Jiabao said on Feb. 2 his government’s Treasury strategy would be aimed at maintaining the “value” of its foreign reserves.

Benchmark 10-year Treasury yields climbed 44 basis points, or 0.44 percentage point, to 2.65 percent so far this year on speculation the government will step up borrowing to finance President Barack Obama’s $787 billion stimulus package.

U.S. government bonds returned 14 percent last year including price gains and reinvested interest, the most since rallying 18.5 percent in 1995, according to indexes compiled by Merrill Lynch & Co. Concern that the flood of bonds would overwhelm demand caused Treasuries to lose 3.1 percent in January, the steepest monthly drop in almost five years.

The nation’s decision of “whether to buy and how much to buy” of U.S. Treasuries will depend on “China’s own needs and follow the principle of value preservation and safety,” Fang said.

SAFE will also facilitate foreign-exchange purchases for companies seeking expansion overseas and use more reserves for imports, it said today.

The nation may set up an oil fund using part of the reserves to help companies buy fields abroad, according to a statement this week by the China National Petroleum Corp., the country’s biggest oil producer.

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

Australia Will Outperform Global Economies, RBA Says

By Jacob Greber

Feb. 18 (Bloomberg) -- Australia’s economy will keep outperforming international counterparts because its financial system is in better shape, monetary policy is working and it had more momentum prior to the global financial crisis, central bank Assistant Governor Malcolm Edey said.

“There are reasons to expect that the Australian economy can continue to perform better than its international counterparts in the difficult period that lies ahead,” Edey said in a speech in Sydney today, without naming peer economies.

To cushion Australia against a slump in global demand for exports and waning consumer and business confidence, the Reserve Bank of Australia has slashed borrowing costs by four percentage points since September to a 45-year low of 3.25 percent. The government will also spend A$42 billion ($27 billion) on cash handouts to families and on infrastructure.

“As in other countries, substantial monetary and fiscal measures have been taken to support growth,” Edey told a conference organized by the Committee for Economic Development of Australia. “But an important difference is that the Australian financial system remains in much better shape than its international counterparts.”

That means policy makers have been able to gain “much more traction” from cuts in official interest rates, particularly for housing loans. The bank’s five interest-rate reductions since September have saved borrowers with an average A$250,000 home loan more than A$680 a month.

Home Loans

“This is in marked contrast to other countries, where banks have been more heavily affected by financial strains and the degree of pass-through has been much more limited,” Edey said.

Australian home-loan approvals rose in December by the most in almost nine years as the central bank’s rate cuts and government handouts spurred first-home buyers. To prevent a collapse in property prices and boost house building, the government in October tripled a grant to first-time buyers of new homes to A$21,000.

“We’ve certainly seen a further deterioration around the globe and in Australia,” Westpac Banking Corp. Chief Executive Officer Gail Kelly said today. “The very material monetary and fiscal policy initiatives in recent months and weeks are certainly very welcome and we think that it’s very likely that there will be more of this.”

Falling Currency

Another factor helping to insulate Australia’s economy is the depreciation of the local currency, which has tumbled 35 percent against the U.S. dollar since reaching a 25-year high of 98.49 U.S. cents on July 16 last year. That has boosted the local value of exports such as iron ore and coal.

The Australian dollar traded at 63.42 U.S. cents as of 9:27 a.m. in Sydney from 63.36 U.S. cents just before Edey’s speech. It has declined 1 percent from 64.06 cents late in Asia yesterday.

Australia also “had more momentum than most comparable economies in the period leading into the crisis,” Edey added.

Gross domestic product will probably expand 0.5 percent in the 12 months through December, the central bank forecast earlier this month. By contrast, many of Australia’s major trading partners, including Japan and the U.S., are forecast to stay in recession.

“Having said all that, there’s no doubt that Australia will be operating in a difficult international environment this year,” the assistant governor said.

China Demand

Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, a report showed this week. The U.K. economy will contract 3.3 percent this year as the credit crisis plunges the nation deeper into the worst recession in almost 30 years, the Confederation of British Industry said on Feb. 16.

China, Australia’s largest trading partner, said on Feb. 11 that exports fell last month by the most in almost 13 years, tumbling 17.5 percent, as demand dried up in the U.S. and Europe.

Australia’s central bank expects the major industrial economies will contract further in the first half of this year, before strengthening later this year and in 2010, Edey said.

“The situation is still very uncertain, but for the reasons I’ve been outlining, that seems like a reasonable expectation.”

Central bank policy makers led by Governor Glenn Stevens hold their next monthly meeting on March 3.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

Taiwan’s Economy Probably Posted Record Contraction

By Janet Ong

Feb. 18 (Bloomberg) -- Taiwan’s economy probably shrank at the fastest pace on record last quarter as a slump in exports pushed the island into its first recession since the technology bubble burst in 2001.

Gross domestic product plunged 6.82 percent from a year earlier, accelerating from a 1.02 percent decline in the previous three months, according to the median estimate of 18 economists surveyed by Bloomberg News. That would be biggest contraction since records began in 1952. The statistics bureau releases the report at 4.30 p.m. in Taipei today.

The island joins Japan, Singapore and Hong Kong in recession as the global slowdown cuts demand for Quanta Computer Inc.’s laptops and Taiwan Semiconductor Manufacturing Co.’s computer chips. Asia’s slump has increased pressure on policy makers to expand relief measures, with Taiwan’s Cabinet last week approving NT$150.6 billion ($4.4 billion) of infrastructure spending for 2009.

“Taiwan is among the most exposed economies in Asia,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research. “The island’s economy is unlikely to see a significant rebound until consumers in the West decide to go out and spend again.”

The local currency fell to NT$34.682 versus the U.S. dollar today, the lowest since June 2003. The Taiex stock index dropped 2.5 percent this year adding to a 46 percent loss in 2008.

Expansion Ends

Taiwan has grown its economy by a third since the 2001 recession by boosting trade and investment links with China. Many electronics makers send parts to the mainland that are re- exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.

Overseas shipments, which are equivalent to 70 percent of GDP, dropped a record 44 percent in January as the global economic slump worsened and eroded growth in China.

Chi Mei Optoelectronics Corp., Taiwan’s second-biggest maker of liquid-crystal displays, says it will reduce 2009 capital spending by 72 percent from last year as orders decline.

Exporters including Hon Hai Precision Industry Co., which makes iPhones for Apple Inc., and Wintek Corp. are cutting workers, leading to a slowdown in domestic demand. The jobless rate rose to 5.01 percent in December, the highest since 2003.

Retail sales tumbled 9.8 percent in December from a year earlier, the biggest decline since records began in 1999.

Corporate Losses

Quanta Computer, the world’s largest maker of notebook computers, said this week shipments will decline more than 30 percent this quarter. Taiwan Semi in December forecast its first quarterly loss since 1990 as customers including Texas Instruments Inc. reduce orders.

To revive the economy, the government plans stimulus spending of NT$858.5 billion over four years, equivalent to about 6 percent of GDP, on infrastructure projects, consumer handouts and tax cuts. It distributed NT$82.9 billion worth of shopping vouchers last month.

Taiwan’s central bank has cut borrowing costs six times since late September, paring the benchmark rate by 2.125 percentage points to 1.5 percent.

The bank may reduce its interest rate another 50 basis points in March, said Cheng Cheng-mount, an economist at Citigroup Inc. in Taipei.

China Rebound

“We expect real GDP to be negative in the first quarter before turning to a moderate growth in the fourth quarter,” said Cheng. “The key to a recovery hinges on China, which is Taiwan’s greatest export market.”

There are signs a 4 trillion yuan ($586 billion) stimulus package is taking effect in China.

The world’s third-biggest economy may grow 6.6 percent in the second quarter after slowing to 6.3 percent in the three months to March 31, the weakest pace since 1999, according to a Bloomberg survey.

China and Taiwan, governed separately since 1949, on Dec. 15 ended a six decade-ban on direct shipping, air and postal links. China on Dec. 21 offered 130 billion yuan of loans for Taiwan companies operating on the mainland.

Following are forecasts for fourth-quarter GDP from a year earlier:

---------------------------------------------
                                 4Q
Firm                            YoY%
---------------------------------------------
Median                        -6.82%
Average                       -6.64%
High                          -3.00%
Low                          -10.52%
Number of Estimates               18
---------------------------------------------
Barclays Capital              -6.50%
Capital Economics            -10.00%
Citi                          -3.40%
DBS Group                     -9.00%
Forecast Ltd.                 -3.00%
HSBC                          -7.00%
ING Groep NV                  -7.80%
Japan Center for Intl Fin.    -8.60%
Mega Securities               -6.64%
Moody’s Economy.com          -10.52%
Morgan Stanley                -9.00%
Nomura Securities             -4.50%
Polaris Securities            -7.20%
Reuters IFR                   -5.50%
SinoPac Holdings              -5.23%
Standard Chartered Bank       -3.40%
Taiwan Securities Investment  -7.50%
UBS Securities                -4.70%
---------------------------------------------

To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.net

Japan Finance Chief May Consider No-Interest Bonds

By Keiko Ujikane and Matthew Benjamin

Feb. 18 (Bloomberg) -- Japan may consider issuing bonds aimed at encouraging households to save less and help fund spending in an economy heading for its worst postwar recession, newly appointed Finance Minister Kaoru Yosano said yesterday.

Lawmakers from Japan’s ruling Liberal Democratic Party last week proposed issuing bonds that pay no interest in return for a reduction in future inheritance taxes.

“It is worth considering no-interest-bearing bonds,” Yosano said at a press conference in Tokyo after taking over the post from Shoichi Nakagawa, who resigned yesterday. The idea “requires a considerable study,” he said.

Japan’s households have around 1400 trillion yen ($15.2 trillion) in financial assets, half in savings and cash. Some lawmakers are seeking to unlock those savings and raise money to fund stimulus programs to spur the economy after gross domestic product fell at an annual 12.7 percent pace last quarter, the fastest since 1974.

Yosano dismissed another LDP proposal for the government to print money as a “a futile idea.”

Nakagawa resigned amid accusations he was drunk at a Group of Seven press conference. Since returning from the conference in Rome, Nakagawa, Japan’s fourth finance minister in two years, has said a combination of medications and jet lag caused him to slur his words and nod off at the Feb. 14 press briefing.

Blow to Aso Government

The incident dealt a fresh blow to the government of Prime Minister Taro Aso, whose popularity has plunged and whose coalition government is beginning to fracture. It may also weaken Aso’s ability to take measures to bolster Japan’s economy, which is headed for its deepest recession since World War II.

“I would not be surprised if this folly signals the death- knell” for the LDP, said Kirby Daley, senior strategist and head of capital introductions at Newedge Group in Hong Kong.

Nakagawa’s departure comes as companies from Toyota Motor Corp. to Sony Corp. fire thousands of workers and the economy deteriorates.

Yosano will now hold three jobs: finance minister, head of the financial-services authority and his former post as economic and fiscal policy minister.

“It’s important to pursue international corporation” to confront the global financial and economic crisis, Yosano said.

The new finance chief also said the biggest challenge for a financial services minister is to bolster funding for Japanese companies, which is “getting severe” after a slump in exports slowed orders to both smaller and larger companies.

The nation’s banks are in a relatively healthy condition compared with those of other nations, he said.

Yosano, 70, was runner-up to Aso in the contest to head the LDP after Yasuo Fukuda resigned as prime minister in September. He said this week that Japan faces the worst economic crisis in postwar history.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

Germany, France May Face Bailout of Nations, Not Just Banks

By Emma Ross-Thomas

Feb. 18 (Bloomberg) -- Germany and France may be forced to contemplate the bailout of entire nations rather than just individual banks as European government budgets buckle under the weight of recession.

German Finance Minister Peer Steinbrueck became the first senior policy maker to broach the topic this week, saying some of the 16 euro nations are “getting into difficulties” and may need help. French officials are also concerned about market tensions as the cost of insuring Irish, Greek and Spanish debt against default rises to records and bond spreads widen.

The nightmare for Angela Merkel and Nicolas Sarkozy is that widening deficits will prompt investors to shun the debt of some countries, sparking a region-wide crisis. While few investors are yet forecasting any defaults, the mere risk of it may prompt the bloc’s two richest economies to ignore the European Central Bank and announce their willingness to come to the rescue.

“When push comes to shove Germany, France, the larger players will bail out those smaller peripheral players,” said Alex Allen, chief investment officer of Eddington Capital Management. “You can’t let one part of the system fail because it leads to failure of the whole system.”

Allen’s betting that the risk at least one nation will leave the bloc is higher than the market currently expects.

Swelling Deficits

European deficits have ballooned as governments from Berlin to Dublin committed more than 1.2 trillion euros ($1.5 trillion)_to save their banking systems from collapse. The situation will be underscored by the European Commission today, when it publishes a progress report on budget policies at 11.15 a.m. in Brussels.

The European Union’s executive arm forecasts a deficit of 11 percent in Ireland, 6.2 percent in Spain and 4.6 percent in Portugal this year. The euro region’s average budget gap was just 0.6 percent in 2007.

European officials have already expressed concern that their bond market could potentially face a crisis similar to that unleashed by the collapse of Lehman Brothers Holdings Inc. in September. ECB board member Lorenzo Bini Smaghi said Feb. 12 there’s a “risk that the mistrust that there is today in financial markets” is “transformed into mistrust in states.”

“I would be very reluctant to say: ‘O.K., let Ireland or Greece default, the market will sort it out, punish them for their irresponsibility of the past,’” said Thomas Mayer, co-head of global economics at Deutsche Bank AG in London. “They tried it with Lehman and realized that was not a good idea.”

Bond Spreads

The gap between the interest rates Greece, Austria and Spain must pay investors to borrow for 10 years and the rate charged Germany yesterday rose to the widest since before they adopted the euro. Credit-default swaps on Ireland rose to a record on Feb. 16, climbing to 378.4 points.

Greek credit-default swaps, 270 points on Feb. 16, show a 4.5 percent chance that the country will default in the next 12 months, according to ING Bank NV.

Eddington Capital’s Allen, who runs a fund of hedge funds, says the market currently “vastly underestimates” the risks and expects credit-default swaps for Greece, Italy, Spain and Portugal to double in the next 12 months.

Any state-funded rescues may meet with opposition from the ECB, which has repeatedly said the Maastricht Treaty forbids bailouts.

“The no bailout rule is an important pillar on which the European Union was founded,” says Stark, who helped draw up the fiscal rules underpinning the euro.

No Bailout?

At the same time, the treaty says that EU nations can grant financial assistance to a member state if a country is “threatened with severe difficulties” caused by “exceptional occurrences beyond its control.”

“The member countries are working hard on a ‘pre-emptive de facto bailout’ to prevent the test of the “no bailout” clause,” said Juergen Michels, an economist at Citigroup Inc. in London.

Part of the problem policy makers now face stems from the fact the currency union does not have a single treasury and relies on the Stability and Growth Pact, which has been breached in the past, to keep budgets in check. Billionaire investor George Soros said yesterday the region economy must confront the problem posed by the lack of a Europe-wide finance ministry.

For now, finance officials say that market concerns are not justified. ECB President Jean-Claude Trichet said in Rome on Feb. 14 he’s confident countries will work towards sustainable public finances.

State Rescue

Greek Finance Minister Ioannis Papathanasiou said three days earlier the extra interest rates on his country’s debt were unjustified. Spain’s Deputy Finance Minister Carlos Ocana categorically ruled out a default on Feb. 16, and the Irish Finance Ministry warned yesterday against drawing conclusions about public finances from the CDS market.

Steinbrueck’s comments nevertheless suggest that views in Berlin are shifting as the financial crisis worsens.

“In reality the other states would have to rescue those running into difficulties,” he said Feb. 16. Steinbrueck said that Ireland was in a “very difficult situation.”

“There will have to be some kind of support package for some of the smaller economies to avoid the tension and speculation about breakup,” said Ken Wattret, senior economist at BNP Paribas SA in London. “The bigger national governments will say this isn’t our problem. But when push comes to shove they might need to provide some kind of financial support.”

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Greenspan Says U.S. May Not Be Doing Enough to Promote Recovery

By Rich Miller

Feb. 18 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. may be doing too little to repair its financial system and promote an economic recovery.

President Barack Obama yesterday signed into law a $787 billion economic stimulus package of tax cuts and increased spending. He has also pledged to use the bulk of the roughly $315 billion left in the bank bailout fund approved by Congress last October to revive the battered financial industry.

“The amount of money in both these pots may not be enough to solve the problem,” Greenspan said in an interview before a speech yesterday to the Economic Club of New York.

The comments highlight the difficulties Obama faces in fighting the steepest recession in a generation. The economy contracted at an annual pace of 3.8 percent in the fourth quarter of last year, the most since 1982.

In the speech, the former Fed chairman said “what we are currently going through is a once-in-a-century type of event. It will pass.”

Greenspan, who now heads his own Washington-based consulting company, warned in his speech that the positive impact of the stimulus package on the economy will peter out if the U.S. fails to fix its financial system.

“Given the Japanese experience of the 1990s, we need to assure that the repair of the financial system precedes the onset of any major fiscal stimulus,” he said.

Bank Losses

U.S. bank stocks have been hammered as their loan losses have mounted. Citigroup Inc., the bank that received $45 billion from the government last year, fell 43 cents to $3.06. JPMorgan Chase & Co., the second-largest U.S. bank by assets, declined $3.04 to $21.65. Bank of America Corp. dropped 67 cents to $4.90.

The Obama administration last week laid out a multipronged plan to aid the banks, drawing on the remaining money in the $700 billion Troubled Asset Relief Program. Greenspan said that wouldn’t be enough.

“To stabilize the banking system and restore normal lending, additional TARP funds will be required,” he said.

He highlighted the importance of building up banks’ capital. “Banks are not going to increase their lending until they feel comfortable with the amount of capital they hold,” he said in the Feb. 16 interview. “That’s not going to happen for a while.”

The 82-year-old economist also stressed the importance of halting the decline in house prices that is battering banks. “Until we can stabilize the asset side of bank balance sheets, this crisis will not come to a close,” he said.

Mortgage-Related Assets

U.S. banks have sustained $758 billion in credit losses since the crisis began. Many of those losses stemmed from mortgage-related investments that declined with the collapse in the housing market.

Home prices in 20 U.S. cities fell 18.2 percent in November from a year earlier, the fastest drop on record, according to the S&P/Case-Shiller index.

“Unfortunately, the prospect of stable home prices remains many months in the future,” Greenspan said in his speech. “Many forecasters project a decline in home prices of 10 percent or more from current levels.”

Greenspan estimated the collapse in housing, coupled with the steep drop in equity prices worldwide, had wiped out more than $40 trillion of wealth, equivalent to two-thirds of last year’s global gross domestic product. U.S. stocks tumbled to a three-month low yesterday, extending a decline that began overseas.

“Certainly, by any historical measure, world stock prices are cheap,” Greenspan said. “But as history also counsels they could get a lot cheaper before they turn.”

Gripped by Fear

He said that investors were gripped by a degree of fear not seen since at least 1932. Those fears should dissipate once the rate of decline in the economy and the financial markets starts to slow, he added.

“A rise in equity prices could help offset the impact of falling house prices” on the economy, he said in the interview.

Yet he warned that a stock market recovery could be derailed if inflation fears resurface because of the money the government is channeling into the economy.

“The recent rise of long-term interest rates appears to be signaling market concerns about inflationary pressures,” he said. “It could turn out to be the canary in the coal mine.”

The yield on the 10-year Treasury note ended yesterday at 2.65 percent, down from 2.88 percent a day earlier, yet still well above the 2.05 percent level set on Dec. 30.

Responding to questions after the speech, Greenspan blamed insufficient regulatory oversight in part for failing to recognize the degree of risk that was accumulating in the banking system.

‘Behind the Curve’

“The regulatory structures, especially internationally, were way behind the curve,” he said.

Greenspan said he was skeptical that officials can adopt a policy that prevents asset bubbles from forming without harming other parts of the economy. To help resolve the banking system’s problems, financial institutions may need higher capital reserves to help restore them to health, he said.

“There is a general belief that somehow we can regulate very complex organizations, and we can’t,” he said. “What we’ve got to do is to try to make them more efficient, to put far more capital into these organizations.”

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

Five Reasons for Japan’s Leaders to Get Drunk: William Pesek

Commentary by William Pesek

Feb. 18 (Bloomberg) -- I don’t know which cold medication Shoichi Nakagawa is taking, but I want some.

Anyone who has seen the video of Japan’s finance minister at last weekend’s Group of Seven meeting in Rome may be having similar thoughts. Nakagawa resigned yesterday even after insisting he wasn’t drunk. It was cold meds, he claimed.

Few in the Japanese media bought his story. It didn’t help that Asahi Television dug up a November 2006 video in which Nakagawa, then head of the Liberal Democratic Party’s policy- making board, looked wasted giving a speech.

The public’s anger isn’t about some red-faced man slurring his words and having difficulty fielding questions. It’s that Taro Aso’s government isn’t up to the challenge of running Asia’s biggest economy. It also reflects Japan’s revolving-door politics; the next finance chief will be the fifth in two years.

Of course, if I were in charge of this rapidly shrinking economy -- at an annual 12.7 percent pace last quarter alone -- I’d be tempted to hit the bar, too. The high won’t last very long, mind you. Japanese data of late are way too sobering. Talk about an economic hangover.

Here are five reasons why Japanese leaders might be excused for drinking in excess these days.

1. Things will get far worse. You know an export-driven economy is in trouble when exports plunged an unprecedented 13.9 percent last quarter. The collapse in demand for Corolla cars and Bravia televisions comes as the G-7 says the global slump will last for much of 2009. It’s probably more like 2010, too.

Big losses are forecast at Toyota Motor Corp., Sony Corp. and Hitachi Ltd., all of which are firing thousands of workers. That will accelerate the drop in household spending and deepen the recession. The current quarter could be even uglier.

Bartender, another round please!

2. Leadership is nowhere to be found. Nakagawa’s wobbly, droopy-eyed performance became an Internet hit and made Japan the butt of jokes. More importantly, though, his replacement, Economic and Fiscal Policy Minister Kaoru Yosano, recently cast doubts on whether Japan will get its act together by April, when the Group of 20 nations meets in London. Call it a two-month do- nothing binge.

Aso’s 9.7 percent approval rate -- according to a Nippon Television survey -- explains why U.S. Secretary of State Hillary Clinton met with opposition leader Ichiro Ozawa in Tokyo yesterday. Why bother with Aso when his days are numbered? And another question: Who will take Japan seriously if it has a new finance minister every few months? (Pub quiz: Name the last four Japanese finance chiefs?)

Hey barman, got something stronger this time?

3. Even party bigwigs are turning on you. Media are in a tizzy over Junichiro Koizumi’s public rebuke of Aso’s bungling. A pro-reform prime minister who served from 2001 to 2006, Koizumi is credited with shaking up Japan’s business world and privatizing the massive postal system, which also housed the nation’s biggest savings bank.

Koizumi recently spoke for many of Japan’s 127 million people when he attacked Aso for what he called “appalling” and “laughable” blunders. He suggested that their party, the ruling LDP, may lose this year’s election.

Let’s face it, the LDP deserves to lose badly. The party serves only itself, not Japan’s people and certainly not the investors looking for opportunities in this $4.4 trillion economy.

Yo barkeeper, just leave the bottle!

4. A woman is kicking your butt. In the annals of practicing what you preach, Yuko Obuchi deserves a mention. She is the minister responsible for increasing the nation’s birthrate. And now, she’s pregnant, expecting her second child in September.

Obuchi clearly takes her role in stopping a decline in the population seriously; the National Institute of Population and Social Security Research says the number of Japanese may shrink 26 percent by 2050.

Japanese leaders have rarely lifted a finger to empower women. Score one for Obuchi, who is also in charge of gender equality. Unlike the change-resistant men who run Japan, Obuchi is getting rave reviews for inspiring a national debate about whether more women can have a family and a career.

Oh garcon, got something without alcohol?

5. The yen will rise no matter what happens. For 10 years now, Japan’s ultra-low interest rates funded borrowings that were moved overseas into higher-yielding markets. Japanese companies and investors, hungry for fatter returns, ventured overseas. All that money is now coming back to Japan. The dollar’s weakness is exacerbating the problem.

That’s a crisis for an economy that lives and dies by exchange rates. There’s nothing the Finance Ministry or Bank of Japan can do about it. That’s why Japan isn’t intervening in currency markets to cap the yen.

Whether Aso’s LDP hangs on to power -- which is highly doubtful -- or Ozawa’s Democratic Party of Japan grabs the reins, the yen will strengthen. A strong currency is normally a sign of confidence in an economy. In Japan’s case, it’s a contrarian indicator of growth prospects in a world fast losing altitude.

Nightcap, anyone? It may help leaders in Tokyo deal with Japan’s un-happy hour.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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