Zloty Declines Against Euro for Third Week as Economy Slows

By Yon Pulkrabek

Dec. 20 (Bloomberg) -- The Polish zloty dropped for a third week against the euro as investors bet the central bank will cut interest rates further to cushion the economy from the biggest slowdown in almost a decade.

The currency snapped five days of losses yesterday after dropping to a more-than 3 1/2-year low on Dec. 18, when a report showed industrial output shrank 13.1 percent in November, the biggest contraction in more than 16 years. The zloty gained as its relative strength index against the euro signaled traders judged its decline excessive.

The zloty was at 4.0861 per euro late yesterday in Warsaw, from 4.1104 the previous day, paring the weekly drop to 3.5 percent. The currency, which slid to 4.1887 on Dec. 18, its lowest level since May 2005, has weakened 12 percent this year.

“The Polish currency weakened in expectation of a rate decrease,” analysts including Jan Bures and Jan Cermak at Ceskoslovenska Obchodni Banka AS, the largest Czech lender, wrote in a note today.

Policy makers will cut the main interest rate by 50 basis points to 5.25 percent when they meet Dec. 23, according to a median forecast of 15 economists in a Bloomberg News survey.

The Monetary Policy Council lowered the rate by 25 basis points last month as inflation pressure eased and economic growth slowed. That was the first interest rate cut since February 2006, and policy makers including Jan Czekaj, Stanislaw Owsiak and Marian Noga have said further easing is in the cards.

Polish central bank Governor Slawomir Skrzypek said yesterday he may have to lower his forecast for economic growth next year.

Relative-Strength Index

The RSI for the zloty against the euro fell below 30 on Dec. 18, indicating an imminent rebound by the currency. “A lot of negativity has been priced into the zloty over the past weeks,” analysts led by Elisabeth Gruie and Shahin Vallee at BNP Paribas SA in London wrote in a note today. “The current level has been deemed misaligned with fundamentals.”

Elsewhere, the Czech koruna fell 0.5 percent to 26.401 per euro, dropping this week to 1.2 percent. The country’s central bank reduced its two-week repurchase rate by half a percentage point to 2.25 percent on Dec. 17.

The Turkish lira declined 1.3 percent to 1.5284 per dollar, paring a weekly gain to 2 percent, after the nation’s central bank lowered its benchmark rate by 1.25 percent to 15 percent, the biggest cut since December 2004.

Hungary’s forint rose 0.7 percent to 264.50 per euro, gaining 0.8 percent in the past five days. The Romanian leu advanced 0.6 percent to 3.9297 per euro, climbing 0.3 percent since Dec. 12.

To contact the reporters on this story: Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net

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China Picks 10 Firms for Overseas Acquisitions, Herald Reports

By Tian Ying

Dec. 20 (Bloomberg) -- China’s government has selected 10 centrally owned companies to merge and acquire foreign commodity companies to help keep commodity prices stable, the 21st Century Business Herald reported, citing a state asset management official.

The government should also roll out policies to support state-owned companies’ efforts in acquiring commodity-related assets and relax limits on taking over overseas companies, the newspaper said, citing Wang Xiaoqi, head of the Bureau of Planning and Development of the state-owned Assets Supervision and Administration Commission of the State Council, which overseas 142 centrally owned companies.

The government can also consider capital injections into major companies and provide subsidies for loan interest for overseas acquisition of key mineral resources, the report cited Wang as saying.

To contact the reporter on this story: Tian Ying in Beijing on ytian@bloomberg.net

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Thousands of Guangdong Companies Close as China’s Exports Stall

By Tian Ying

Dec. 20 (Bloomberg) -- Slowing exports forced closure of 8,513 companies in China’s southern Guangdong province in October, more than in the first three quarters of 2008, state-owned Xinhua News Agency reported.

A total 15,661 companies closed in the first 10 months of the year as exports by privately owned firms declined 35 percent from a year earlier, Xinhua said. Growth slowed at 29 of 37 industries tracked, with electric machinery, textiles and automobiles leading declines, the report said.

China’s November exports fell 2.2 percent from a year earlier, the first decline in seven years, as a world recession slashed demand. Guangdong is one of the nation’s largest export bases.

To contact the reporter on this story: Tian Ying in Beijing on ytian@bloomberg.net

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Aboitiz, Glomac, Posco, Rio Tinto: Asia Ex-Japan Equity Preview

By Berni Moestafa

Dec. 20 (Bloomberg) -- The following companies may have unusual price changes in Asia trading, excluding Japan. Stock symbols are in parentheses, and share prices are from the previous close, unless noted otherwise.

Aboitiz Power Corp. (AP PM): The Philippine power producer and distributor said it raised funds for acquisitions, borrowing 3.89 billion pesos or 9.3 percent more than initially planned. Aboitiz Power was unchanged at 3.80 pesos.

Benguet Corp. (BC PM): The fifth-largest Philippine mining company by market value said it won a bidding contest to reopen a Philippine copper and gold mine that’s been shut for more than two decades. The stock fell 15 centavos, or 3 percent, to 4.85 pesos on Dec. 17.

PT Bumi Resources (BUMI IJ): Valco Corp., an Indonesian energy company, plans to make a rival bid to buy PT Bakrie & Brothers’ debt and take shares of Bumi that were pledged as collateral. Bumi, Asia’s biggest exporter of power-station coal, declined 20 rupiah, or 2.3 percent, to 870.

Glomac Bhd. (GLMC MK): The Malaysian developer and builder said profit for the fiscal second quarter, which ended Oct. 31, fell 25 percent to 7.7 million ringgit ($2.2 million) from a year earlier. Glomac was unchanged at 49 sen.

Guangdong Nan Yue Logistics Co. (3399 HK): The logistics company will buy a real estate company from its parent for 92.96 million yuan ($14 million) in cash. Guangdong added 14 cents, or 9.6 percent, to HK$1.60.

Hon Hai Precision Industry Co. (2317 TT): The world’s largest contract electronics maker is cutting some jobs globally amid the global recession, founder and Chairman Terry Gou said today, without saying how many workers will be fired. Hon Hai gained 50 cents, or 0.7 percent, to NT$68.5.

Incitec Pivot Ltd. (IPL AU): Australia’s largest fertilizer maker said it won’t reduce output as its global peers are doing. Incitec slid 10 cents, or 3.9 percent, to A$2.45.

Megaworld Corp. (MEG PM): The third-largest Philippine developer said it expects 1.4 billion pesos ($30 million) in sales from a 31-story apartment tower it’s building in the nation’s main financial district. The stock gained 1 centavo, or 1.4 percent, to 72 centavos.

Posco (005490 KS): Asia’s third-largest steelmaker will exchange 300 billion won ($232 million) of its shares for a stake in KB Financial Group Inc. Posco will swap about 770,000 shares for stock that Kookmin Bank, South Korea’s largest, holds in parent KB Financial, the Pohang, South Korea-based company said. Posco fell 4,500 won, or 1.2 percent, to 388,000.

Rio Tinto Group (RIO AU): The world’s third-biggest mining company said it may delay the development of its $1.5 billion nickel project in Indonesia. Rio will wait for new mining regulations to be implemented in about six months, said Omar Anwar, president director of Rio’s Indonesian unit. The parliament on Dec. 16 endorsed the new mining bill. Rio lost 99 cents, or 2.5 percent, to A$39.01.

SK Telecom Co.(017670 KS): South Korea’s biggest mobile- phone company named Jung Man Won, head of affiliate SK Networks Co., as its new chief executive officer. Jung, 56, will replace Kim Shin Bae, who will move to SK C&C Co. as vice-chairman as part of a management reshuffle, Seoul-based SK Telecom said. SK Telecom added 4,000 won, or 1.9 percent, to 218,000.

United Food Holdings Ltd. (UFH SP): The Linyi, Shandong- based meat-processing company, said it’s reducing losses by temporarily shutting its the processed-meats and fresh, chilled and frozen pork divisions. United Food was unchanged at 5 Singapore cents.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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China Offers Taiwan Crisis Help, More Financial Ties

By James Peng and Richard Dobson

Dec. 20 (Bloomberg) -- China offered to help Taiwan cope with the deepening global financial crisis and proposed broader financial links at a forum that will set the stage for further government-level talks after a nine-year suspension.

China is ready to help Taiwan and the two sides should discuss a financial supervisory mechanism for banks, securities and insurance firms as well as a currency-clearance mechanism, Jia Qinglin, a Politburo member, said at a forum in Shanghai.

Officials of Taiwan’s ruling Kuomintang and their Chinese counterparts are meeting to hammer out a consensus on broadening financial ties as their economies face a worsening global recession. Taiwanese businessmen have already invested an estimated $150 billion in China and have been clamoring for Taiwan financial companies to be permitted to offer services to ease access to financing and capital.

“An agreement could enable us to upgrade our four securities representative offices in China to branches,” said, Lin Shau-dai, chairman of Polaris Securities Co., Taiwan’s largest online brokerage. “It might allow us to enter China’s futures and asset management businesses, which are still banned for the moment.”

Taiwanese banks and securities firms can only operate representative offices, which aren’t permitted to offer any financial services. A consensus reached at the two-day meeting will likely form the basis for the governments of both sides to sign a memorandum of understanding on financial ties in the first half of next year.

Direct Investment

“Signing an MOU will mean we can directly invest in mainland banks without needing to do so via a third location,” said Daniel Tsai, chairman of Taiwan’s second-largest financial services company Fubon Financial Holding Co. “We will actively seek acquisition targets in China.”

Fubon Bank (Hong Kong) Ltd., Fubon’s Hong Kong unit, rose the most in seven weeks yesterday as the party officials met in Shanghai. Fubon shares advanced 20 percent, the most since Nov. 3, to close at HK$2.44, while the benchmark Hang Seng index fell 2.4 percent.

In June, Fubon Bank agreed to buy a 20 percent stake in Xiamen City Commercial Bank for 230 million yuan ($34 million). It was the first such purchase since the island started letting lenders buy into mainland banks through third-country subsidiaries in March.

Thawing Relations

The forum comes amid a thaw in ties after Taiwan and China on Dec. 15 ended a six decade-ban on direct transport and postal links. The resumption of links may boost the island’s $380 billion economy, which is headed for its first recession in seven years.

Ties between Taipei and Beijing improved significantly since the KMT’s Ma Ying-jeou took office in May and dropped the pro-independence stance of his predecessor Chen Shui-bian.

“We should jointly cooperate in seeking a practical model for dealing with the financial tsunami,” KMT chairman Wu Poh- hsiung told the forum. “We have a concrete plan to support Taiwanese businessmen, who are facing increasing difficulties in access to financing.”

Both sides should also give access to participation in public construction projects to bring in capital and experience in management and technology, Wu said.

Complementary Ties

“We can now expect Taiwan and China to complement each other,” said Jason Chang, chairman of Taiwan-listed Advanced Semiconductor Engineering Inc., the world’s largest chip packaging and testing company. “We can unify China’s huge funds and market and Taiwan’s experience in liberalization and management talents.”

The forum is the fourth annual summit since Chinese President and Communist Party leader Hu Jintao in 2005 met former Kuomintang Chairman Lien Chan, ending more than 60 years of hostility between the two political parties.

The KMT’s Wu and Honorary Chairman Lien are leading a delegation of about 150 KMT officials, business executives and academics.

Beijing and Taipei held their first official talks since 1999 in June, when they reached a consensus on opening direct weekend charter flights and allowing mainland tourists to the island. Resumption of exchanges had been slow as both sides of the Taiwan Strait regarded each other with suspicion, even as almost 1 million Taiwanese already live and work in China.

Direct links had been banned since the end of a civil war in 1949, when Mao Zedong’s victorious communist forces took control of China’s government and drove Chiang Kai-shek’s Nationalist army to Taiwan. The Chinese government still regards Taiwan part of its territory and aims hundreds of missiles at the island to prevent it from declaring independence.

To contact the reporter on this story: James Peng in Hong Kong at jpeng7@bloomberg.net

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IMF Approves $76 Million Aid for Senegal to Combat High Prices

By Madelene Pearson

Dec. 20 (Bloomberg) -- The International Monetary Fund approved a one-year $75.6 million aid deal for Senegal to help the African nation offset higher food and energy prices.

The approval will allow Senegal to draw about $37.8 million from the IMF immediately, and an equal amount upon completion of the first review under an arrangement to help nations deal with external events that affect their budgets, the IMF said in a statement.

“The Senegalese economy is facing a difficult period,” Murilo Portugal, deputy managing director of the IMF’s executive board, said in the statement. “Economic growth has slowed significantly, as a result of government payment delays to the private sector and the effect on consumption of high food and energy prices.”

Senegal has clamped down on spending after it overspent its budget this year by an amount that may run into hundreds of millions of dollars, the IMF said in September after a visit to the country. Commodities from oil to wheat, rice and corn rose to records this year before later easing.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Rand Rises Against Dollar on Prospects for South African Rates

By Garth Theunissen

Dec. 20 (Bloomberg) -- The rand rose against the dollar for a second week after the U.S. Federal Reserve cut interest rates to almost zero and on speculation South Africa’s central bank will lower borrowing costs to stimulate its economy.

The rand appreciated 3.9 percent against the U.S. currency this week to trade at 9.7200 per dollar as of 4 p.m. in Johannesburg yesterday, compared with 10.1184 on Dec. 12.

The dollar was poised for its biggest weekly loss against the euro since the 15-nation currency’s 1999 debut as the Fed’s rate cut reduced the appeal of U.S. assets and enhanced the relative returns of those in emerging markets. The rand was also buoyed by data that showed South Africa’s inflation rate slowing, giving the central bank more room to continue cutting rates next year to support growth in the $278 billion economy.

“The rand is being driven mainly by a weaker dollar, which is on the back foot following the aggressive U.S. rate cuts,” said Brigid Taylor, a senior currency trader at Rand Merchant Bank in Johannesburg. “It’s also being rewarded for the more benign domestic inflation- and interest-rate outlook, which is positive for economic growth prospects. It’s all about growth now.”

The rand also strengthened against 10 of the 16 most- actively traded currencies monitored by Bloomberg this week, advancing most against the Norwegian krone. Against the euro it slipped 0.3 percent to 13.5728, from 13.5460 on Dec. 12.

South Africa’s currency could rally to 9.10 per dollar next week if it breaks below 9.50, Taylor said.

Inflation Slows

“The rand is in a consolidation phase which reflects the weakness in the dollar,” said Elisabeth Gruie, an emerging- markets currency strategist in London at BNP Paribas SA, France’s biggest bank. “Liquidity is very thin at the moment so the falling dollar is the big driver for the rand.” The rand may head toward 9.30 per dollar next week, Gruie added.

Consumer-price inflation in South Africa slowed for a third consecutive month in November, easing to 12.1 percent, Pretoria- based Statistics South Africa said on Dec. 17. Producer inflation decreased to 12.6 percent in November, the slowest pace in seven months, the statistics office said this week.

“The decline in inflation gives the central bank room to cut rates, which would be very positive for the economy,” said Marc Copeland, a currency trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets.

The South African Reserve Bank, led by Governor Tito Mboweni, lowered its repurchase rate by a half point on Dec. 11, the first cut in borrowing costs since April 2005. Inflation is expected to “radically come down” next year, dropping into the 3 percent to 6 percent target range by the third quarter, central bank Governor Tito Mboweni said on the same day.

Government bonds advanced in the week, with the yield on the benchmark 13.5 percent security due September 2015 declining 55 basis points to 7.12 percent. The price of the bond, which moves inversely to the yield, added 3.38 rand per 100-rand face amount, to 133.60 rand. The yield on the 13 percent note maturing in August 2010, slipped 58 basis points to 7.21 percent. Its price gained 89 cents per 100-rand face amount to 109.03 rand. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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Toyota in Talks With Fuji Heavy on Sports Car Output

By Naoko Fujimura

Dec. 20 (Bloomberg) -- Toyota Motor Corp., Japan’s largest automaker, is in talks with Fuji Heavy Industries Ltd. on when to start building a sports car after the Nikkei reported the two carmakers may delay the project.

“We’re discussing with Fuji Heavy the timing for the start of production and other details,” Hideaki Homma, a Toyota spokesman, said today by phone. He declined to elaborate on the negotiation. Toyota nearly doubled its stake in Fuji Heavy to 16.5 percent in April.

Toyota decided to postpone until 2012 or later its plan to have Fuji Heavy build the sports car as the domestic auto market keeps shrinking, the Nikkei reported, without saying where it got the information. Production was to start at the end of 2011, the newspaper said.

The Toyota City, Japan-based automaker is reviewing all new projects after slashing its profit forecast 56 percent last month because of falling sales in North America and Europe and a stronger yen. Toyota and Isuzu Motors Ltd. agreed to temporarily freeze their diesel engine project, Isuzu said Dec. 16. Tokyo- based Isuzu is 5.9 percent owned by Toyota.

Toyota’s subsidiary on the southwestern Japanese island of Kyushu will end contracts with about 1,100 temporary workers from April next year, as sales slump in North America and other regions, the Asahi newspaper said.

Toyota fell 2 percent to 2,900 yen on the Tokyo Stock Exchange yesterday. Fuji Heavy, the maker of Subaru-brand cars, fell 1.3 percent to 229 yen.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net.

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Japan to Spend 4.8 Trillion Yen in 2nd Extra Budget This Year

By Keiko Ujikane and Toru Fujioka

Dec. 20 (Bloomberg) -- Japan will spend 4.8 trillion yen ($54 billion) in its second supplementary budget for fiscal 2008 to help households and small businesses, and make up for a shortfall in tax revenue.

The second extra budget for the year to March 31 will be used to raise 4.8 trillion yen for economic stimulus measures, including spending in financial assistance for families and subsidies to local authorities, according to a proposal released by the ministry in Tokyo today.

The budget also includes other expenditures, such as international contributions, and the size of the total spending in the budget is squeezed by steps such as cost-cutting.

The government will use the budget to plug a 7.1 trillion yen of shortfall in tax revenue, the ministry said.

The extra spending will be financed by issuing 7.4 trillion yen worth of bonds and tapping so-called special accounts, bureaucrat-run funds set aside from the regular national budget, the ministry said.

Japan’s supplementary budget provides funds for spending above that foreseen in the initial budget for the year ending March 31 passed by the parliament earlier this year.

The finance ministry submitted the extra budget proposal to the Cabinet today along with a budget proposal for the next fiscal year.

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

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Toyota to Delay Sports Car Plan With Fuji Heavy, Nikkei Reports

By Naoko Fujimura

Dec. 20 (Bloomberg) -- Toyota Motor Corp. will postpone production and introduction of a small sports car co-developed with Fuji Heavy Industries Ltd. to 2012 or later, the Nikkei newspaper reported, without saying where it got the information.

Toyota decided to change its plan to have Fuji Heavy build the sports car from the end of 2011 as the domestic auto market keeps shrinking, the report said.

The Toyota City, Japan-based automaker, which nearly doubled its stake in Fuji Heavy to 16.5 percent in April, is reviewing its new projects as the global recession cripples car demand.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net.

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Japan to Increase Bond Sales to Investors Amid Global Recession

By Theresa Barraclough

Dec. 20 (Bloomberg) -- Japan’s government will increase bond sales to private investors for the first time in four years as the nation’s first recession since 2001 reduces tax revenue.

The Ministry of Finance said it will boost bond sales to 113.3 trillion yen ($1.27 trillion) to investors such as banks and life insurers in the year starting April 1. The amount is below the 115 trillion yen forecast of primary dealers, according to the minutes of a dealer meeting on Dec. 12. Bond sales for this fiscal year will total 132.2 trillion yen, the ministry said.

The increase in issuance will help finance part of the stimulus packages aimed at helping households and small businesses as a global financial crisis tightens credit, cuts corporate spending and weakens demand for exports. Japan’s gross domestic product shrank an annualized 1.8 percent in the three months ended Sept. 30, the Cabinet Office said on Dec. 9, more than the 0.4 percent drop in its estimate reported last month.

Issuance of 40-, 30- and 20-year bonds will increase by a total of 2.2 trillion yen, while sales of benchmark 10-year bonds will stay unchanged next fiscal year, the ministry said. Sales of five- and two-year notes will increase by a total 4.8 trillion yen.

FY2009 Initial Plan:
Maturities             Amount        Frequency    Total
                      per Sale      of Sale      Amount
-----------------------------------------------------------
40-year                200 bln yen    4 times     800 bln yen
30-year                500 bln yen    6 times     3.0 tln yen
20-year                900 bln yen    monthly    10.8 tln yen
10-year                1.9 tln yen    monthly    22.8 tln yen
5-year                 2.0 tln yen    monthly    24.0 tln yen
2-year                 2.0 tln yen    monthly    24.0 tln yen
1-year TB              1.9 tln yen    monthly    22.8 tln yen
6-month TB             ----            ----       900 bln yen
15-year floating rate  300 bln yen     1 time     300 bln yen
10-year inflation      300 bln yen     1 time     300 bln yen
Bond liquidity sales   150 bln yen   24 times     3.6 tln yen
-----------------------------------------------------------
                       Total Amount:            *113.3 tln yen

*The figure is the actual amount that the government plans to
sell to investors through auctions between April 1, 2009, and
March 31, 2010.

FY2008 Revised Plan (after extra budget in December):
Maturities             Amount        Frequency    Total
                      per Sale      of Sale      Amount
-----------------------------------------------------------
40-year                200 bln yen    3 times     600 bln yen
30-year                600 bln yen    4 times     2.4 tln yen
                      500 bln yen     1 time     500 bln yen
20-year                800 bln yen    7 times     5.6 tln yen
                      900 bln yen    5 times     4.5 tln yen
10-year                1.9 tln yen    monthly    22.8 tln yen
5-year                 1.9 tln yen    9 times    17.1 tln yen
                      2.0 tln yen    3 times     6.0 tln yen
2-year                 1.7 tln yen    6 times    10.2 tln yen
                      1.8 tln yen    4 times     7.2 tln yen
                      2.0 tln yen    2 times     4.0 tln yen
1-year TB              1.4 tln yen    6 times     8.4 tln yen
                      1.5 tln yen    3 times     4.5 tln yen
                      1.7 tln yen    3 times     5.1 tln yen
6-month TB             ----           ----        3.0 tln yen
15-year floating rate  600 bln yen    1 time      600 bln yen
10-year inflation      500 bln yen    3 times     1.5 tln yen
Bond liquidity sales   100 bln yen    8 times     800 bln yen
                      150 bln yen    10 times    1.5 tln yen
-----------------------------------------------------------
                       Total Amount:             *106.3 tln yen


FY2008 Revised Plan (after extra budget in October):
Maturities             Amount        Frequency    Total
                      per sale      of Sale      Amount
-----------------------------------------------------------
40-year                200 bln yen   2 times       400 bln yen
30-year                600 bln yen   4 times       2.4 tln yen
20-year                800 bln yen   7 times       5.6 tln yen
                      900 bln yen   5 times       4.5 tln yen
10-year                1.9 tln yen   monthly      22.8 tln yen
5-year                 1.9 tln yen   monthly      22.8 tln yen
2-year                 1.7 tln yen   6 times      10.2 tln yen
                      1.8 tln yen   6 times      10.8 tln yen
1-year TB              1.4 tln yen   6 times       8.4 tln yen
                      1.5 tln yen   6 times         9 tln yen
6-month TB             ----          ----          3.3 tln yen
15-year floating rate  600 bln yen   2 times       1.2 tln yen
10-year inflation      500 bln yen   4 times         2 tln yen
Bond liquidity sales   100 bln yen  11 times       1.1 tln yen
                      150 bln yen   4 times       600 bln yen
-----------------------------------------------------------
                      Total Amount:              105.1 tln yen


FY2008 Initial Plan:
Maturities             Amount        Frequency    Total
                      per sale      of Sale      Amount
------------------------------------------------------------
40-year                200 bln yen    2 times      400 bln yen
30-year                600 bln yen    4 times      2.4 tln yen
20-year                800 bln yen    monthly      9.6 tln yen
10-year                1.9 tln yen    monthly     22.8 tln yen
5-year                 1.9 tln yen    monthly     22.8 tln yen
2-year                 1.7 tln yen    monthly     20.4 tln yen
1-year TB              1.4 tln yen    monthly     16.8 tln yen
6-month TB             ----           ----         3.3 tln yen
15-year floating rate  600 bln yen    4 times      2.4 tln yen
10-year inflation      500 bln yen    6 times        3 tln yen
Bond liquidity sales   100 bln yen    monthly      1.2 tln yen--
---------------------------------------------------------
                      Total Amount:             105.1 tln yen

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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Hu offers 14-step aid for HK in crisis

Updated: 2008-12-20

By Teddy Ng (China Daily) President Hu Jintao said on Friday that the central government will continue to fully support Hong Kong and Macao in dealing with the challenges brought by the global financial crisis.

Hu made the remarks in his respective meetings in Beijing with Donald Tsang, chief executive of the Hong Kong Special Administrative Region (SAR), and Edmund Ho Hau-wah, chief executive of the Macao SAR. Tsang and Ho on Friday also met separately with Premier Wen Jiabao.

In the meeting with Tsang, Wen said the central government will implement 14 measures to help Hong Kong weather the financial storm.

Cooperation on financial affairs between the mainland and Hong Kong will be strengthened, including allowing companies to settle trade in renminbi with Hong Kong. The People's Bank of China and the Hong Kong monetary authority have also agreed on a currency swap.

Measures to help small- and medium-sized enterprises (SMEs) will also be launched, including increasing tax rebates on exports and assisting the trade sector to explore the internal consumption market. Guarantees will be given to help SMEs get capital.

The individual travelers scheme will be expanded, allowing mainlanders living in Shenzhen but not registered as Guangdong residents to apply for permits to travel to Hong Kong.

The mainland's service industry will also be opened for Hong Kong companies.

Other measures include speeding up infrastructure projects, such as the Hong Kong-Zhuhai-Macao Bridge, and ensuring the stable supply of food, water, electricity and natural gas.

Economic cooperation between Hong Kong and the Pearl River Delta region will be strengthened, and Hong Kong firms will be encouraged to participate in the construction of Shenzhen railway with the Build-Operate-Transfer mode.

Hu said the central government is highly concerned with the financial and economic stability of Hong Kong.

Wen told Tsang the government will exert all its strength to help the region."The motherland will always provide backup to Hong Kong," he said.

In the separate meeting with Ho, Hu said Macao has achieved remarkable progress in the region's development over the past nine years, and pledged supportive measures for Macao.

"The central government will continue to fully support the Macao SAR to overcome difficulties and realize moderately diversified economic development," he said.


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Isetan Mitsukoshi to Delay Renovation of Tokyo Stores, NHK Says

By Naoko Fujimura

Dec. 20 (Bloomberg) -- Isetan Mitsukoshi Holdings Ltd., Japan’s largest department store, will delay renovation of its two flagship outlets in Tokyo by as much as two years from next fiscal year, as the recession saps consumer spending, NHK said on its Web site.

Tobu Department Store Co. also froze its three-year plan to spend 7.3 billion yen ($82 million) to improve a store in Tokyo, Japan’s public broadcaster reported, without saying where it got the information.

J. Front Retailing Co., the operator of Daimaru and Matsuzakaya stores, also put off by a year plans to revamp its stores and decided to cut costs by about 2 billion yen ($22.4 million, the report said.

For Related News: Stories on Isetan’s most read news: 3099 JP MCN 1W Top retail stories: TOP RET

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China Offers Taiwan Assistance to Cope With Financial Crisis

By James Peng

Dec. 20 (Bloomberg) -- China offered to provide Taiwan with any assistance in coping with the deepening global financial crisis at a forum between the ruling parties of both sides.

China is ready to help Taiwan through the financial crisis if it is needed, said Jia Qinglin, a Politburo member and the most senior Chinese official responsible for the affairs of overseas Chinese.

Jia also said the two sides should discuss establishing a currency clearing system and set up a monitoring mechanism for banks, insurance firms and securities companies.

Officials from Taiwan’s ruling Kuomintang are meeting with their Chinese counterparts in Shanghai for a two-day meeting to discuss strengthening banking and investment ties, paving the way for government-level talks that resumed in June after a nine-year suspension.

The Shanghai forum will be the fourth annual summit since Chinese President and Communist Party leader Hu Jintao in 2005 met former Kuomintang Chairman Lien Chan, ending more than 60 years of hostility between the two political parties.

The two sides will discuss cooperation in the financial and service industries, encouraging two-way investment and promote regular economic exchanges across the Taiwan Strait, the KMT’s deputy secretary-general Chang Jung-kung said on Dec. 16.

To contact the reporter on this story: James Peng in Hong Kong at jpeng7@bloomberg.net

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Asian Currencies Post Weekly Gains as Stock Rally Draws Funds

By Anil Varma and Bob Chen

Dec. 20 (Bloomberg) -- Asian currencies gained this week, led by South Korea’s won and Malaysia’s ringgit, as a rally in regional stocks helped draw funds.

Eight of the 10 most-active Asian currencies outside Japan rose on speculation U.S. interest rates as low as zero are fueling demand for higher-yielding assets. The won, Asia’s worst performer this year, strengthened 14 percent this month as policy makers expanded swap deals with China and Japan. Hong Kong’s dollar was unchanged at the upper end of its fixed exchange-rate band.

“The dominant swing in emerging Asia currencies has been the shift away from the dollar,” said David Cohen, director of Asian forecasting at Action Economics in Singapore and a former Fed official.

The won strengthened 6.4 percent this week to 1,290 per dollar, according to Seoul Money Brokerage Services Ltd. Malaysia’s ringgit had its best week since a peg to the dollar ended more than three years ago and Taiwan’s dollar jumped the most in a decade.

Asian stocks advanced this week after the Federal Reserve on Dec. 16 cut its federal funds rate to between zero and 0.25 percent and said it will use “all available tools” to combat a recession in the world’s biggest economy.

The MSCI Asia Pacific Index of regional shares has climbed 8.7 percent so far in December, headed for its biggest monthly advance since June 1999. The last time the benchmark posted a monthly increase was April.

Malaysian Ringgit

Malaysia’s ringgit rose 3.3 percent this week to 3.4687 per dollar and touched an 11-week high of 3.4390 in Kuala Lumpur yesterday.

The currency rose after “the dollar interest rate was lowered,” said Action Economics’ Cohen. “That seems to be the primary driver.”

India’s rupee had a third weekly advance and reached the highest in 2 1/2 months yesterday. Funds based abroad bought more Indian shares than they sold since Dec. 1, set for the first month of net purchases since April, data on average daily trading from the nation’s capital markets regulator showed.

“I expect the rupee to strengthen from here as capital inflows are improving,” said Puneet Sharma, currency trader at state-owned Allahabad Bank in Mumbai. “The rupee has been reflecting the trend in stocks and may continue to do so.”

The rupee strengthened 2.8 percent this week to 47.255 per dollar in Mumbai, according to data compiled by Bloomberg. The currency has rebounded more than 7 percent since reaching a record low of 50.615 on Dec. 2.

‘Bold’ Move

The Philippine peso, which had its best week since July, weakened yesterday after the central bank cut its key interest rate on Dec. 18 by more than economists forecast.

Bangko Sentral ng Pilipinas reduced the rate it pays banks for overnight deposits by half a percentage point to 5.5 percent, twice the reduction forecast by economists in a Bloomberg News survey.

“The move was bold, given their cautious stance,” said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore. “Some quarters were surprised, but the peso is in an appreciating mode.”

The currency was up 2.5 percent this week, rebounding almost 7 percent from last month’s two-year low of 50.175.

Taiwan’s Dollar

Taiwan’s dollar climbed 2.4 percent this week to NT$32.53 per dollar, its biggest gain since October 1998, as overseas investors bought more local stocks than they sold. Taiwan’s central bank intervened on Dec. 18 to check the currency’s advance, the China Times reported yesterday, citing traders it didn’t name.

The currency touched NT$32.432 on Dec. 18, the highest level since Oct. 16, before retreating 0.2 percent yesterday.

Money managers based abroad bought a net NT$17.7 billion ($543 million) of Taiwan equities this week, according to data provided by the stock exchange. The local currency is “relatively stable,” Taiwan’s central bank said Dec. 18.

Elsewhere, Singapore’s dollar gained 2.7 percent this week to S$1.4537 against the U.S. currency. Thailand’s baht climbed 1.4 percent to 34.50 and Indonesia’s rupiah rose 0.9 percent to 10,950. China’s yuan slipped 0.1 percent to 6.8465 and Vietnam’s dong traded at 16,987.5, versus 16,982.5 on Dec. 12.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.

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Japanese Bonds Post Biggest Weekly Gain Since 2004 on Rate Cut

By Theresa Barraclough

Dec. 20 (Bloomberg) -- Japanese bonds completed their biggest weekly gain since March 2004 after the central bank cut its benchmark interest rate and the Finance Ministry said it will sell less debt than primary dealers expect.

Ten-year yields fell to the lowest level since July 2005 yesterday after the Bank of Japan lowered its target for the overnight lending rate to 0.1 percent from 0.3 percent to help the ailing economy. The BOJ also said it would buy commercial paper to help companies gain access to funds, increasing the chance that lenders will invest in government debt

“The BOJ decided to buy commercial paper, increase bond purchases and cut interest rates,” said Keiko Onogi, a debt strategist in Tokyo at Daiwa Securities SMBC Co., one of the 24 primary dealers that are required to bid at government debt sales. “They did most of the things they could have done. It’s supportive for bonds.”

The yield on the 1.4 percent bond due December 2018 fell 17 basis points this week to 1.22 percent, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 1.515 yen this week to 101.602 yen. The yield fell as low as 1.21 percent yesterday.

Five-year yields declined 9.5 basis points this week to 0.75 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for March delivery rose 0.26 this week to 139.68 at the Tokyo Stock Exchange. Japanese bonds have handed investors a return of 2.4 percent this year, according to indexes compiled by Merrill Lynch & Co.

Towards Zero

Bank of Japan Governor Masaaki Shirakawa and his colleagues voted 7 to 1 to cut rates, the central bank said in a statement yesterday. The second rate reduction in two months came after the Federal Reserve this week cut its target rate to as low as zero, driving the yen to a 13-year high against the dollar.

The BOJ also said it will raise its monthly government bond purchases from lenders, its main tool for adding funds into the banking system, to 1.4 trillion yen ($15.6 billion) from 1.2 trillion yen, the first increase since October 2002.

“We expect the BOJ will cut interest rates again down to zero before the end of March,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, also a primary dealer. “Yields will stay lower on the back of expectations of a return to a zero interest rate.”

Too Rapid

The gain in 10-year bonds was limited yesterday as a technical chart traders use to predict yield changes suggested recent gains in the securities were too rapid. The 10-day relative strength index on 10-year yields declined to 28.5 on Dec. 18. A level below 30 suggests buying of the securities may have peaked.

Ten-year yields have fallen from an 11-month high of 1.895 percent on June 16 as the economy slipped into its first recession since 2001 due to the global credit crisis.

Japan may sell about 113 trillion yen of bonds next fiscal year, less than the forecast for 115 trillion yen by primary dealers, according to a Finance Ministry official who declined to be identified. The official said 33 trillion yen of the bonds would be used to pay for a shortfall in the budget for the year beginning April 1.

“Lower additional bond issuance” is supportive for bonds, said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., a unit of Switzerland’s biggest bank.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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Asian Shares Rise for Second Week on Interest Rate Cuts, Oil

By Chan Tien Hin and Shani Raja

Dec. 20 (Bloomberg) -- Asian stocks rose for a second week as the U.S., Japan and Hong Kong cut interest rates and oil prices tumbled, boosting optimism costs for companies will fall and help resuscitate economic growth.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, gained 16 percent in Tokyo, while Sumitomo Mitsui Financial Group Inc. surged 17 percent. Qantas Airways Ltd. jumped 18 percent in Sydney as crude oil slumped below $34 a barrel. Samsung Electronics Co. climbed 5.3 percent as the benchmark gauge of memory prices climbed for the first time since June.

“Falling interest rates are helping,” said Hans Kunnen, head of investment market research at Colonial First State Global Management, which manages $86 billion. “Anything that helps get us back onto a growth path or ease the pain of the slowdown will be good for stocks.”

The MSCI Asia Pacific Index advanced 6.1 percent to 89.5 this week, and has gained 8.3 percent in December, putting it on course for its first monthly advance since April. Finance and technology stocks led gains among the gauge’s 10 industry groups this week.

MSCI’s Asian index is still down 43 percent for the year, the worst annual performance in its two-decade history, as the global financial crisis has dragged the world’s biggest economies into recession. Losses and writedowns tied to the collapse the U.S. subprime-mortgage market rose above $1 trillion this week.

Rate Cuts

Analysts have cut their average earnings-per-share estimate for companies on the index by 26 percent since the beginning of the year, data compiled by Bloomberg shows. Honda Motor Co., Japan’s second-largest automaker, this week cut its profit forecast as sales in North America and Europe dropped and the yen rose to a 13-year high against the dollar.

The U.S. Federal Reserve on Dec. 16 cut its benchmark interest rate to a record low and said it will employ “all available tools” to revive the world’s largest economy. The Hong Kong Monetary Authority followed the next day with a 1 percentage-point cut in its key rate.

The Bank of Japan yesterday lowered its target for the overnight lending rate to 0.1 percent from 0.3 percent and said it would buy corporate debt as a deepening recession chokes off funding for businesses.

“The Fed and central banks around the world have been cutting rates very aggressively,” said David Ng, who oversees $1.6 billion as chief investment officer at Hwang-DBS Investment Management Bhd. “It effectively puts more money into consumers’ pockets. In an environment when people are not spending and when there are fears over deflation, central banks and governments are doing all they can to throw money at people.”

Oil Tumbles

Banks paced gains in Asia this week amid speculation lower borrowing costs will stimulate lending growth. Mitsubishi UFJ rose 16 percent to 560 yen. Sumitomo Mitsui Financial surged 17 percent to 391,000 yen. Hana Financial Group Inc., the parent of South Korea’s No. 4 lender, added 15 percent to 21,850 won.

Airlines advanced as fuel expenses declined. The deepening global recession has sapped oil demand, giving crude prices their biggest weekly drop since the Persian Gulf War in 1991.

Qantas, Australia’s largest airline, jumped 18 percent in the week to A$2.64. Singapore Airlines Ltd., Southeast Asia’s largest carrier, surged 10 percent to S$12.16.

Samsung Electronics Co. climbed 5.3 percent to 489,500 won Prices of the benchmark DRAM chip on Dec. 18 climbed 12 percent, the first increase since June, according to Dramexchange Technology Inc., Asia’s biggest spot market for chips.

“Production cutbacks are triggering sentiment that chip prices won’t decline further,” Jay Kim, an analyst at Hyundai Securities Co., wrote in a note. “Output reductions are sending a message that supply growth at the end of the year and early 2009 will slow significantly.”

Honda, Japan’s second-largest automaker, slid 5.9 percent this week to 1,807 yen. The company cut its full-year forecast by 62 percent on Dec. 17.

To contact the reporters for this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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India Central Bank May Extend Rate Cuts Amid Slowing Inflation

By Kartik Goyal

Dec. 20 (Bloomberg) -- India's central bank has scope to extend the steepest set of interest-rate cuts since 2000 after inflation slowed to a nine-month low, economists said.

The country's benchmark 10-year bonds yesterday completed the biggest weekly gain in at least a decade as investors speculated the central bank will add to the three interest-rate cuts of the past two months. A report this week showed inflation slowed more than economists expected, to 6.84 percent in the first week of December.

Easing inflation may alleviate the central bank's concern earlier this week that faster than ``acceptable'' price gains have made monetary-policy management more complex amid slowing growth. The Reserve Bank of India's actions should have been ``more aggressive'' to counter the global recession, according to Arvind Virmani, the finance ministry's chief economic adviser.

``Inflation is no longer a concern now and that gives the central bank huge leeway to cut borrowing costs,'' said Sonal Varma, an economist at Nomura International Plc in Mumbai. ``Inflation has gone below the central bank's year-end target for the first time this year, softening its worries over prices.''

Bonds rallied after the Dec. 18 inflation report. The yield on the 8.24 percent note due April 2018 dropped 66 basis points this week to 5.56 percent in Mumbai, according to the central bank's trading system. The Reserve Bank hasn't commented on the latest inflation data.

`Aggressive Cuts'

Slowing inflation is prompting central banks from the U.S. to Malaysia to cut interest rates as global economies slump amid the worst financial crisis since the Great Depression.

The Philippine central bank on Dec. 18 cut its benchmark interest rate to 5.5 percent. The U.S. Federal Reserve lowered its main rate to as low as zero on Dec. 16, and the Bank of Japan reduced its benchmark to 0.1 percent yesterday.

``The key meaningful policy response to the worsening economic situation will be aggressive policy rate cuts,'' said Rajeev Malik, regional economist at Macquarie Group Ltd. in Singapore. ``The mother of all monetary easing will continue to play on in India.''

Growth in Asia's third-largest economy may slow to 7 percent in the year ending March 31 from 9 percent or more annually in the previous three years as the global slump hurts exports, according to the government. India's industrial production fell 0.4 percent in October, the first decline in 15 years, and exports plunged 12 percent.

'Difficult Year'

``This year is difficult,'' Palaniappan Chidambaram, who was India's finance minister until Dec. 1, said this week. The economy expanded at the slowest pace since 2004 in the three months to Sept. 30. Chidambaram is currently the home minister.

To revive consumer demand and lending, the Reserve Bank on Dec. 6 cut its benchmark repurchase rate to 6.5 percent from 7.5 percent, the third reduction since Oct. 20. The following day, the government announced a $4 billion stimulus package to bolster spending, including lower taxes on consumer goods like cars, television screens and motorbikes.

India is working on more measures to boost economic growth and may announce a second installment of the stimulus package soon, Trade Minister Kamal Nath said last week.

``The central bank is likely to continue with further monetary easing on an ongoing basis,'' said Siddhartha Sanyal, an economist with Edelweiss Capital Ltd. in Mumbai, who expects prices in India to fall next year on cheaper commodities.

Inflation eased in the week to Dec. 6 after a drop in crude oil costs led the government to cut retail fuel prices, helping cool price-gains further from a 16-year high of 12.91 percent in August. Crude oil has tumbled more than 70 percent from a record $147.27 on July 11.

The central bank will review its inflation forecast in the Jan. 27 monetary-policy meeting, Governor Subbarao said Dec. 11, signaling he may lower an earlier estimate of 7 percent for the current fiscal year.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal @bloomberg.net.



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Japan’s Budget Hits Record as Aso Seeks for Recovery

By Keiko Ujikane

Dec. 20 (Bloomberg) -- Japan’s government expenditure will increase to a record next year as Prime Minister Taro Aso tries to spend his way out of a recession and lift his slumping popularity ahead of an election.

Spending will rise 6.6 percent to 88.5 trillion yen ($988 billion) in the year starting April 1, a third year of expansion, according to a budget proposal released by the Finance Ministry in Tokyo today. The government will sell 33.3 trillion yen of new debt, the most in four years on an initial budget base, to help fund a revenue shortfall.

In his first budget since taking the helm in September, Aso is expanding a debt burden that’s already the largest in the industrialized world as the economic slump cuts revenue and forces him to spend more to spur growth. His approval rating fell by half this month as voters and lawmakers in his own party shunned his handling of the world’s second-largest economy.

“Aso has little choice but to take more measures to restore his political leadership and regain support from voters,” said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “Fiscal reform may be put on the shelf for the next three years as the economy is getting worse, forcing the government to spend more.”

Aso’s approval rating fell to 16.7 percent from 38.8 percent last month, Jiji Press reported yesterday.

The budget deficit will widen to the most in four years. The so-called primary deficit, the excess of spending over revenue excluding bond sales and interest payments, will balloon to 13.1 trillion yen from this year’s 5.2 trillion yen, the ministry said.

Yen Rally

The yen has rallied even though Japan is borrowing more to finance the deficit. The currency is up 25 percent against the dollar this year as the seizure in credit markets leads investors to reverse so-called carry trades, where they took out loans in Japan to take advantage of the lowest benchmark interest rates among the Group of 10 industrialized nations. They then sold the yen and invested the proceeds in high- yielding assets outside the country.

The ministry estimates growth in tax revenue will fall 13.9 percent to 46.1 trillion yen next year, compared with this year’s 0.2 percent gain. The government will increase new bond sales 31.3 percent, compared with a 0.3 percent cut in the initial budget last year.

Increasing spending at a time when tax revenue is falling threatens the government’s goal of balancing the budget by 2011. Aso has said that the government shouldn’t prioritize fiscal discipline when the economy is ailing.

“The primary balance goal has turned out to be a pie in the sky,” said Hitomi Kimura, a bond strategist at JPMorgan Securities Japan Co. “There are very few people who believe it will be achieved in 2011.”

With receipts dwindling, Aso tried to come up with ideas to find new sources of revenue, only to have them rejected by members in his party. LDP politicians decided not to pursue an increase in the nation’s tobacco tax next year because the move would alienate tobacco farmers and hurt cigarette sales. The government owned 50 percent of Japan Tobacco Inc., the world’s third-largest publicly traded cigarette maker, as of March 31, according to Bloomberg data.

Aso’s Pledge

Lawmakers also shrugged off Aso’s pledge to raise the consumption tax from 5 percent in three years, omitting it from its tax reform plan this month.

The shortfall in revenue prompted the government to tap so- called special accounts, bureaucrat-run funds set aside from the regular national budget. The government will use the money to pay for an increase in its contribution to the national pension program.

Using such stop-gaps may spur concern among investors that Japan won’t be able to keep refinancing its increasing debt burden.

“The clock is ticking,” said Carl Weinberg, chief economist at High Frequency Economics in New York. “Any run-up in the fiscal deficit in 2009 will drive JGB yields higher.”

The cost of paying interest and redeeming bonds will total 20.2 trillion yen, about a quarter of total spending. A 1 percentage point gain in the yield on benchmark 10-year government bonds will increase those costs by about 1.3 trillion yen next year, the ministry projects.

Tax Cuts

In his stimulus packages, Aso has pledged 2 trillion yen in financial assistance for families, 1 trillion yen for local authorities and about 1 trillion yen in tax cuts.

Japan’s Finance Minister Shoichi Nakagawa said that his ministry compiled the budget in the hope it will keep economic and employment conditions from worsening and make Japan a leader in recovery efforts.

“In the big recession we have now, a big budget is probably a good idea,” said Robert Feldman, head of economic research at Morgan Stanley Japan in Tokyo. “However, it is very important that money will be spent by the government wisely.”

Tax grants and other subsidies to local government will increase 6.1 percent to 16.6 trillion yen next year to aid rural areas, according to the proposal.

The budget will be approved by the Cabinet on Dec. 24 and submitted to parliament in January for passage by March 31.

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

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China Needs Second Stimulus Package to Aid Poor, Boost Spending

By Li Yanping

Dec. 20 (Bloomberg) -- China may need a second stimulus package focused on boosting consumption and helping the poor as the economy slumps before $4 trillion yuan ($585 billion) of infrastructure spending kicks in.

“China's economy is going through a shock period,” said Lu Ting, an economist at Merrill Lynch & Co. “The government must aid the unemployed and households in general to help people survive.”

China should cut taxes, do more to boost incomes, and follow Japan and Taiwan in handing out shopping coupons, economists at Merrill Lynch, China International Capital Corp. and Barclays Capital said. Announcing a package of measures could help to revive confidence as a slowdown deepens in the world's fourth- biggest economy.

“The government may announce a package at the start of next year to try to revive confidence,” said Xing Ziqiang, a Beijing- based economist for CICC. “That's when the economy may be at its worst.”

China can sustain a deficit of as much as 900 billion yuan next year, up from this year's budgeted shortfall of 180 billion yuan, to fund measures to boost consumption, according to Xing.

One measure would be to raise the threshold for individual income tax from 2,000 yuan, a proposal discussed at an economic planning summit this month, according to state media.

Spending Jolt

Another would be to issue shopping coupons, giving an immediate jolt to consumption, according to CICC's Xing. Taiwan announced a voucher scheme last month and Japan did the same in 1999.

The south-west city of Chengdu is giving 100-yuan coupons to 380,000 people, including low-income earners, the local government said this month, adding that it was the first Chinese city to do so.

China's cabinet pledged Nov. 9, when it unveiled the infrastructure spending package, to boost incomes and consumption via measures including subsidies for the urban poor and farmers.

It may need to do more, faster, said Peng Wensheng, head of China research at Barclays Capital in Hong Kong.

“To stimulate consumption may be more difficult than boosting investment by directly increasing spending,” said Peng. “The government has to act early rather than late.”

Deepening Slump

China's economic slowdown is deepening because a slump in the property market and construction has coincided with waning overseas demand for the nation's toys and computers.

The World Bank forecasts a 7.5 percent expansion in 2009, the nation's weakest growth in almost two decades.

Last month, the lender said China needed to more quickly switch from investment, exports and industry to consumption and services as the drivers of growth.

Boosting spending on health, education and social welfare would aid low-income earners and “reduce the reluctance to consume,” it said in a report.

The National Development and Reform Commission, the nation's top economic planning agency, has proposed income-tax cuts, salary increases and larger housing subsidies, China's Economic Observer newspaper reported Nov. 23.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net

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Shirakawa Prepares More Remedies to Buoy Japan's Ailing Economy

By Mayumi Otsuma

Dec. 20 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa is preparing more measures to prevent the recession from deepening after the speed of the economy’s deterioration forced him to cut interest rates to near zero.

Shirakawa and six of his seven policy-making colleagues yesterday voted to reduce the overnight lending rate to 0.1 percent from 0.3 percent. The bank will also start purchases of commercial paper, taking on the risk of corporate default.

“I’ve never experienced such a sudden change in conditions,” Shirakawa said at a news conference yesterday. The bank’s staff will “investigate how other corporate financing instruments may be employed” and report their findings to the policy board “as swiftly as possible,” he said.

The central bank’s second reduction in two months came after the Federal Reserve this week cut its target rate as low as zero, driving the yen to a 13-year high against the dollar. Japan’s business confidence slumped the most in 34 years, the central bank’s quarterly Tankan survey showed this week, a sign companies are likely to cancel spending plans and cut more jobs.

“The Japanese economy will deteriorate at a drastic pace next year and the Bank of Japan is aware of it,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank will have to cut rates to zero by the end of March and do more later on.”

The world’s second-largest economy is “deteriorating,” the bank said, lowering its assessment from “increasingly sluggish” in November.

Credit Crunch

Funding for Japanese companies dried up amid a global credit crunch. Japan’s interbank offered rate for three-month loans, Tibor, rose to the highest in a decade earlier this week before falling three straight days.

To help unfreeze the credit market, the bank will buy commercial paper from financial institutions for the first time, taking on the risk that some companies might default on their debt.

“The measure will have a sizeable impact, as corporations have acute short-term fundraising needs,” said Hironari Nozaki, an analyst at Nikko Citigroup Ltd. in Tokyo.

The bank will also raise its monthly government bond purchases from lenders, its main tool for adding funds into the banking system, to 1.4 trillion yen ($15.6 billion) from 1.2 trillion and will broaden the range of debt it buys to include 30-year, floating-rate and inflation-indexed bonds.

Positive Message

“The Bank of Japan offered the fullest range of policy measures that it can afford at this stage,” said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “Though the steps may not give a big boost to the economy, they do send a positive message.”

Japanese bonds rose after the decision, pushing 10-year yields to the lowest level since July 2005. The Nikkei 225 Stock Average slipped 0.9 percent.

The rate cut failed to temper gains in the yen, which rose to 88.93 per dollar as of 7:30 p.m. in Tokyo yesterday from 89.28 shortly before the decision. The yen has climbed 25 percent against the dollar this year.

Shirakawa refrained from cutting the central bank’s overnight rate all the way to zero, arguing that even at 0.1 percent, preserving a positive rate will help the functioning of the money market.

Money-Market Trading

“Keeping positive interest rates can manage to maintain incentives for money-market trading and the market mechanism,” Shirakawa said. “We set the benchmark rate at 0.1 percent by very carefully balancing the impact on the market function and support for the economy.”

Bank of Japan policy makers pledged in today’s statement that they will do their “utmost” to return the economy to an expansionary path.

“The BOJ cannot solve all the problems that Japan is facing,” said Kirby Daley, senior strategist at Newedge Group in Hong Kong. “These are steps that need to be taken to try to buffer the troubles that they’re going to have in 2009, but they don’t have all the answers, just like the Fed doesn’t have all the answers.”

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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IMF Approves $76 Million Aid for Senegal to Combat High Prices

By Madelene Pearson

Dec. 20 (Bloomberg) -- The International Monetary Fund approved a one-year $75.6 million aid deal for Senegal to help the African nation offset higher food and energy prices.

The approval will allow Senegal to draw about $37.8 million from the IMF immediately, and an equal amount upon completion of the first review under an arrangement to help nations deal with external events that affect their budgets, the IMF said in a statement.

“The Senegalese economy is facing a difficult period,” Murilo Portugal, deputy managing director of the IMF’s executive board, said in the statement. “Economic growth has slowed significantly, as a result of government payment delays to the private sector and the effect on consumption of high food and energy prices.”

Senegal has clamped down on spending after it overspent its budget this year by an amount that may run into hundreds of millions of dollars, the IMF said in September after a visit to the country. Commodities from oil to wheat, rice and corn rose to records this year before later easing.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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