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Broadgate: Market News 27/2

27 February 2012

Bank of Japan Governor Masaaki Shirakawa’s inflation goal is succeeding where record intervention failed, as the yen heads for its steepest monthly drop in two years.

The currency reached an almost nine-month low after the BOJ, which has struggled for more than a decade against deflation, said on Feb. 14 it aimed for 1 percent annual gains in consumer prices and would add 10 trillion yen ($123 billion) to the economy.

Shirakawa needs a weaker yen to help Japan export its way out of a recession made deeper by last year’s earthquake and the worst nuclear crisis in a generation.

Energy imports to replace lost capacity have reversed trade surpluses that made the currency a refuge in a slowing global economy. Prospects of higher inflation are driving it down, at least for now.

Oil fell from the highest level in more than nine months as investors speculated prices may have climbed too far after the International Monetary Fund warned that the global economy is still at risk of a slowdown.

Oil has advanced 11 percent this year amid concern that sanctions against Iran’s nuclear program will disrupt crude supplies from the second-biggest producer in the Organization of Petroleum-Exporting Countries. Iran has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to an embargo.

China, the biggest supplier of rare earths, may almost double exports this year and meet quotas set by the government as lower prices stimulate demand.

Chinese exports were 49 percent of the government-alloted quota in the first 11 months of last year because the slowing global economy sapped demand, the Ministry of Commerce said in a Dec. 27statement. Overseas sales quotas may be virtually unchanged this year at 31,130 metric tons, based on Bloomberg calculations.

“Export quotas may be met this year as overseas demand recovers,” Wang Caifeng, a former official overseeing the rare- earth industry with the Ministry of Industry and Information Technology, said in an interview in Beijing. “High prices last year had deterred purchases and led to inventories depletion. Smuggling also hampered exports through illegal channels.”

Prices of rare earths have tumbled since the third quarter as consumers including makers of electric cars and wind turbines sought to reduce use. The average price of lanthanum oxide, a rare earth used in rechargeable batteries and refining catalysts, was 129,167 yuan ($20,508) a ton in the fourth quarter, 15 percent less than in the third quarter, according to data from Shanghai Steelhome Information.

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

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