shareswizard of 10years and still going strong

ANOTHER ROUND OF KATEKS TRAP

AS IF THE BERNANKE POSITIVE NEWS IS NOT ENOUGH---

1.--BOJ Said to Be Open to Expanding Emergency Loans, Bond Buying

Jan. 25 (Bloomberg) -- Bank of Japan policy makers are prepared to consider expanding an emergency-loan program for banks and increasing purchases of government debt should the recovery falter, people with knowledge of the matter said.

The central bank’s board will leave interest rates and its lending program unchanged tomorrow, 16 of 17 economists said in a Bloomberg News survey. How it responds in coming months will depend on the extent of any further economic shocks -- such as a surge in the yen to November’s 14-year high -- the people said on condition of anonymity because the talks are private.

“Should a rise in the yen threaten to damp corporate and consumer sentiment and exacerbate deflation, the BOJ will probably expand the loan program,” said Masaaki Kanno, a 25- year veteran of the central bank who is now chief economist at JPMorgan Chase & Co. in Tokyo. “If that’s not enough, the bank may turn to more bond buying.”

While increased liquidity injections may help restrain the yen, an expansion of the monthly 1.8 trillion yen ($20 billion) of bond purchases may spark concern the BOJ is financing the government’s deficit spending. Central bankers would have to counter any such perception, and may need to stress the urgency for Prime Minister Yukio Hatoyama’s administration to rein in the budget gap, one of the people said.

The Bank of Japan may be unique in considering additional monetary stimulus among the Group of 20 major economies this year. Exporters have led the rebound from the country’s worst postwar recession as falling wages, job losses and factory overcapacity hamper spending and deepen price declines at home.

Expand Credit Program

Central bank Governor Masaaki Shirakawa and his colleagues, who begin a two-day meeting today, will leave the benchmark interest rate at 0.1 percent tomorrow, according to all of the 17 economists surveyed.

One of the analysts, Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo and a former BOJ official, said the bank may expand the 10 trillion yen lending program it introduced Dec. 1 in reaction to the yen’s climb to 84.83 per dollar. The currency jumped more than 1 percent at the end of last week, to as high as 89.79 in Tokyo trading, underscoring the risk to the nation’s exporters.

The emergency lending facility, which provides commercial banks with funds for three months at 0.1 percent, could be expanded in stages, one of the people said. Along with increasing the size, officials might extend the maturity of the loans to six months, and later to 12 months, the person said.

‘Crucial Challenge’

Governor Shirakawa said last week that stamping out deflation is a “crucial challenge” and the bank will persist with its low-rate policy to aid growth. He said he expects the economy to keep growing, fueled by overseas sales, though the revival of exports and output has yet to spur domestic demand.

When the yen was trading around 93 per dollar on Jan. 7, Finance Minister Naoto Kan said he wanted it to weaken “a bit more” and he will seek to cooperate with the Bank of Japan on the currency’s level. The yen’s gain last week made it stronger than the 90-to-mid-90s range that Kan has said manufacturers regard as “appropriate.”

There are “still various policy measures that could be taken” by the government and the bank, Kan said Jan. 14. Last week he said it “would be going too far if the government asked the BOJ to implement specific monetary policy measures.”

With a public debt that’s almost twice the size of the economy, Kan may have little room to increase spending beyond the record 92.3 trillion yen budgeted for the year starting April 1.

‘Put the Heat On’

“The government may put the heat on the BOJ should the yen gain rapidly and stocks slide before the fiscal year end,” said Mari Iwashita, chief market economist at Nikko Cordial Securities Inc. in Tokyo. “The government is overwhelmed by the task of passing next year’s budget bill, so it has no choice but to depend on the BOJ if the economy stumbles.”

So far, borrowing costs remain contained even as the fiscal condition deteriorates, as deflation attracts investors to government debt. The yield on the 10-year note was at 1.325 percent on Jan. 22.

“I see a 30 percent chance that the bank will buy more bonds,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “The BOJ at heart probably wants to prevent more bond purchases because any increase would fuel speculation” that it will monetize the debt, Ueno said.

Any consideration by the board to buy more government bonds may hinge on whether the bank sticks to a self-imposed rule of limiting its holdings of the securities lower than the amount of bank notes in circulation. Bank notes are decreasing and the room to increase bond purchases is narrowing, one of the people with knowledge of the situation said.

Another option is for the bank to specify the period for keeping rates low, one of the people said, adding that it’s not currently an urgent issue. When it introduced a quantitative easing policy of pumping cash into the banking system in March 2001, it said the step would stay until prices stopped falling.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net
Last Updated: January 24, 2010 10:01 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=amzUp8cG7ZHs



2.-SEC May Approve Restrictions on Short Sales When Stocks Plunge
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By Nina Mehta

Jan. 23 (Bloomberg) -- Concern that short-sellers accelerate stock declines may prompt the Securities and Exchange Commission to adopt a rule next month aimed at curbing bearish bets when equities are plunging.

The regulation would require the trades be executed above the best existing bid in the market when shares fall 10 percent in a day, said Brian Hyndman, the senior vice president in transaction services at Nasdaq OMX Group Inc. In a short sale, an investor borrows an asset and sells it, hoping to profit from a decrease by repurchasing it later at a lower price.

Forcing short sellers to wait for a stock to rise above the best price bid may prevent them from flooding the market with sell orders and causing losses to multiply. Some exchange officials say the restrictions known as uptick rules don’t work, citing studies that show they may be less effective during panics that drive prices down and volatility up.

“There is no empirical data to support the introduction of a new rule,” Hyndman said yesterday at a securities industry conference in Chicago. “But this is the least intrusive of the proposals the SEC was considering.”

Hyndman expects the SEC to adopt a so-called alternative uptick rule that includes a 10 percent trigger, changing regulations that were eliminated from U.S. markets in 2007. The commission asked the public last April to comment on strategies to cushion the impact of short selling following criticism that hedge funds and other speculators used trading tactics to deepen market retreats that began in 2008.

SEC spokesman John Heine declined to comment.

Computer Upgrades

The Standard & Poor’s 500 Index dropped 9.1 percent in September 2008 after New York-based Lehman Brothers Holdings Inc. filed the biggest-ever bankruptcy. The SEC implemented a ban on short selling more than 900 financial stocks that month after Morgan Stanley Chief Executive Officer John Mack and New York Senator Charles Schumer blamed the practice for driving companies to the brink of collapse.

The implementation date for the new rule is likely to be later in the year, according to Hyndman, who didn’t say what he was basing his estimate on. He said exchanges and brokers will probably have 180 days to upgrade their computer systems to accommodate the regulation.

Nasdaq in New York, Kansas City-based Bats Exchange and Jersey City, New Jersey-based Direct Edge Holdings LLC, which operates two alternative trading centers, have told the SEC that no new restrictions on short selling are needed. Paul Adcock, executive vice president in charge of trading at NYSE Arca, a unit of New York-based NYSE Euronext, said that while most exchanges oppose a new regulation, it’s probably inevitable.

Potential Impact

“Because the politicians and the public are all banging the drums, we’re not going to get away with this one,” Adcock said about the reluctance of exchanges to support new short- selling restrictions.

The SEC discussed the potential impact of such a rule when it proposed the alternative uptick last August. Because it would restrict short selling more than other proposals being considered, the regulation might “lessen some of the benefits of legitimate short selling, including market liquidity and pricing efficiency,” the commission said.

When the SEC proposed the alternative uptick rule, it said it would be easier for exchanges and brokers to implement than the former regulation that operated on the New York Stock Exchange for almost 70 years before its removal in 2007. That rule would no longer make sense in a marketplace of automated trading, the commission said.

No Trigger

The rule was proposed to the SEC last March by NYSE Euronext, Nasdaq, Bats and the Chicago-based National Stock Exchange. NYSE Euronext last June said it preferred a different bid test with no 10 percent threshold.

NYSE Euronext’s Adcock raised concern at yesterday’s conference that so-called circuit breakers setting off the restriction might keep stocks from falling as much as they should when a company reports bad news.

“Do you trigger the 10 percent when the stock should be trading down?” Adcock said. The trigger would be mandated uniformly across trading venues when a stock declines by the specified percentage.

Daniel Aromi and Cecilia Caglio, economists at the SEC in Washington, said in a December 2008 report to former Chairman Christopher Cox that even with uptick rules in place, short sellers in a simulation executed trades 25 percent faster on average when stocks plunged than when prices were steady.

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net.
Last Updated: January 23, 2010 00:00 EST