Finance news. My opinion.

A congressional watchdog panel warned on Thursday that mounting commercial real estate losses could endanger the banking system and thwart economic recovery.

A total of $1.4 trillion in commercial real estate loans will require refinancing in the next four years, the Congressional Oversight Panel said in a report. More than half of those loans are underwater, written for properties whose value has dropped like a rock.

The expected losses when loans go bad could hit between $200 billion to $300 billion and threaten 3,000 small and mid-size banks with a disproportionate share of commercial real estate assets on their books, according to the panel.

The report is intended to "wave a red flag" to the White House and Congress that the commercial real estate loan market is going to get a lot worse before it gets better.

"We’re at a point where even as TARP is ramping down another major challenge in our economy is ramping up," said Elizabeth Warren, the oversight panel’s chairwoman. "We need to start now, before the system is on the brink of collapse to figure out a plan," she added.

The panel’s research found that 2,988 banks are heavily invested — with more than three times their assets tied up — in commercial real estate loans. Of that number, 2,500 banks each have less than $1 billion in assets.

Indeed, many such smaller banks have already failed. Small bank failures"will intensify sharply over the next few years," Warren said.

"When commercial properties fail, the result is a downward spiral of economic contraction, as these are the same small banks that create jobs and boost economic activity," she said Business Card Holders.

Solutions: The panel offers a number of possible solutions for policymakers to head off a commercial real estate crisis. For example, it says the Treasury Department should "stress test" banks that are concentrated in commercial real estate loans.

Treasury Secretary Tim Geithner said at a congressional hearing last fall that "it is not realistic or feasible" to review such a large number of banks in a detailed level.

The oversight panel also suggested that the federal government should consider other remedies, including injecting capital into these small banks, buying their toxic assets or guaranteeing loans.

Bank regulators could also simply allow banks to extend underwater loans rather than requiring them to recognize losses, but the panel worries that such a move could delay a rebound in bank lending. But the panel also worries that massive writedowns throughout the banking system could stymie lending and create a "negative bubble."

"There’s a need for a nuanced response," Warren said. She said that banks should recognize some commercial real estate losses, but that regulators should monitor them closely to ensure that losses don’t spiral downward and drag down the larger economy. 

Source

Payday loan online - Quick application results in seconds.

Liberty Global, the international cable operator controlled by John Malone, has agreed to buy Unitymedia from a private equity group for $3 billion in its first German acquisition.

The sale of Germany’s second-biggest cable network by a shareholder group led by BC Partners and Apollo is worth $5.2 billion including assumed debt and marks the largest private equity exit in Europe this year.

The private equity group bought Unitymedia for 1.5 billion euros ($2.2 billion) in 2003.

Unitymedia, second behind Kabel Deutschland, has 4.5 million subscribers in a region covering 10 of the country’s 20 biggest cities, including Cologne, Duesseldorf and Frankfurt.

Liberty Global was created from the combination of cable pioneer Malone’s Liberty Media International and UnitedGlobalCom in 2005.

It operates in Austria, the Netherlands, Eastern Europe, Asia and Latin America and had until now avoided Germany because of regulatory complications. Unitymedia has taken some measures to simplify operations.

BC Partners and Apollo had been running a dual-track process in which they also considered an initial public offering. Liberty Global now plans to increase Unitymedia’s debt to $3.7 billion and use part of the proceeds to fund the equity buy.

The remainder would be funded by a combination of existing liquidity, proceeds from the sale of $750 million in convertible notes and the sale of 6 million Series A and C shares to SPO Partners & Co for about $128 million, Liberty said no credit check payday loan.

GOOD TIME FOR A COMEBACK

Malone, known for creating Byzantine holding structures, has tried to make inroads into Germany before.

In 2001, Liberty Media launched a multi-billion euro bid to become Germany’s largest cable operator by buying assets from Deutsche Telekom and Deutsche Bank. That was eventually blocked by German regulators.

Guy Bisson, a senior analyst at research firm Screendigest, said Liberty tends to pursue market leaders and Kabel Deutschland would have been the natural choice.

“But as a strategic player Unitymedia is the stronger one,” Bisson said because Unitymedia had a higher uptake of digital TV and higher revenue-generated units (RGU) per household.

Asked about regulatory obstacles that thwarted Malone before, Bisson said: “In the late 1990’s everyone thought the German market would turn the corner and become more commercial but that never happened…It’s starting to happen now, so it’s a good time to get back in the market.”

Arndt Rautenberg of OC&C Consultants said he was curious to see how Liberty would increase Unitymedia’s core profit. 

Read more

U.S. business productivity grew at its fastest clip in six years in the third quarter and new claims for jobless aid fell to a 10-month low last week, suggesting the labor market may be starting to bottom out.

The Labor Department said on Thursday that productivity surged at a 9.5 percent annual rate, the quickest pace since the third quarter of 2003, as companies squeezed more output from a smaller pool of labor to hold the line on costs.

The Labor Department also reported that initial claims for state unemployment benefits dropped to 512,000 in the week ended October 31, the lowest level since early January. Markets had expected a decline to only 523,000, from the 530,000 reported in the prior week.

Some healing of the labor market is crucial to sustaining and strengthening the economy’s recovery after its worst recession in 70 years, with employment key to underpinning consumer spending.

Analysts doubt that the rapid growth rate in productivity, which measures the hourly output per worker, can be sustained, which some analysts say means businesses may soon have to step up hiring to meet the demand for their goods and services.

“We expect the pace of efficiency gains will soon begin to fade,” said Michelle Girard, a senior economist at RBS in Greenwich, Connecticut. “Having cut payrolls so dramatically during the last downturn, we believe that companies will be forced to add workers earlier in this recovery than was the case following the last two recessions.”

U.S. stocks rallied on the reports, with the productivity data viewed as good news for company earnings. The blue chip Dow Jones industrial average gained more than 2 percent and closed above the 10,000 threshold for the first time in about two weeks payday loans for bad credit.

Financial markets had expected productivity to rise at a 6.4 percent rate. It grew at a 6.9 percent pace in the April-June period, when the economy was still contracting.

MUTED INFLATION PRESSURES

The U.S. Federal Reserve on Wednesday held overnight interest rates close to zero percent and said it would keep them extraordinarily low as long as excess economic slack and a lack of inflation warning signs prevailed.

The U.S. economy grew in the third quarter for the first time in more than a year, driven largely by government stimulus. The strong productivity report suggested there was little need to worry about inflation at this juncture.

Unit labor costs, a measure of the cost of labor for any given amount of production, fell 5.2 percent last quarter after declining 6.1 percent the previous period. Analysts had forecast a drop of only 4 percent.

“Solid productivity growth provides the basis for a recovery in business earnings and investment in the second half of 2009, and keeps a firm lid on prices and inflation,” said Brian Bethune, chief U.S. financial Economist at IHS Global Insight in Lexington, Massachusetts.

“They provide the Fed more room to keep rates exceptionally low for an extended period in order to coax the economy through the fragile recovery period over the next year and ultimately to an expansion mode.”

Productivity in manufacturing rose at a record 13.6 percent rate in the third quarter, likely driven by automakers ramping up production to rebuild depleted stocks after the popular “cash for clunkers” program boosted sales. 

Read more

Deputy Treasury Secretary Neal Wolin, the department’s No. 2 official, said he expects Congress to revamp financial regulations for Wall Street this year.

Congress is considering legislation that would impose tighter regulations on banks, lenders, and other financial institutions following the worst recession since the Great Depression.

One proposal, the creation of a Consumer Financial Protection Agency, remains a top priority for President Barack Obama, Wolin said in an interview today at a conference hosted by the Congressional Black Caucus in Washington.

The plan would create the consumer agency and move most of the $592 trillion over-the-counter derivatives market onto regulated exchanges and increase capital requirements fast payday loan no faxing. It would also boost oversight of the systemic risks large financial institutions pose to the economy and give the government power to dismantle failed companies.

“There is a definite need for an agency that focuses on consumer protection as part of our overall structure for a financial services regulatory framework,” he said.

Wolin’s office translated the administration’s 88-page financial-regulations proposal into more than 600 pages of legislation for lawmakers to use as a foundation for crafting their proposals.

Source

The Philippine government reported a fourth monthly budget deficit in August as tax revenue faltered amid the global recession, prompting the peso to fall.

The shortfall of 22 billion pesos ($460 million) widened the eight-month deficit to 210 billion pesos, the Finance Department said in an e-mail in Manila today. Spending fell 0.2 percent in August from a year earlier and revenue dropped 20.1 percent after falling 3 percent in July.

Slowing economic growth earlier this year prompted the government to widen its 2009 budget-deficit target to a record 250 billion pesos, as the global slump hurt tax collection and forced President Gloria Arroyo to boost spending. The budget report may revive investor concern about the strength of the Philippine economy, said Antonio Espedido at China Banking Corp.

“The budget deficit is a sign of weakness,” said Espedido, a Manila-based treasurer at China Banking. “If there’s a sign of weakness, some investors try to pull out of the country.”

The peso, which was little changed before the announcement, fell 0.2 percent to 47.895 a dollar at 10:02 a unsecured personal loans.m. in Manila, according to Tullett Prebon Plc. The Philippine Stock Exchange Index dropped as much as 0.6 percent.

The Philippine government said yesterday it had sold 100 billion pesos of so-called retail bonds, in an offering scheduled to end Sept. 22. That compares with 70 billion pesos last year.

Dollar Bonds

The government sold $750 million of U.S. dollar bonds in July, adding to $1.5 billion sold in January. Its targeted 2009 budget deficit would be the biggest since Bloomberg data began in 1985.

The Southeast Asian nation’s economy grew 1.5 percent in the second quarter from a year earlier, accelerating from a decade-low 0.6 percent the previous three months.

The Bureau of Internal Revenue, responsible for more than 60 percent of government earnings, collected 67.6 billion pesos in August, 14 percent lower than a year earlier, according to the budget report today. Collection at the Bureau of Customs fell 28.5 percent.

Source

Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, said he plans legislation to restrict the Federal Reserve’s emergency lending powers and subject the central bank to a “complete audit.”

At a recent town hall meeting, Frank said the House would pass a bill to use an audit to crack open the central bank’s books more widely, but in a way that will not encroach on the central bank’s monetary policy independence.

In addition, he said the House would move to rein in the authority that allows the Fed to lend to a wide range of non-bank firms in “unusual and exigent circumstances.”

A bill sponsored by Texas Republican Rep. Ron Paul that would allow the Government Accountability Office, a federal watchdog agency, to audit Fed interest-rate decisions has won the co-sponsorship of more than half of the House.

Fed Chairman Ben Bernanke has warned that the bill would compromise the U.S. central bank’s policy-making independence and could undermine financial markets and the economy.

Frank said he has been working with Paul on compromise language. “He agrees that we don’t want to have the audit appear as if it is influencing monetary policy because that would be inflationary,” Frank told constituents. A video of his remarks was posted on the popular video file-sharing website YouTube here .

Steven Adamske, a spokesman for Frank, told Reuters compromise language had not yet been written. He provided no further details. A spokesman for Paul could not be reached.

OCTOBER TARGET

Frank said the audit and emergency lending provisions would be incorporated in broader legislation to revamp U.S. financial regulation that would likely pass the House in October car loan interest rates. By seeking a compromise with Paul, Frank could strengthen the broader legislation’s chance at passage.

As chairman of the House Financial Services Committee, Frank is a key player in the effort to overhaul U.S. financial regulation.

The Obama administration has proposed giving the Fed responsibility for overseeing firms whose collapse could endanger the entire financial system. At the same time, it wants to strip the central bank of its consumer protection function, and invest that authority in a new agency.

Frank expressed unease at what he called the Fed’s power to “lend money to anybody they want” in emergency circumstances. “We are going to curtail that lending power. We are going to put some restraints on it,” he said.

Since the financial crisis struck two years, the Fed has used this emergency authority to prop up a number of non-bank financial firms with billions of dollars in loans, including insurer American International Group.

The Fed’s actions have angered many lawmakers who are concerned the central bank has put taxpayer money at risk. Fed officials have defended their actions as necessary to prevent a deeper credit crisis and widespread damage to the economy.

Bernanke, who President Barack Obama nominated this week to serve a second four-year term at the helm of the central bank, told lawmakers in July that the Fed understands the need to be accountable to taxpayers but that monetary policy decisions needed to be shielded from political interference. 

Read more

Ben S. Bernanke deserves another term as Federal Reserve Chairman based on his success in battling the financial crisis, said Princeton University Economist Paul Krugman, a winner of the Nobel Prize.

“He’s earned the right to a second term,” Krugman, 56, said yesterday in an interview in Kuala Lumpur. “He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets.”

Debate over the fate of Bernanke, 55, is intensifying as he nears the end of his four-year term as chairman on Jan. 31. While Krugman and economist Nouriel Roubini have voiced support for the former Princeton economist, others including Anna Schwartz have said a lack of transparency exacerbated the financial crisis.

“I think Bernanke has done a really good job,” Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.”

As his terms draws near an end, Bernanke has written in the Wall Street Journal and appeared on television to defend the unprecedented actions he took during the financial crisis.

“In a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said last month at a town-hall-style meeting in Kansas City, Missouri, taped for broadcast on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”

Zero Rates

Under Bernanke’s stewardship, the Fed cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1 lowest fee payday loans.1 trillion over the past year.

Joseph Stiglitz, another Nobel Prize-winning economist, said on Aug. 5 that he expects a “very slow recovery” and that a replacement for Bernanke should be considered.

“There are lots of potholes in the road,” Stiglitz, a Columbia University economics professor, said in an interview. “There are problems in commercial real estate. We know that there will be more foreclosures in the mortgage market” and “we know we don’t know the state of the banks.”

Squared Off

Economists Roubini and Schwartz squared off in the New York Times last month over Bernanke’s fate. Roubini, the New York University professor who predicted the credit crisis, voiced support for the central banker, while Schwartz, co-author with Milton Friedman of a history of U.S. monetary policy, wrote that the chairman should be replaced because of policy missteps and a failure to clearly articulate the bank’s goals.

The Fed also helped rescue Bear Stearns Cos. and American International Group Inc. last year while backing creation of the $700 billion Troubled Asset Relief Program.

Schwartz said Bernanke failed to explain why the Fed supported the rescue of Bear Stearns and not Lehman Brothers Holdings Inc., whose bankruptcy in September 2008 added to the severity of the credit crisis.

President Barack Obama said last month that Bernanke has done “a fine job” as Fed chairman while declining to comment on the possible reappointment of the former Princeton University economist, which is subject to Senate approval.

Source

Consumer credit in the U.S. declined in June for a fifth straight month as banks maintained more restrictive lending terms and households remained reluctant to borrow money for major purchases.

Consumer credit fell $10.3 billion, or 4.92 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $5.38 billion in May, more than previously estimated. The series of declines is the longest since 1991.

Stagnant wages and falling home values mean consumer spending, about 70 percent of the economy, will take time to recover even as the recession eases. Incomes fell the most in four years in June as one-time transfer payments from the Obama administration’s stimulus plan dried up, and Americans saved almost $125 billion more of their incomes in June than a year earlier.

“This string of declining credit should continue as long as the economy eliminates workers at an elevated pace,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “We’re 20 months into the recession and the economy is still losing a quarter-of-a-million jobs per month.”

Economists had forecast consumer credit would drop $5 billion in June, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from declines of $11.9 billion to $1 billion. The Fed initially reported that consumer credit decreased by $3.2 billion in May.

Credit Cards

Revolving debt, such as credit cards, fell by $5.25 billion in June, a record 10th straight drop, according to the Fed’s statistics. Non-revolving debt, including auto loans and mobile- home loans, declined by $5.04 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

While the downturn abated in the second quarter as government stimulus programs started to kick in, the three-month period capped the worst retrenchment by consumers since 1980. Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, the Commerce Department figures showed last week.

The economy was forecast to shrink at a 1.5 percent pace, according to the median estimate of 78 economists surveyed by Bloomberg.

Government spending rose at a 5.6 percent pace last quarter, the most since 2003, as President Barack Obama’s $787 billion stimulus program began to take effect. The funds are aimed at helping states retain workers, financing infrastructure projects and reducing tax payments.

Consumer Spending

Consumer spending, meanwhile, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. Purchases slid 2 percent since the peak at the end of 2007 –the most since a 2.4 percent decline in the 1980 recession.

U.S. personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and erasing the previous month’s gain, figures from the Commerce Department showed Aug cheap credit report. 4 in Washington. Spending rose 0.4 percent in June as prices climbed. Adjusted for inflation, purchases fell 0.1 percent, the report showed.

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, the Commerce figures showed.

Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.

Job Losses

The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time in more than a year, the Labor Department said today in Washington. Payrolls fell by 247,000, after a 443,000 loss in June, and the jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent, which was the highest in 26 years.

The White House warned the jobless rate is still likely to reach 10 percent, and with companies from Boeing Co. to Verizon Communications Inc. continuing to cut costs, any rebound in hiring may not come until 2010.

“Consumers were still battening down the hatches in June trying to get out from under the mountain of debt that they had accumulated in the good times,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Default Rates

Credit-card defaults climbed to a record in June as more consumers fell behind on payments because of rising unemployment and bankruptcies, according to Fitch Ratings statistics released on July 31. Charge-offs, the cost of loans that card issuers have given up on collecting, rose to 10.79 percent last month, 64 percent higher than the same period last year, the Fitch Prime Credit Card Index showed.

Fitch said the rate of increase “slowed significantly” from earlier this year, providing “a glimmer of hope that charge-offs may soon plateau” in coming months. Loans delinquent at least 60 days declined to 4.31 percent in June from 4.45 percent in the previous month, Fitch said.

MasterCard Inc., Visa Inc., Capital One Financial Corp., Discover Financial Services and American Express Co. cut marketing by $636.8 million in the latest quarter as rising U.S. unemployment contributed to record defaults and depressed consumer spending.

Sales of cars and light trucks fell to a 9.7 million annual rate in June from a 9.9 million annual rate the month before, according to Woodcliff Lake, New Jersey-based industry research firm Autodata Corp.

In July, sales rose to an 11.3 million pace, the highest since September, Autodata reported this week. That compares with February’s 9.1 million rate, which was the lowest since 1981. Auto sales will likely rebound further as a federal “cash-for- clunkers” program boosts demand for cars.

Source

European consumer prices fell for the first time in June as energy costs dropped and rising unemployment curbed household spending.

Prices in the 16-nation euro area fell 0.1 percent from a year earlier, the first annual decline since the data were first compiled in 1996, the European Union statistics office in Luxembourg said today. The figure matches an initial estimate published on June 30. From May, prices rose 0.2 percent.

Carrefour SA, Europe’s largest retailer, Royal Ahold NV and Tesco Plc are cutting prices to revive demand from consumers restrained by rising job losses. At the same time, oil prices have dropped almost 60 percent from their record a year ago, reducing the cost of gasoline and household heating bills.

“In the coming two years, inflation is not a danger in the euro zone or the U.S. as downward price pressure stemming from the recession continues,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam.

Energy prices dropped 11.8 percent in June from a year earlier and food prices fell 0.2 percent, today’s report showed. Core inflation, which excludes volatile costs such as energy and food, eased to 1.4 percent in June from 1.5 in May. compared to a year ago.

“Core inflationary pressures continued to retreat in June in the face of very weak demand, increasing spare capacity and sharply rising unemployment,” said Howard Archer, chief European economist at IHS Global Insight in London.

‘Limited’ Risk

European Central Bank Governing Council members have highlighted the core rate to downplay the risk of deflation. Michael Bonello said in an interview published on July 13 that negative headline inflation is due to a reversal of the “spike” in energy prices in 2008 and that the “risk of deflation in the short to medium term is rather limited fast cash advance.”

Stores are under pressure to lower prices to boost sales, squeezing profit margins. European retail sales declined in June for a 13th month, the Bloomberg purchasing managers index showed. The economy may shrink 4.8 percent this year and 0.3 percent in 2010, the International Monetary Fund has forecast.

Beer prices in the Netherlands fell the most in almost six years in June as supermarkets stepped up discounting, the national statistics bureau in The Hague said this week. In Ireland, clothes prices have dropped 12.4 percent in the last year.

Awaiting Recovery

“Policy must continue to provide support to the real economy for as long as is necessary,” ECB Governing Council member John Hurley said in Dublin yesterday. “Rates should only be increased once there are clear signs that a sustainable recovery has begun.”

Van Vliet said he expects the core inflation rate to fall below 1 percent in 2010, which could prompt the ECB not to raise its key interest rate in the spring of next year.

The euro extended gains after the data were released and was up 0.7 percent at $1.4060 at 10:44 a.m. in London.

Inflation in Germany, Europe’s largest economy, was flat in June, while prices are already falling in Ireland, Spain, Portugal and Austria, today’s report showed. The ECB, which targets an inflation rate of just under 2 percent, forecasts that euro-area consumer-price growth will average 0.3 percent this year and 1 percent in 2010.

Source

Japan’s demand for goods and services declined by a record last quarter, adding to evidence deflation may return to haunt the world’s second-largest economy.

The output gap, a measure of the balance between demand and supply in the economy, fell 8.5 percent in the three months ended March 31, the Cabinet Office said in Tokyo, the biggest decline since the government started tracking the data in 1980. A separate report today showed that wages slid 2.5 percent, extending their longest losing streak since 2003.

The deepest recession in the postwar era has left companies including Hitachi Ltd. with factories and workers they no longer need, pushing Japan closer to the deflation it emerged from in 2005. Consumer prices are declining as companies reduce salaries to cut costs and retailers such as Nitori Co. discount to attract cash-strapped households.

“Indicators such as the wage report signal that deflation is becoming a more serious problem,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Given the deterioration in labor and wage conditions, we could see deflation linger even if the economy recovers.”

Economists regard the output gap as a key indicator of whether the economy is slipping into to a period of continuous price declines. The gauge’s decrease last quarter was almost double the 4.5 percent drop in the previous three months.

Falling Prices

Consumer prices excluding fresh food slid for a second month in April, when the jobless rate soared to a five-year high of 5 percent. Gross domestic product shrank at an unprecedented 15.2 percent annual pace in the first quarter.

Hitachi, a maker of home appliances and hard-disk drives, will slash costs by 500 billion yen ($5.3 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year cash loans. The company also plans to cut 7,000 jobs.

A return to deflation could dash hopes that Japan will enjoy a full-fledged recovery as it pulls out of its slump. Exports fell 39.1 percent in April, moderating for a second month, and industrial output surged the most in 56 years as companies started to rebuild stockpiles they managed to burn off during the height of the global downturn.

Households have yet to reap the benefits from a bottoming out in overseas demand, cutting their outlays for a record 14th month in April.

Nitori, a furniture retailer, said last week that it will cut prices as much as 40 percent on May 30. Daiei Inc., a supermarket operator, lowered prices on 1,000 items last week, expanding its discounts to 6,000 items since November.

Not Cheaper

“The average person thinks deflation makes things cheaper,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “He doesn’t understand that it reduces his income, that it makes it more likely the company he works for will go bankrupt, that it damages public finance.”

Deflation also encourages risk aversion among households “because you’re overly rewarded for doing nothing,” Jerram said. Japanese have financial assets worth about 1,400 trillion yen, more than half of which sits in bank accounts.

Some Bank of Japan board members said that they should pay “particular attention” to the risk that inflationary expectations will decline over the long term, according to minutes of their April 30 meeting released last week. The central bank forecasts core prices will fall 1.5 percent in the current fiscal year and 1 percent next year.

Source