Yudhoyono’s Selection for Finance Minister Rattles Market

Yudhoyono’s Selection for Finance Minister Rattles Market

President Susilo Bambang Yudhoyono’s decision to opt for an acting finance minister to replace Agus Martowardojo threatens to cloud the policy outlook as Indonesia struggles to revamp its fuel-subsidy program, step up infrastructure investment and damp price pressures.

Hatta Rajasa will replace Martowardojo, who is set to become the next Bank Indonesia chief, the government said April 19. Rajasa is chairman of the National Mandate Party, a member of Yudhoyono’s Democrat Party coalition, and will also remain coordinating minister for the economy.

The Jakarta Composite Index, which has gained about 16 percent this year and reached a record last week, fell after the announcement that came an hour before the close of trade on April 19. Rajasa assumes the role as the government plan to curb fuel subsidies threatens to boost inflation that reached a 22- month high in March, adding to the burdens of an economy facing falling prices for its commodity exports including palm oil.

“The decision is quite strange — it will have a negative impact on the stock market and the rupiah,” said David Sumual, an economist at PT Bank Central Asia in Jakarta. “Indonesia needs a finance minister with a background in macroeconomic and fiscal policy, as there are so many problems in the economy.” Read more of this post

Baht Flashes Sell Signal as Prasarn Sees Froth: Market Reversal

Baht Flashes Sell Signal as Prasarn Sees Froth: Market Reversal

At least three trading patterns show Thailand’s baht, this year’s best-performing Asian currency, is poised to fall as policy makers step up warnings that its rally to a 16-year high is stretched.

The baht’s 2.3 percent advance this month pushed the 14-day relative strength indicator to 25, data compiled by Bloomberg show. A reading below 30 typically signals a reversal may occur. Trading envelope and stochastics oscillator indicators also suggest the baht’s rise has gone too far.

Central bank Governor Prasarn Trairatvorakul told reporters in Bangkok on April 19 that the baht’s advance has started to move beyond fundamentals, 10 days after he said the rally was “too fast.” Finance Minister Kittiratt Na-Ranong reiterated his call last week for the central bank to cut interest rates to deter inflows to the country’s bond market. Read more of this post

Japan Inc. Hesitates to Invest as Stocks Rally on Plummeting Yen

Japan Inc. Hesitates to Invest as Stocks Rally on Plummeting Yen

The last time Masao Namiki bought machinery for his company, Emperor Hirohito had just died, Japanese investors took the Rockefeller Center as a trophy, and a new central bank chief was about to prick the bubble economy. It was 1989.

The $1 million Namiki borrowed to outfit his workshop with computerized lathes and drills almost bankrupted him as orders from clients Canon Inc., Panasonic Inc. and NEC Corp. evaporated. As interest rates cranked up to 6 percent, crashing stock and land prices wiped out $15 trillion in wealth and triggered an economic malaise that still drags on.

The bubble, and the five recessions since, help explain why business owners like Namiki aren’t buying into investor euphoria over new Prime Minister Shinzo Abe’s campaign to end deflation. Even after the steepest five-month slide in the yen for 18 years made global companies like Toyota Motor Corp (7203). more competitive and Japan the world’s best-performing major stock market, Namiki said he’s still not ready to invest.

“If we had the orders I’d think about adding equipment, but right now the work’s just not there,” the 72-year-old said at his small factory in Tokyo’s Ota district, where he and a handful of employees have made thousands of steel molds for phones, stereos, and keyboards. “The manufacturers are still in wait-and-see mode.”

The reluctance to borrow and spend of companies like Namiki’s that don’t operate abroad and make up the bulk of Japan’s economy is the biggest threat to Abe’s plans, said Nomura Research Institute Chief Economist Richard Koo. Read more of this post