02/20/2007

What's in Your Wallet? Yen?

Hello:

Vice President Cheney is in Japan for talks with Prime Minister Abe, while the Bank of Japan (BOJ) continues its two day meeting regarding interest rates. The expectation of many analysts is that the BOJ will raise interest rates slightly.

Why do we care here on the other side of the Pacific? Remember those 0% credit card offers in your mailbox? Most of those rates are based upon the ultra-low lending rates on the yen. "All liquidity starts in Japan, the world's largest creditor country, " said Jesper Koll, chief economist for Japan at a major financial services firm. "When rates go up here [in Japan], rates go up everywhere."

We will be waiting to hear from BOJ Governor Fukui on Wednesday because as interest rates rise in Japan, air gets sucked out of the global liquidity balloon. Less liquidity means less money to lend and quite possibly, tighter lending requirements. This can negatively impact everything from hedge funds to mortgages to consumer lending rates.

On the plus side, a recovering Japanese economy can benefit nearby emerging economies as well as strengthen the Yen.

We consider this to be one more indication of a flattening global economy.

According to the Financial Times, The United Kingdom parliament last November approved the Charities Act [that removes] the presumption they act for the "public benefit". We believe this could be the beginning of greater regulation of non-profits by government.

Terri G. Millson, CIMA, CIMC President

Ray Dicius, CSA, GEPC LPL Branch Manager