Friday, May 22, 2009

Japan Says Global Financial Crisis May Be Over

. Friday, May 22, 2009

By stockOzone team

Japan, the world's second-largest economy, became the latest country on Friday to signal that the worst of the global financial crisis may be over.

The news though did little to lift the mood of investors, who fretted instead over concerns that the United States could lose its top-level AAA credit rating.

The concerns weighed on stock markets and pushed the dollar to a five-month low against major currencies.

The Bank of Japan upgraded its view on the ailing economy for the first time in almost three years while keeping interest rates on hold, noting that steep declines in exports and output were leveling out.

"The pace of deterioration in the Japanese economy will likely moderate and the economy will likely stop deteriorating," the central bank said in a statement. "Financial conditions remain severe, although tensions have eased."

The assessment was the latest in a series of more upbeat forecasts by policymakers around the world, who increasingly believe the global economy is past the worst.

The central bank did not update its numerical forecasts for growth or other key indicators, or mention if its less bearish outlook had affected its views on whether it should buy more Japanese government bonds (JGBs), which would push more money into the economy to spur growth.

The Nikkei business daily reported on Friday that as an extra stimulus to keep credit flowing and save jobs, the government planned to set up a lending scheme worth up to 4 trillion yen to encourage banks to lend to large and medium-sized companies.

Asian stocks were generally lower, after giving up early gains. Despite increased optimism that a recovery is starting, there remain doubts about how sustainable it will be, and some think markets have risen too fast in recent months.

The weaker dollar also helped pull export-oriented Asian stocks lower.

Standard & Poor's cut its outlook on Britain's top rating to negative on Thursday, bringing into focus other triple-A rated countries that are running deeper into debt as they boost their economies with large stimulus packages.

Stung by the S&P report, the three main U.S. stock indexes closed down more than 1.5 percent on Thursday, while European shares fell 2.1 percent, breaking five straight sessions of gains. U.S. Treasuries weakened.

And despite optimism about green shoots in the U.S. economy, data on Thursday showed jobless claims in the United States rose to a record last week while new claims fell by 12,000, and manufacturing in the U.S. Mid-Atlantic area shrank in May for the eighth straight month.

The Washington Post reported that the administration of President Barack Obama was planning to steer General Motors (GM.N) into bankruptcy next week.

But a source familiar with the situation told Reuters there was no such plan, and the results of the automaker's restructuring efforts may not be known until a June 1 deadline.

Philadelphia Federal Reserve President Charles Plosser warned in a speech on Thursday that the U.S. government's emergency programs for the economy undermined central bank independence and raised the risk of inflation.

"When a nation's treasury or finance ministry and its central bank work too closely together, there is a clear risk that the government's spending will end up being financed by the central bank's power to create money," Plosser said.

"History shows us that you can get very bad economic outcomes with rapidly rising inflation."

Disclosure: Author does not own any of the stocks discussed here.

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