Japan`s Fuzzy Math How should one react to Tokyo`s fuzzy math, after government apparatchniks added 34 items to the Japanese consumer price index, whose prices on balance were falling, and removed 48 goods and services that were becoming more expensive? The fuzzy math produced a stunning two-thirds decline in Japan`s core consumer inflation rate to 0.2% in July, from the 0.6% inflation rate reported in June, jolting Japanese interest rates. Tokyo`s new methodology for computing the core rate of consumer inflation, included revisions for all the 2006 data, and the difference is dramatic. In the month of May for instance, the new core CPI base showed zero inflation, compared with a 0.6% annualized rate under the previous rules. If correct, the Bank of Japan made a mistake in dismantling quantitative easing in March and in raising rates in July. Behind Tokyo`s sleight of hand, is a power play between the Japan`s ministry of finance, which aims to block Bank of Japan chief Toshihiko Fukui, from tightening monetary conditions. Already, Fukui has drained 22.7 trillion yen ($200 billion) from the banking system since March 9th, after dismantling a five year ultra-easy policy that pegged the overnight loan rate at zero percent.
I'm in Japan right now and I agree. It's not that they're manipulators. The whole financial system is ran over "fuzzy" interpretations. Simply, Japanese people aren't good at taking responsibility over any potential influences / conflicts / etc... Gotta remember, difference in culture is part of the global economy and there's no point of whining or trying to change the system. It's just the way things are. Period.
Historically, USD/JPY has been one of the most politically sensitive currencies because of the perpetual trade surplus Japan runs against the U.S. and other major economies. This made the yen a strategic bargaining lever as U.S. officials sought to open Japanese markets to foreign products, and also made it vulnerable to official U.S. or G7 pronouncements. More recently, though, China has displaced Japan as the most worrisome trading partner for the U.S., while Japan continues to emerge from a decade-long recession. The Ministry of Finance (MOF) is the most powerful governmental department in Japan â it exercises more influence over the economic scene than the Bank of Japan (BOJ), the central bank. As recently as early 2004, the MOF via the BOJ had been waging an aggressive campaign of currency market intervention to halt a rise in the yen they believed was fueled by excessive speculation and threatened an economic recovery. In the process, the MOF/BOJ spent tens of billions of dollars propping up the greenback and limiting yen gains. The yen occupies a central place in the Japanese financial market psyche, and daily comments from MOF officials are a mainstay of USD/JPY trading. The trading characteristics of USD/JPY are perhaps best understood by noting two key facts: Japan has the highest domestic savings and investment rate in the world, resulting in massive financial portfolios invested in financial instruments throughout the world; and Japanese cultural tendencies favor intra-Japanese cooperation and communication. The practical effect of these two features is large concentrations of market interest at common levels, typically resulting in clusters of stop-loss and limit orders at key technical points. This herd-like behavior often results in large, volatile moves followed by extended periods of range-bound consolidation, as the pack responds en masse to breaks of key levels and then settles down. The pervasiveness of Japanese institutional interest in USD/JPY means the pair tends to respect technical levels far more than other currency pairs, with a lower likelihood of false breaks (Figure 2). This suggests traders need to respond more quickly to the breakout of key levels rather than waiting for pullbacks or a bounces to enter. There tends to be a âclusteringâ of market orders around technical levels, which favors placing stop-loss orders just beyond key technical levels (e.g., 5 to 15 pips). The rationale here is significant limit orders will typically be in front of such levels, and the unfolding of a larger market move will be needed to get through those limit orders first. Traders focusing on USD/JPY should pay special attention to candlestick and âIchimokuâ technical analysis (a form of candlestick charting where trend, support, and resistance levels are plotted on a chart, allowing the âequilibriumâ price to be seen at a glance), as they are widely followed in Asia and will frequently signal reversals or major breakouts. Also, traders need to be aware of the major yen currency pairs, as technical breaks in these can frequently spill into USD/JPY and push it out of the driverâs seat. Finally, liquidity in USD/JPY tends to be thinnest on the last trading day of each month and at the end of financial semesters (March and September) as Japanese institutions scale back their presence in the market at these times. The result can be highly erratic and unpredictable market movements. http://www.gaincapital.com/files/CurrencyTrader0905-BD.pdf
They're only taking a leaf from the US book. Take a look at how US CPI has been manipulated over the years in order to keep the reported CPI lower. The criteria for measuring CPI is revised every year. Saves the government alot of dough.