-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Financial Markets in Japan Japanese Government Bond Yields Headed to 5 Percent? A steep yield curve would benefit the banks Could 10-year Japanese government bond yields be heading towards 5 per cent? Six months ago the idea would have seemed outrageous, given that the country was breaking historical records with yields below 0.7 per cent. But as the state of the Japanese economy deteriorates and the government threatens to flood the market with about ¥40,000bn of new bonds, the thought of Japanese bond prices falling even lower and yields rising higher is no longer inconceivable. Last week the yields on 10-year JGB touched a recent high of 2.44 per cent and some analysts are predicting even more dramatic upswings. Takeshi Fujimaki, branch manager at J.P. Morgan, says: "I think bond yields could go to 3 per cent in March and even 5 per cent by the end of the year." This view remains an extreme one: the consensus in the market is that yields will probably remain under 3 per cent this year. But Mr Fujimaki's forecast reflects broader anxiety. According to a report by Barclays Capital, entitled "Japan: Apocalypse Now", the rising level of debt and debt/GDP ratio, means Japan faces an unstable debt situation which could have an adverse impact on the country's credit rating. Japan's ratio of government debt to gross domestic product has increased from 61.4 per cent in 1990 to almost 100 per cent last year, and according to Barclays' research Japan is fast approaching countries such as Belgium and Italy, whose debt/GDP ratio peaked at 135 per cent. Yet some economists argue the yields are unlikely to rise much further, provided short-term interest rates remain unchanged. "The extent to which yields could rise depends on how steep the yield curve will become," says David Knott at Deutsche Bank. "Historically, another 50 basis points on 10-year bonds would bring the yield curve to a historically steep level." He argues that steepening of a yield curve can help banks to recapitalise. This is because banks are able to borrow short-term money at low interest rates and re-invest in longer-term securities at higher rates. "Typically, when a central bank wishes to inject profits into the banking system, it steepens the yield curve," says Mr Knott. A steeper curve was a factor helping US banks to boost profits in the early 1990s - allowing them to recapitalise. Kiichi Miyazawa, finance minister, appears very relaxed about bond yields, sparking rumours that the government "secretly" wants to drive yields higher to help banks. Such conspiracy theories probably give the government too much planning credit: in practice, there is precious little sense of policy co-ordination at the moment. And since Japanese companies tend to rely more on short-term funding than their US counterparts, a steeper yield curve would have less impact. Hiroshi Toda, global head of debt markets at Nomura, blames the steeper yield curve not on government policy but on a structural "mismatch" between public institutions which want to increase long-term borrowing and private investors, such as Japanese banks, that want to focus on short-term investments. "I think that the market is in a transitional period . . . We will see a steepening of the yield curve as investors try to find the new equilibrium," he says. Yet what has startled many observers is the speed of the JGB swings and their apparent lack of relation to economic fundamentals. Consequently, opinions on where the JGB market may be heading next are now based as much on socio-political as on economic analysis. As Masuhisa Kobayashi, analyst at Merrill Lynch, says: "Japan is now backed into a corner, where textbook economics no longer makes sense." What has dented investor confidence, however, is political uncertainty. It is still unclear, for example, just what the real level of JGB supply next year will be. The government claims that net new JGB issues will be only ¥31,000bn. But this does not include additional spending measures, or the large quantities of local government debt that some municipalities are threatening to issue. Nor, most importantly, does it include any bonds that might be issued to fund the ¥60,000bn banking reform package. And suggestions by politicians that Japan should raise funds to buy land or stocks have further unnerved the markets. It is also unclear how fast the government wishes to impose reform on its traditional system of public finance. Public institutions such as the Trust Fund Bureau have traditionally absorbed about half the JGB market. If the government presses ahead with its apparent pledges to change this system, it could deliver painful new blows to the market. Meanwhile, even the government's short-term policy goals appear contradictory. Some politicians have reacted to the recent surge in bond yields with horror, and are calling on the Bank of Japan to start purchasing bonds directly from the government, in effect "monetising" its debt. Masaru Hayami, the bank governor, has dismissed these calls. Yet many economists believe inflation could be the only way to kick-start Japan's flagging economy. The Financial Times, Feb. 8, 1999 Impeached POTUS It's All Too Obvious Who Was Pulling Monica's String by Mark Steyn IT was a bit like a Bafta ceremony. The California megastar was unfortunately unable to be with us in person, but she'd thoughtfully pre-recorded a perfunctory greeting: "Yes. No. I don't recall." Monica has grown up into Bill Clinton in drag, a deposition nightmare. Unable to face seeing the intern on the floor of their beloved chamber, the senators voted to allow only video testimony. Sadly, nothing came of a bipartisan compromise proposal to have Republican prosecutors cross-examine a blow-up Monica doll: pull the string and hear her three standard responses at random - "Not really", "I guess", "I'm not real comfortable with that". Alas for the House managers it was all too obvious who was pulling Monica's string. As Congressman Ed Bryant struggled to find the merest titbit, old Monica hands took to wondering how Mr Clinton had kept her on side. He can't signal her with his neckties as he used to: the independent counsel has subpoenaed every single presidential accessory. Some of us recalled that moment in the Starr report when Monica told Mr Clinton that she had some ideas on education reform that she wanted to discuss with him. "Later, baby, later," said the President, motioning her toward the worn patch on the Oval Office shagpile. But clearly for once she'd given him something to chew on. His State of the Union education proposals were so crazy they can only have come from Monica and, in his attempted Federal annexation of every school board in the country, the President was signalling in his own touching way that he still cared. Slobodan Milosevic should be grateful she never got to outline her proposals for air strikes on Belgrade. On the other hand, it may be that Monica just has more style than Slick ("Hey, she's a stalker") Willie: she knows a mistress doesn't trash her lover. So, invited to respond to Clintonian hair-splitting, she simply sliced the follicle into quarters. Take, for example, the famous Paula Jones deposition definition about touching the enumerated body parts with "intent to arouse": in her grand jury testimony, she said he'd touched 'em; in his testimony, he stood by his earlier denials. Now she insists there's no contradiction: he touched the enumerated body parts, but who's she to say whether he intended to arouse? Indeed, knowing the President's narcissism, it seems highly unlikely. Thrown by Monica's coolness, Congressman Bryant had the haunted look of a man who knows, if he's not careful, he'll wind up arguing that for the President to touch enumerated body parts with no intent to arouse clearly rises to the level of an impeachable offence. The Clinton defence team has taken no chances in this trial. Last week 96-year-old Republican Senator Strom Thurmond once again dipped into his pockets and produced two oranges, which he pressed upon the President's lady lawyers, Nicole Seligman and Cheryl Mills. Faced with most southern white Republican men, Ms Seligman and Ms Mills instinctively frost up. But with ol' Strom they flirt, they giggle, they flutter their eyelids. And this weekend it paid off big time: when it came to the motion on whether to hear Monica in person on the Senate floor, Senator Thurmond drew himself up and boomed: "No!!!" The President's flirty attorneys had accomplished the impossible: for the first time in eight decades, ol' Strom had turned down the opportunity to see a 25-year-old woman in the flesh. In other late-breaking fruit news, I want to correct Thursday's misleading characterisation of Vernon Jordan's breakfast with Monica Lewinsky: it was not only wrong; it was, as the President would say, inappropriate. An unreliable source leaked to me that Ms Lewinsky ordered the fruit plate at the Park Hyatt. I now have a photocopy of Mr Jordan's credit card receipt before me and, in fact, she had the open-faced egg-white omelette ($8.75). I should have figured that out from the circumstantial evidence (Ms Lewinsky's waist). In this impeachment trial, the Senate has been faced with the same choice as Monica at the Park Hyatt: should they go for the griddle or make do with the light Continental? Should they cut through the waffle and fry that fatty slice of ham till he's toast? Or should they just do as they do in Paris and shrug Gallicly: "Oh-la-la! Zee men, zey heet on zee saucy can-can girls non-stop. Why make such a meal of eet, hein?" For weeks, the House impeachment managers have tried to hold Republican senators up at the All-U-Can-Eat sizzling grill end of the buffet, but they never really had the stomach for it and last week, confronted with the succulent haunches of Monica, nearly half the GOP caucus bolted like a lot of eggs Benedict Arnold and headed for the lite bite section. Like the President with his intern, this metaphor is apparently unable to reach "completion". So let me just say that the red meat of the prosecutors' case has now been drowned in senatorial yogurt. The London Telegraph, Feb. 8, 1999 Technology Cisco Systems and Motorola to Develop Wireless Internet System Will be compatible with Iridium and Teledesic CHICAGO -- In what is being billed as the next giant step in the Internet revolution, the Motorola Corp., the maker of wireless communications products, and Cisco Systems Inc., which provides Internet equipment, plan to form an alliance that would build the world's largest wireless Internet system. The project is the most ambitious effort yet to build a global network that would enable businesses and consumers to have high-speed Internet access to e-mail and faxes without the burden of wires, cables or even walls. The plan, which is expected to be announced Monday at a cellular telephone conference in New Orleans, makes Motorola and Cisco Systems the latest communications and networking giants to join forces in an attempt to capitalize on the increasing popularity of the Internet and the rapid growth of wireless communications products. Over the last year, several telecommunications companies have announced plans to offer new services or upgrade their wireless communications operations so that businesses and consumers may have some access to the Internet. The AT&T Corp., for instance, already is offering wireless service that taps into electronic mail and Internet information. The race to transform communications through the Internet also has led to several giant mergers that could result in greater wireless access. In June, Northern Telecom Ltd. of Canada, one of the largest makers of telecommunications gear, said it would acquire Bay Networks Inc., a large data networking company. Just last month, Lucent Technologies, the former research arm of AT&T, announced its acquisition of Ascend Communications, a leading provider of Internet equipment. Executives at the Microsoft Corp., Apple Computer Inc. and Qualcomm Inc., the wireless communications outfitter, also have expressed an interest in developing products related to wireless Internet access. "This is part of a trend," said Roberta Wiggins, a wireless communications analyst at the Yankee Group in Boston. "People have been saying: 'There are all these people with cell phones and all these people accessing the Internet, and at some point people are going to put these two things together."' While Ms. Wiggins and other analysts say that developing a wireless system could be costly and cumbersome -- with competing and incompatible systems trying to transmit bulky data and video into wireless units -- officials at Motorola and Cisco say their vision of a world where automobiles could get tuneups by wireless signals and sales executives could obtain company information from a remote place is just beyond the horizon. "This extends the Internet to a world without wires," said Don Listwin, executive vice president at Cisco, based in San Jose, Calif. Over the next four or five years, Motorola and Cisco say they plan to invest more than $1 billion to create a system capable of transmitting voice, data and video over existing cellular telephone stations directly to wireless telephones, laptop computers and other devices. The system would create a new line of products for Motorola, a new generation of wireless networking gear for Cisco and perhaps even signal the convergence of several existing communications products, like pagers, cellular telephones, televisions, radios and computers. "The goal is that instead of having four or five communication devices in your briefcase, you'll have one or two," said Doug Wills, a spokesman for Cisco. The two companies also plan to open four jount research and development centers, two in the United States and two abroad. A critical piece of the puzzle, Motorola and Cisco say, is that the wireless transmissions would be delivered using an Internet Protocol platform that is compatible with all wireless formats. Unlike analog or digital platforms, the companies say that the Internet Protocol, or IP platform, will be able to effectively deliver and bundle voice, data and video feeds through cellular stations. What is novel about the effort, the companies say, is that they plan to adopt an "open" standard. In other words, they plan to create a wireless industry standard that could be adopted by any company that wants to develop different or competing products. Such an open standard, officials say, would be different from other wireless Internet efforts now under development. The new IP framework will be published this spring in a "white paper," the companies said. For Motorola, which has stumbled of late in the world of wireless communications, the deal with Cisco is an attempt to help resurrect its reputation as an innovative company. After two years of earnings shortfalls and market share losses tied to its line of wireless telephones, Motorola has been on an aggressive path to new wireless ventures. The company, which is based in Schaumburg, Ill., and had sales of $29 billion in 1998, has a huge stake in Iridium, a satellite venture that offers voice and paging systems. In May, when sharp cuts were being made in its work force, Motorola abandoned a plan to spend $13 billion to build what it called its Internet in the Sky project, a satellite network capable of delivering high-speed data communications anywhere in the world. Instead, Motorola said it would invest about $750 million in Teledesic, a low-orbit satellite venture that also intends to deliver high-speed access to the Internet, beginning in 2003. The new wireless venture with Cisco, officials at Motorola say, is different but would be compatible with Iridium and Teledesic, which was founded by William H. Gates, the chairman of Microsoft, and Craig McCaw, the cellular telephone pioneer. Now, company officials say, they have hit upon a revolutionary scheme. "With this system you can get Internet information any time, anywhere," said Bo Hedfors, senior vice president at Motorola. As for Cisco, executives say the new venture will strengthen its move into the telecommunications equipment market, where it is battling companies like Lucent and Nortel. By forming an alliance with Motorola, Cisco -- which among other things sells networking gear to telephone providers -- is staking out firmer ground in its efforts to persuade global companies to use its equipment and the Internet to transfer information. Though some analysts insist that Motorola and Cisco face many hurdles in creating a wireless Internet system, including the prospect of transmitting bulky video feeds over a wireless network, the two companies say the framework they have outlined already has won strong support from big telephone service providers like Sprint, Nextel and Airtouch Communications. The New York Times, Feb. 8, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. 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