-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Deflation in Japan Accelerated Collapse in Real Estate Prices The bad news just keeps rolling along Japanese real estate prices declined for the eighth straight year last year raising concerns about the prospects for economic recovery amid the gathering pace of deflation. The rate of decline in property prices accelerated last year, after slowing down moderately over the past few years. The percentage fall of commercial real estate prices in urban areas rose to double digits, with the fall in prices increasing in all leading commercial areas, according to a survey released yesterday by the National Land Agency. Commercial real estate prices in the three large urban areas fell an average 10.2 per cent last year, compared with 7.5 per cent in 1997. Residential property prices in the same areas dropped 5.7 per cent, compared with 2.2 per cent previously. The decline in real estate prices has taken commercial property prices in Tokyo 75 per cent below their peak in 1991. Although the government's policy of capping housing loan interest rates has fuelled activity in housing sales, analysts expect the continuing economic downturn to put further pressure on commercial property prices in particular. The continuing fall in property prices has raised concerns that without measures to stimulate the market, any potential recovery of the Japanese economy could be undermined. "It is necessary to take all possible measures to stimulate the property market, including securitisation and tax cuts on property transactions," said Okiharu Yasuoka, a member of Japan's ruling Liberal Democratic party who is putting together proposals to stimulate the property market. "The real estate market is central to dealing with bad assets and asset deflation," he said. Private spending is depressed in large part because corporations and households which invested in real estate during the bubble years have huge volumes of shrinking assets, said Seiichiro Saitow, professor at Rikkyo University. At the same time, although real estate prices have fallen sharply, investment in the market has been hampered by high taxes and a reluctance by banks to lend for property investment, Mr Yasuoka said. Real estate securitisation, for example, has not taken off in part because the yield on property investment shrinks after taxes to levels that make investment in the Japanese government bond market more attractive. "We have to create an equal footing," Mr Yasuoka said. Mr Yasuoka, who is spearheading a campaign to inject ¥20,000bn ($169bn) in public funds into the property market, is among a small minority within the ruling party who believes the government needs to do more to help the economy back to health, and particularly to stimulate the real estate market. The Financial Times, March 26, 1999 Regional Markets Sidney & Singapore Seeks to Unify Equity, Derivative Exchanges E Pluribus Unum Sydney's futures and stock exchanges, which plan to merge, have opened talks with their Singapore counterparts, also due to merge, about an alliance to create the dominant derivatives and equities market in the Asia-Pacific region. Australian officials said discussions, initiated by the Australian side, were at a preliminary stage but had received a positive response from the Singapore side. They said the initiative echoed the merger between the London and Frankfurt stock exchanges to create a leading trading platform for European equities. "If Frankfurt and London can do it then Singapore and Sydney can do it," said one official. If successful, a Singapore-Sydney alliance would combine both equities and derivatives. It would occur after a planned merger of the Australian Stock Exchange (ASX) and the Sydney Futures Exchange (SFE) and the demutualisation of the Stock Exchange of Singapore (SES) and its planned merger with the Singapore International Monetary Exchange (Simex), the Singapore futures exchange. Officials said the intention was to create a common trading platform that would provide a deep pool of liquidity within the region's markets that would help fuel recovery after the Asian financial crisis. Other regional exchanges had been approached as potential further partners, they said. "The name of the game is creating liquidity and creating it quickly - the rest [other exchanges] we can bring in later," said one. The ASX and SES, with market capitalisation respectively of A$600bn (US$384bn) and S$190bn (US$110bn), are among the region's biggest equity markets after Tokyo. Both the SFE and Simex are bigger than Tokyo in derivatives. Last year, the SFE overtook Simex to become the region's biggest derivatives market, trading 30m futures contracts with a nominal value of A$10,500bn. Maurice Newman, chairman of the ASX and Deutsche Bank Australia, said talks were under way with three exchanges in total but declined to name them. It is understood Hong Kong is not among the markets approached by the Australians. One senior official said they were deterred by the Hong Kong government's large holdings of local stocks acquired last year to help prop up the Hang Seng index. The Financial Times, March 26, 1999 European Bonds New EuroMTS System to Trade Euro-Denominated Bonds War Bond issues coming soon? A new system for trading euro-denominated European benchmark government bonds electronically is to begin operating next Monday, in what will be the first pan-European market to emerge since the launch of the single currency at the beginning of the year. EuroMTS, an extension of the MTS electronic trading platform for BTPs - Italian government bonds - will begin by trading about 30 of the most liquid French, German and Italian government bonds and is expected to include those of other euro-zone governments over time. Benchmarks must have a minimum size of E5bn to be listed on the system. The system is partly owned by the big banks and investment banks that dominate trading in government bonds to take advantage of the growing harmonisation of Europe's government bond markets coinciding with the arrival of the euro and to speed the development of a pan-European benchmark yield curve. Bankers said they expected the launch of EuroMTS to push harmonisation a stage further as countries in the euro-zone that were not included in the start of trading sought to join. The creation of EuroMTS - based in London as a "neutral" site outside the euro-zone - is a significant boost for the development of pan- European electronic markets. The most successful such markets are for derivatives products, while Easdaq and the Euro.NM alliance of small-capitalisation stock markets fill a gap in equity markets. The London and Frankfurt stock exchanges are developing a pan-European electronic market to trade the shares of Europe's top 300 companies. That is due to come on stream after 2000 and is similar to EuroMTS's system in that it will target the most liquid securities. EuroMTS said yesterday there was a need for a single electronic trading system for the most liquid euro-denominated government bonds. Existing trading systems would continue to cover institutional trading of domestic securities and the retail market. "MTS is filling a need for electronic trading at the highest end of fixed income trading in Europe," it said. "It is generally accepted that electronic markets [will] become the predominant trading vehicle at the three distinct levels of European fixed income [markets]." The main shareholder in EuroMTS is MTS, which began trading Italian government bonds electronically 10 years ago and is regarded as one of the most successful systems in Europe. Earlier this year EuroMTS appointed as its chairman Alexandre Lamfalussy, former head of the European Monetary Institute, the forerunner of the European Central Bank. Participation in the EuroMTS system is to be limited for at least the first three months to its 'B' shareholders, which include the leading commercial banks in Italy, Germany and France as well as international investment banks. The Financial Times, March 26, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! 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