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Japan Still Struggling with Deflationary Pressures

CNBC Asia Pacific
Friday, 27 Aug 2010 | 7:16 AM ET

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Japan's still struggling with deflationary pressures and more evidence it's hard to shake them off.

Latest data show core consumer prices fell 1.1 percent in July from a year earlier. They have been declining for the last 17 months.

But, Japan's employment numbers unexpectedly improved. Jobless numbers saw the first decline in six months, with the data easing to 5.2 percent from 5.3 percent in June.

The improvement in the unemployment rate may be a welcome development for Prime Minister Naoto Kan, who is trying to bolster growth with fresh stimulus measures to protect the economy from the yen's surge to a 15-year high against the dollar.

(SOT) Naomi Fink, Japan Strategist, Bank of Tokyo Mitsubishi

"What we do see is retail investors building up massive positions in foreign exchange, leveraged positions in foreign exchange positions for instance, we do see some redemption on foreign investment trust, but there looks like quite a healthy issuance calendar in September, so we still need to see how that pans out. I think on the yen, the Ministry of Finance is worried that maybe speculators, especially overseas speculators would like to drive dollar-yen lower, especially if they really don't believe in intervention. There's this dialogue going on between the speculators and the MOF that might be driving the yen in the short term."

Global markets have all eyes on Jackson Hole. That's where U.S. Federal Reserve chief, Ben Bernanke will be making a speech on the economy later this evening. Remember we have had a string of dismal data this week.

Though there was some relief from jobless claims overnight - they came in better than expected, but still remain at high levels and investors are concerned.

(SOT) Mohamed El-Erian, CEO & CO-CIO, PIMCO

"if we have any sort of shock, this economy no longer has a spare tire. Policy no longer has the ability to respond. Policy is more ineffective. I put in a few weeks ago the probability of 25 percent of deflation. And that's uncomfortably high already. And the latest data which suggested it's higher than 25 percent."

Meantime, CNBC's Senior Economics reporter Steve Liesman is at Jackson Hole and filed this report.

Greetings from Jackson Hole, Wyoming, where central bankers around the world are gathering for the annual enclave put on by the Kansas City Federal Reserve Banks.

Markets are watching closely not one, but two speeches by leading central bank chairman, beginning at 10am EST. Federal Reserve chairman Ben Bernanke speaking on the economic outlook and providing his menu of options for the federal reserve on what it should do, if the economy is to weaken further.

And then at 2pm EST, which is lunch time around here, European Central Bank's Jean Claude Trichet will also address the crowd. And we'll have that interview as well from Bundesbank chairman and president Axel Weber.

Among the key questions for Fed Chairman Ben Bernanke, what should the Fed do? Should it do more quantitative easing? Money print if the economy turns down? What would happen if it did it? In other words, is the Fed Reserve, are central banks around the world out of bullets to address further weakness? Another question is, can the Japan outcome be avoided? And how so? Are we going to have a decade of deflation in U.S.? That's a concern.

Another big issue this quarter, the FOMC, the seven members disagree with the policy statement on August 10, when the Fed agreed to keep its balance sheet the same and to take mortgages that are rolling off into investments in Treasurys. No shortage of news coming from the Jackson Hole meeting, and no shortage of interests by market. I want to say, one of the big questions here is the Fed chairman get control of the monetary policy debate, which seem to have been eluded him over the past several months, slowdown has accelerated.

Back to you.

Kansas City Federal Reserve President Thomas Hoening spoke to CNBC exclusively ahead of the meeting.

Here's what he's expecting out of the annual pow-wow.

(SOT) Thomas Hoenig, Federal Reserve Bank Of Kansas City President

"Uncertainty is driving things. We all know that and the idea here is to get some ideas on the table, get some options defined so that we can perhaps chart a path that is a little longer term but I think we will address some of those uncertainties. Won't eliminate them but perhaps address those uncertainties."

Another key risk event that global investors are looking out for this evening, revised quarterly GDP out of the U.S.. Economists are expecting a significant downwards revision of the second quarter GDP numbers.

Initial forecast called for the economy to grow at 2.4 percent, that is now revised down to a 1.4 percent annual rate.

And now for a look at how Asian market performed end of the trading week.

A mixed day of trade as investors are cautious ahead of revised U.S. second-quarter GDP data and a speech by Fed Chairman Ben Bernanke.

In Japan, early losses were reversed on news that Prime Minister Kan will speak on the yen today. The benchmark Nikkei 225 closed up a percent, closing below the key 9,000 level.

(SOT) Ben Collett, Head of Japan Equities, Louis Capital Markets

"With regards to Japan, yes, we do think the Nikkei on a whole has been oversold based almost exclusively on the end that Nikkei index is heavily dependent on exporters, and that really supports the reason why we are saying you need to accumulate more equities globally and with a higher concentration in Japan in particular. Again, I'm not advocating an outright buy, selling the rest of your equity holdings, but I'm saying is you need to increase the Japanese holdings, particularly the exporters."

Meantime, South Korea's KOSPI finished flat despite news that Korea's current-account surplus reached a 16-month high.

In Australia, the S&P/ASX 200 ends the trading week 0.3 percent higher. Fairfax Media jumped after swinging back to profit but Harvey Norman slipped on a disappointing set of numbers.

In Greater China, also a mixed day of trading, ICBC's H-shares traded higher following strong Q2 results. Mainland banks still have their rights issues in the pipeline, both ICBC and the Bank of China are intending to complete these by year end.

(SOT) Jim Antos, Bank Analyst, Mizuho Securities Asia

"This is the only sure way to make money on banking stocks, I'm a bank analyst but I'm not too crazy about banking stocks this year, but I
know one thing, the discount on most of these rights issues are 40%, and you have to own the shares in order to get the discount, I would
participate, you can trade your way out of the position if you are uncomfortable with the price trend but you will make money."

And before we go, a quick look ahead to the key issues out of India next week.

Here's CNBC-TV 18 reporter, Reema Tendulkar.

Thanks for that. A lot of macro factors to watch out for in the Indian markets. Starting from Monday, the 30th of August, the DTC bill, that's the direct tax code bill which will be replacing the very old income tax bill which simplifies the entire tax structure is likely to be tabled in the parliament. Currently it's just the likelihood because it got passed by the cabinet yesterday.

The next on 31th of August, we will be expecting our April to June GDP growth forecast, very important in that. Also to the fiscal deficit for
that quarter Q2 will be detailed by the controller of general account. And also we will be expecting the CPI number for the month of July. On September 1, we are expecting the manufacturing PMI number will be coming out of HSBC also the trade data for July will be detailed by the Commerce Ministry.

Well, that wraps up today's business highlights.

I'm Christine Tan from CNBC.

Have a good weekend!

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