Stephen Foley: G7's intervention to halt the soaring yen was more than just an act of charity
The co-ordinated response to the surge in the yen was needed to curb speculation and correct perversity in the world’s foreign exchange markets
Saturday 19 March 2011
US outlook Of all the calamities visited upon, or still threatening, Japan, the damaging surge in the yen was one within mankind's ability to easily fix. The Group of 7's co-ordinated intervention on the currency yesterday was more than just a charitable gift to a nation in crisis, which could ill afford the sudden new blow to its export businesses. The intervention was the right thing to do to curb an excess of speculation and to correct perversity in the foreign exchange markets.
It really isn't clear what drove the yen to its highest recorded level against the US dollar earlier this week, even as economists were slashing their forecasts for Japanese GDP in the wake of the quake. The favoured explanation is "repatriation" – the idea that Japanese insurers would pull their money back into the country to pay for the rebuilding effort. The idea does not stand up to scrutiny – not just because it could not have got under way yet, but also because the sums involved are likely to be small relative to normal currency flows. Meanwhile, the Bank of Japan has been underwriting local liquidity for a week now, and the absence of a financial panic has been one of the authorities' most notable successes.
In fact, more of the costs of rebuilding will fall on the Japanese government than on the country's insurers. Nomura, the Japanese bank, thinks government spending on recovery efforts could hit ¥6 trillion (£46bn), twice as much as after the Kobe earthquake in 1995 – and that might be an underestimate. Inevitably, the bulk of the costs will be borne by issuing new government debt, not something conducive to a long-term rise in the value of the yen, particularly when other nations' monetary stimuli are now coming to an end.
The right level for the currency will only emerge when the nuclear crisis is resolved and the awful damage from the earthquake and tsunami can be properly accounted.
Nonetheless, the repatriation trade seems to have become the one investment idea that speculators were able to agree upon, in what was otherwise a week of terrifying and potentially paralysing uncertainty. It seems certain that the spike in the yen was exacerbated by short covering by those whose bets against the currency went suddenly wrong, and other technical factors.
This is what the Japanese finance ministry means when it blames speculators for the spike in the yen, and it is unacceptable that the balance of world trade – not to mention the livelihoods of Japan's exporters – should be disrupted on such a flimsy basis.
HP's cloud computing vision has created a fog
Léo Apotheker, the new man in charge at Hewlett-Packard, talks so much about "the cloud" that he has created quite a thick fog. To those of us who attended the HP summit this week – billed as the official unveiling of Mr Apotheker's strategy for the PC manufacturer – the incoherence of the event was startling.
I know there is no point railing against chief executives' tendency towards consultant-speak. We all just have to put up with "turnkey" this, and "seamless" that – and look through to the substance beneath. But what was the substance?
At every point where it sounded as if HP was on a clear course, Mr Apotheker undercut the idea. Where his predecessor emphasised cost cuts, he is emphasising new business opportunities, yet the centrepiece of the day was the announcement of a dividend hike. When discussing the expansion of HP's cloud services, he assured analysts that the company could do it without heavy investment in new data centre capacity. And while he waxed lyrical about that great shift of computing from corporate servers and personal computers into "the cloud", he insisted, too, that a hybrid model of local and cloud computing will prevail.
I blame Steve Jobs. As HP moves deeper into competition with Apple in tablets and mobile devices, Mr Apotheker appears to have been tempted to strike the same world-shaking tone as his opposite number there.
Now, HP is having to create an app store to service its WebOS operating system for mobile devices, the same way that Apple created a place where people could download software to the iPhone and as Google is doing for its Android system. But that doesn't mean Mr Apotheker has to go on stage and talk visionarily about the arrival of the "personal cloud" if HP has nothing to unveil yet.
Here's what I perceived, dimly, through the fog. HP is setting a collision course with its customers and partners. It is hoping both to sell servers to the providers of cloud computing services, and to set up its own "public cloud". And it is putting WebOS on millions of personal computers, a Trojan horse that it hopes will undercut Microsoft's Windows in the emerging mobile arena.
These are big battles to come. They will require clarity of purpose, strength of leadership andan investor community that understands and supports the strategy. On the evidence of this week, HP is 0 for 3.
Web firms run into payment brick wall
People have proven viciously resistant to paying for internet content. (The New York Times, after a year of study, has just decided its paywall should stretch only as far as the heaviest 15 per cent of its users.)
Advertisers have proven unwilling to pay premium prices for online ads, given the low quality of the results, and the ever-increasing amount of content on the web has reduced ad revenues for everyone.
And this week, in both the European Union and the US, there are new proposals to curb the one thing that has proved lucrative, namely the selling of data about people's online habits to marketing firms and researchers.
How's a web business to make a living these days?
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