China Reduces Reserve Ratios to Spur Bank Loans

China cut the amount of cash that banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis dims the outlook for exports and growth.

Reserve ratios will decline by 50 basis points effective Dec. 5, the People’s Bank of China said in a statement on its website today. Before the announcement, the level was a record 21.5 percent for the biggest lenders, based on previous PBOC statements.

A government clampdown on property speculation has added to the risk of a deeper slowdown in the economy that contributes the most to global growth. Exports rose by the least in almost two years in October and inflation eased to 5.5 percent, the smallest gain in five months.

“The move will help ease liquidity after previous tightening measures cooled credit growth too much and may have added to the risks of a hard landing for China,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release.

The People’s Bank of China previously allowed reserve ratios to fall by half a percentage point for more than 20 rural credit cooperatives. Those lenders had been subject to elevated requirements for a year as a penalty for failing to meet lending targets.


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Announced U.S. Job Cuts Drop 13% From Year Ago

Employers in the U.S. announced fewer job cuts in November than a year earlier, showing the world’s largest economy is growing enough to deter firings.

Planned firings dropped 13 percent to 42,474 from November 2010, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. So far this year, there have been 563,297 announced job reductions, more than the 529,973 for all of 2010.

Government agencies, which had the most cutbacks in November, may continue to shed military and civilian positions in 2012 amid budget cuts, Challenger said. A report later this week may show the pace of hiring failed to reduce an unemployment rate that’s been hovering around 9 percent, according to a Bloomberg News survey.

“There is still immense pressure to cut costs,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “We definitely have seen a shift away from the heavy government job cuts at the state and local level toward increased job cuts at the federal level. The worst may be yet to come, as cutbacks spread from the military to every other agency in Washington,” he said.

Compared with October, job-cut announcements were down 0.7 percent. Because the figures aren’t adjusted for seasonal effects, economists prefer to focus on year-over-year changes rather than monthly numbers.



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Fed Policy Makers Sharpen Differences Over Conditions for More Bond Buying

Federal Reserve policy makers sharpened their differences over the signs of economic decline that would warrant more asset purchases by the Fed in speeches yesterday.

Vice Chairman Janet Yellen said the Fed still has “scope for action” to fight unemployment she predicted would remain “painfully high” for years. Atlanta Fed President Dennis Lockhart said he doubted more bond buying would make a difference, while the Minneapolis Fed’s Narayana Kocherlakota said policy makers should begin tightening in 2012, assuming forecasts for lower unemployment and stable inflation prove accurate.

The officials’ remarks underscore a divided Fed that’s struggling to bring down a jobless rate stuck near 9 percent or higher for more than two years. The central bank will probably choose to step up stimulus through a third round of asset purchases next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the Fed said in a Bloomberg News survey last week.

“The dovish majority can run roughshod over those dissents,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank in New York, referring to those who favor additional stimulus. “That will continue to be the case in 2012,” he said, paving the way for the central bank to engage in further asset purchases “in the first part of next year.”

Four central bank officials have dissented at policy making meetings this year, with Chicago Fed President Charles Evans calling for more stimulus while Kocherlakota, Richard Fisher of Dallas and Charles Plosser of Philadelphia voted against further easing.
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Japan’s Industrial Output Rises a More-Than-Expected 2.4% on Auto Demand

Japan’s industrial production increased more than analysts expected in October, gains that may not be sustained as overseas demand cools.

Factory output increased 2.4 percent from September, rebounding from a 3.3 percent drop, the trade ministry said in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for output to increase 1.1 percent.

Manufacturers are contending with a yen near postwar highs against the dollar that has eroded profits and prompted Toyota Motor Corp. (7203) President Akio Toyoda to say this month that his company “will collapse” unless the currency weakens. Thailand’s worst flooding in almost 70 years has also caused parts shortages that may force companies to cut output.

“The strong yen in the three months since July has gradually had an effect” on production, Mari Iwashita, chief market economist at SMBC Nikko Securities Inc., said before the report. “Factors such as the Thai floods have reduced overseas demand, but this only affected the second half of October and has yet to be fully factored in.”

The yen traded at 78.09 per dollar as of 9:40 a.m. in Tokyo, from 78.00 before the report. The Nikkei 225 Stock Average slid 0.9 percent.

Manufacturers plan to cut production 0.1 percent this month and boost it 2.7 percent in December, a government survey of companies in today’s report showed.

Reports in the past week have shown that exports slid in October and the unemployment rate advanced, adding to evidence that growth in the world’s third-largest economy is waning.

Yen Volatility
Japan stepped into the foreign-exchange market for the third time this year on Oct. 31 to weaken the yen after it reached 75.35 per dollar, its highest since World War II. Finance Minister Jun Azumi said yesterday there is still volatility in the yen and that he is continuing efforts to keep the currency at appropriate levels.

Flooding in Thailand has damaged the supply chains of Japanese companies operating in the southeast Asian country including Toyota, Pioneer Corp. (6773) and Honda Motor Corp. The Cabinet Office said last week that the floods were among risks to the economic outlook.

Toyota lost about 190,000 units of production globally from Oct. 10 through Nov. 19 because of the floods in Thailand, the company said last week. About 30 electrical parts are still in “critical” supply, it said.