San Diego Housing Market News and Analysis
Submitted by Rich Toscano on July 4, 2006 - 3:41pm
...is how Scooby-Doo might react upon reading about an impending rate hike by the Bank of Japan. Assuming, that is, that Scooby took an interest in global liquidity conditions instead of just constantly getting high.
Rampant E-Z mortgage lending during the first year-and-a-half of Fed tightening posed a seeming puzzle. But the answer to the puzzle lay outside our borders: in this age of globalized capital markets, tightness by one central bank could be offset by looseness of another. And they don't come any looser than that Bank of Japan. The BOJ's ultra-low rate policy made it easy for financiers to borrow in Japan, lend to US homebuyers, and pocket the interest rate differential. It also encouraged yield-starved Japanese to lend their own money in a similar manner.
That strategy works great until you realize the American homeowner won't be paying you back. Or, until Japanese rates start to rise.A wee hike by the BOJ won't change the fact that there is still a huge spread between Japanese and US rates. The point is that the trend may soon start to head in the other direction. 2005 taught us that when it comes to mortgage lending, global liquidity is what matters. And Japan has been one of the biggest providers thereof.
But with the ongoing removal of quantitivate easing, and now with this potential rate hike, it seems that the Japanese are serious about tightening things up. If they keep it up, it might not be so E-Z to offer up all that E-Z Credit.
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