Japan Has a Record Account Deficit

For the first time in 13 years, Japan is posting an account deficit. The continued global recession is reducing demand for Japanese exports, and this is affecting the ability of the country to stay in the black. Indeed, Japan's economy might be one of the hardest hit by this recession, since it depends so heavily on the consumer habits of other nations. Stock Market Funding has this on the Japanese account deficit:
The deficit stood at a record 172.8 billion yen ($1.8 billion) in January, far bigger than the previous deficit record of 25.6 billion yen in January 1996, the ministry said. The current account is Japan's broadest measure of trade in goods and services with the rest of the world. "We incurred the current account deficit due to a plunge in exports.

Our exports to key regions, including the United States, Europe and Asia, were all down sharply due to the deteriorating global economy," said ministry official Michito Yamagami. Exports in January dropped a record 46.3 percent from a year earlier to 3.28 trillion yen, marking the fourth consecutive month of year-on-year declines.
The Japanese yen is also affected in forex trading on the news. Once a safe haven currency, the yen is falling out of favor in forex trading on continued economic difficulties. As a result of the loss of confidence in Japan, the US dollar is practically unmatched right now as a safe haven currency.

Ben Bernanke Talks About Regulation

Today, Ben Bernanke, Chairman of the Federal Reserve, spoke to the Council on Foreign Relations. He addressed the state of the US economy, as well as the health of the financial system. And he made some very strong statements about the need for a complete overhaul of the regulatory system.

Rather than use the current system, which is a patchwork, he suggests overhauling regulations so that they work together at the local, state, federal and even international level. Douglas Roberts at BloggingStocks makes this observation about the wisdom of Bernanke's remarks:
I believe that the issue of a total overhaul is extremely important. The current regulatory framework is a patchwork that has been pieced together over an extended period of time. If we just put another series of patches on the problem, it may cure it in the short term. However, it will not solve the underlying issue, which may result in an even larger crisis in the future.

Financial markets are in turmoil due to the lack of reasonable and effective oversight -- especially in terms of behemoth financial institutions that are "too big to fail." Going forward, new policies need to be put into place in order to avoid an even bigger disaster down the road.

Jobless Claims Continue to Rise

Jobless claims continue to rise. Job creation efforts in the economic stimulus bill recently passed have yet to take effect, and it shows. This week's figure is expected to show an increase in jobless claims.

With unemployment increasing, this is giving rise, yet again, to safe haven currency trading moves. The Japanese yen is back in favor as a safe haven currency, even beating out the US dollar for now.

Wait: We Want Weak Currencies?

It seems a little backward: Countries are looking for weak currencies. It's an interesting paradox brought on by the recent global financial crisis and continuing recession. Japan has always wanted a weak currency, but most other countries are reluctant to admit to such a thing. 

But it's all coming out in the open now. GFT's Kathy Lien explains in FX360 why countries are interested in weak currencies -- and whether the race to keep currencies down could result in a global FX war:
In an environment of slowing growth and falling prices, every central bank wants a weak currency.  However up until now, most major central banks have been reluctant to intervene in the foreign exchange market to artificially weaken their currencies because of the burden it would put on other countries. ...

However, today Switzerland has broken that unspoken truce of letting the market determine who gets to benefit from a weaker currency and who doesn’t.  By becoming a massive seller of Swiss Francs, they are in effect artificially driving other currencies higher.  This means that they are putting their own interests ahead of everyone else’s and unfortunately that may trigger retaliation by other central banks.  A global FX war where central banks around world start selling their own currencies, countering each other’s efforts is possible but still not all that probable.  Switzerland is less of a threat to the U.S. than to the European Union because they are a leading trade partner for the EU and not for the U.S.

Meanwhile, the U.S. dollar is down against the euro in forex trading right now as the stock market rallies.