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The Subprime Solution: Containing Global Contagion

Tough issue. For one, I expect the Fed to be proactive rather than reactive here. The housing bubble has not burst in the dramatic fashion that, for example, the Economist was saying it would a year ago. As far as effect on the carry trade goes, I can't see much just yet - Japan's overnight call rate is still 0.5% and doesn't look to go anywhere above that until after upper house elections this summer, due to political pressure. That might not be as appealing as the 0% rate last February or the 0.25% rate two months ago, but it's still low enough, and should last long enough, to make some aspects of the carry trade still appealing to the non-risk averse. Japanese equities still look very appealing from Stateside, from what I'm hearing, though I wonder about some of the picks I often hear of...

BoJ Holds at 0.5%, Yen Weakens, Nikkei Adds to Yesterday's Gains

The tankan survey is being projected to decline, which makes it all that more interesting to watch. It looks as though the BOJ is locked out of another rate increase until after upper house elections this summer, due to political pressure. Keidanren is pushing for a hike in consumption tax from 5 to 7 percent - can the economy take both a hike in consumption taxes and another rate increase later in the year? With wage increases pinned to bonuses, this will be an interesting experiment, to say the least...