Japan crisis dims rate rise prospects

By Alex Brummer for the Daily Mail
Updated: 04:55 EDT, 17 March 2011

The failure of the Tokyo Electric Power Company and the Japanese authorities to get a grip on the narrative of the alarming events at the Fukushima Daiichi nuclear site is proving costly.

World markets are now gyrating to the multiplicity of voices and statements on the disaster with European Commissioner Guenther Oettinger blundering in with both feet.

As the circumstances in Japan worsen, with snow and freezing weather adding to the humanitarian crisis, it is becoming ever more clear that this is far from a transitory event for the global economy.

The OECD is rapidly downgrading Japanese growth for the year with a loss of 2% of output placing the country back in recession territory.

As Japan is China's biggest trading partner that will have a real impact on the global outlook.

In Britain the OECD has come to the defence of Mervyn King and the advocates of keeping interest rates low for the time being, despite levels of imported inflation.

The Federal Reserve's Open Market Committee went out of its way this week to emphasise that it would keep credit conditions fluid and there were even hints of further quantitative easing - despite rising oil prices.

Europe too looks to be retreating from its hints of raising official rates with ECB Council member Christian Noyer arguing that the impact of Japan would have to be taken into account before increasing borrowing costs.

So a consensus looks to be developing that it would be unwise to lift rates at present and kill off the recovery.

Paradoxically, if anything the Japanese disaster will actually increase inflation over the short term. Liquid natural gas prices are on the rise and shortages of components for the internal workings of the iPad and motor vehicles mean prices could temporarily rise.

The current unrest in Bahrain doesn't augur well for oil prices either.

It is standard central banking practice, preached by the late depression era guru Charles Kindleberger, for interest rates to be held low at times of crisis. This was precisely what was done post 9/11 when the arteries of the global financial system clogged.

The danger is that the central bankers will overdo it and allow a noughties-style bubble to develop. There are signs that elements of the shadow banking system are rampant again and some bankers are returning to the bad old ways of covenant lite lending.

All of this will test the unfinished post-crisis system of financial supervision to the limits.

Merger madness

There has been no greater critic of the proliferation of quangos than the Daily Mail.

Yet the government's determination to shake up Britain's competition regime by merging the Office of Fair Trading and Competition Commission looks unnecessary.

The OFT has demonstrated a muscular determination to take on the banks over charges and poor practices like the sale of Payment Protection Insurance (PPI).

It has also been a useful gatekeeper to the Competition Commission taking the first look at monopolistic practice and passing it on to the CC for a full adjudication.

No system is perfect and potential breaches, such as News Corporation's efforts to buy the minority interest in BSkyB, have managed to squeeze through the net. But the principle that the prosecutor and the judge and jury should not all be under the same roof is a good one.

Sure, it would be nice if the CC had additional powers. How much better it would have been if it could have looked at mergers, such as Kraft's takeover of Cadbury, to certify it was in the broader national or public interest.

But it did not require a weighty 'green' paper and unnecessary disruption to do that.

Fowle play

The comings and goings at pubs group Mitchells & Butlers have been so frequent in recent times that it has been difficult to keep up.

So the departure of chief executive Adam Fowle, the last person standing from the ancien regime, should not come as a shock.

The only question is over the timing. There is certain to be speculation it has been speeded up by Fowle's association with the past, including deals with struggling property tycoon Robert Tchenguiz.

Now perhaps M&B can carry on with the job of selling beer and food rather than boozers.

That is if the company can avoid further ructions with Joe Lewis, who owns 22.9%. He should stick with Spurs where the shareholder register is less crowded.