Although we saw the large pickup in U.S. new home sales for April, the ensuing figures on existing home sales were clearly less stellar. The short term boost in new home sales reflects a relatively strong economy and comes as builders have been aggressively cutting prices to stimulate demand. The sub prime debacle is unlikely to go away any time soon considering that more than three quarters of mortgages were negotiated on adjustable rates which means that borrowers will sooner of later have to pay higher monthly rates, raising the likelihood of further bankruptcies.
Japan, another economy in crossroads, has had more positive news lately with the unemployment rate dropping to a record 3.8% (second lowest amongst developed nations) and sings that consumption is picking up. This bodes well for the BOJ that are itching for a reason to hike rates further. Wages are not expected to pick up dramatically, however, as the ageing and more expensive pool of retirees are being replaced by younger and cheaper graduates.
