In advance of Japan’s GDP figure later in the week, have some 3rd arrow pessimism from S&P’s Paul Sheard who, while reasonably fine with the first two of Shinzo Abe’s missiles, is deeply underwhelmed with what passes for a “growth strategy” these days (with our emphasis):
Why the disappointment then? Probably for three related reasons, all of which reinforce the sense that, when it comes to the growth strategy, it is more a case of “business as usual” than that something truly game-changing is afoot.
It may seem like an odd time to stress out about Japan running an overly aggressive current account surplus, which might in turn push Abenomics off the tracks, but since the fears over a deficit have been so well covered… Read more
Shinzo Abe has a problem.
As the FT’s Jonathan Soble noted last week, part of what appears to have persuaded Abe to press ahead raising the sales tax to 8 per cent from 5 per cent next April was the “the risk that delaying would scare investors by making the government appear unwilling or unable to tackle the debt”. Read more
Cardiff has already written a long’un on this and we hate to keep banging on about such a muddy topic but Credit Suisse have a handy reminder out about the immigration issue in Japan which is worth a read:
An interesting aside to the consumption tax argument from BNP Paribas’ Ryutaro Kono — why have JGB markets been so calm? It was only recently that their flighty side was being discussed. So why has there been so little reaction to reports that Abe et al might change the timing or scale of the consumption tax? Read more
Check it, from JP Morgan’s Flows & Liquidity team:
The 233 repo fails in the month of June is four times larger than the typical monthly pace of 60-70 and the trend is quite suggestive. (A fail is where one market party fails to deliver the security or cash it had promised to send to another entity within a specific time frame. It’s a problem for both buyers and sellers since it means they could have to go and buy them out in the open market for what could be a higher or lower price.)
From JPM, with their emphasis: Read more
From a Credit Suisse strategist note, first a reminder of what’s in Shinzo Abe’s ‘Third Arrow’ for rescuing the Japanese economy:
■ Bring investment back to pre-crisis levels (an 12% increase from current levels); Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Well, it seems that everyone is talking about Japan’s Shinzo Abe’s so-called “Fourth Arrow” in his economic recovery program. That is, a plan to raise the consumption tax to eight per cent next year followed by a hike to ten per cent in October 2015. Can we tell anything about the likely consequences of such a move from Japan’s rather colourful macroeconomic history of the past twenty years? Yes, we can. Read more
Be it Abe’s fourth arrow or simply a part of the fiscal one, the plan to hike Japan’s consumption tax to 8 per cent by April next year, and then 10 per cent by October 2015, represents a cheery contradiction.
Abe et al are keen on ending deflation — but they are going to hinder that push with a fiscal tightening. No tension there, then. Read more
The first bits of post-Abenomics data are finally trickling in. And so far, it has to be said, it’s looking good for Shinzo Abe.
Lombard Street Research’s Michael Taylor takes us through the initial findings (our emphasis):
A recovery in industrial production and consumer spending points to above-trend growth in Q2. Consumer price inflation may soon make a brief appearance above zero on the back of higher energy and import prices. But deflation isn’t beaten yet. The splurge of Japanese data overnight confirms the overall positive trend in the economy. Notably, industrial production increased by 2% in the month of May, the fourth consecutive monthly increase. Output in May was boosted by electronic components and machinery in particular. Both industrial production and exports are now on an upward trend (see chart below). To a large extent this recovery is due to the weaker yen. Although the yen is above its recent lows against the US dollar, it is still 19% lower than last November.
Whatever the final results of Abenomics, at least it has refocussed attention on a longstanding problem in Japan: the tremendous difference in labour force participation between men and women.
It’s an especially significant problem for Japan because of the country’s ongoing population decline. Read more
Kuroding yields and a Nikkei rout have put Abenomics on the back foot.
Goldman strategists Naohiko Baba, Chiwoong Lee and Yuriko Tanaka’s considered opinion is that Haruhiko Kuroda is just, well, bad at central banker speak.
They think the loss of “any positive market reaction” to Japan’s unprecedented easing has “largely been undone”, and lay the blame mostly at the Bank of Japan chief’s feet for his communications strategy, or lack thereof. Read more
Slightly wearying, all this see-sawing in Japan. The Nikkei fell more than 6 per cent at one point on Thursday, though it had rallied a bit at pixel time. Still heading towards bear territory.
Some Nikkei investors spotted leaving the scene on Wednesday: Read more
It’s hard to escape the effects of demographic determinism.
Japan appears very keen to give it a shot, but aside from policymakers taking a disturbingly direct hands-on approach, their choices are somewhat limited.
From Credit Suisse: Read more
The Nikkei was up 4.9 per cent at 13514 during the official Tokyo session, rising towards 13700 during after hours trading; the Topix was up 5.2 per cent and the yen 1.1 per cent weaker at Y98.6. Sigh… Read more
(With Macro man getting the credit for the pic on the right) Read more
That’s the yen on the left hitting Y99.69 at pixel and the Nikkei, right, having lost nearly half of its speedy 2013 gains since May 22 (click to enlarge):
A disgusted Shinzo Abe appears after the break…
Who knows. But we can report that this report, from Reuters, caused a sharp trend reversal in Japanese equity futures on Thursday accompanied by a sudden weakening of the Yen.
That’s the Nikkei off 5 per cent on Thursday morning, its biggest fall since last week’s 7.3 per cent hit:
Both the Nikkei and the boader Topix have lost around 13 per cent in local currency terms since hitting peaks last week: Read more
The daily attempts of Bank of Japan and Japanese government officials to calm volatile equities/yields/yen is becoming dizzying. For Kuroda in particular it must be exhausting. The poor guy is everywhere.
Still, Tuesday’s efforts saw the Nikkei up 1.2 per cent and the yen down 1.2 per cent against the dollar and above Y120. However, Japan’s 10 and 5 year yields headed back above 0.9 per cent and 0.4 per cent respectively: Read more
The Nikkei*, today:
What happened early in the afternoon session?
This: Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
The Bank of Japan’s May statement on monetary policy is out, and it’s basically a big MAINTAIN on its ‘quantitative and qualitative easing’ (QQE) programme.
If anyone was anticipating the BoJ might take this opportunity to point out it is mindful of recent rises in government bond yields — and apparently some were expecting this sort of reassurance, possibly even tweaking maturities purchased — they would be disappointed. Equities traders just seemed relieved that their rally will continue.
However one member, Takahide Kiuchi, proposed the 2 per cent inflation target shift to a “medium to long term” and the new QQE plan itself be designated as “an intensive measure with a time frame of about two years”. Kiuchi’s proposal at this meeting was voted down by the other eight board members. The central bank has, however, already revealed that some members are concerned about the risks of its QQE plans hurting retail investors in Japanese government debt. Read more
One for the mantelpiece, Mr Abe:
(Click through the pic for the Economist article) Read more
Japan’s economy grew at the fastest pace in a year last quarter, with solid growth in consumer spending and exports suggesting the expansionary policies of Shinzo Abe, prime minister, are delivering quick and tangible results.
Government data on Thursday showed that real gross domestic product increased by 0.9 per cent in the three months to March, or 3.5 per cent in annualised terms. It was the second consecutive quarter of growth, after a rise in October-December that the government revised upward to 1 per cent.
That’s from the FT’s Jonathan Soble.
Of course, quite a lot happened after the end of Q1 as well. Read more
Nikkei 15,000 comes courtesy of a weak yen and increasing earnings expectations which carry some potentially elevated valuations with them. If you need any evidence of how sensitive the Nikkei has become to the yen’s rise, here’s a chart to ease your suffering:
But there are other things at work here. Read more
Japanese government bonds have kept stumbling. Small beer anywhere else in the world, but considering the policy experiment ongoing over there it’s worth keeping an eye on.
We’re not too excited yet but here’s a chart of five and ten year yields and some speculation anyway… Read more
Header credit goes to UBS’s Paul Donovan, the source of the piece of Japanese skepticism that follows. He takes us first to Sherlock Holmes’ “Silver Blaze”:
Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
A strong opening gambit, as yen tales go. Read more