Once upon a time (well, 2012) in a realm of falling or flat prices and stalling economic growth, one man had the courage to face reality with only three arrows — of monetary stimulus, fiscal stimulus and structural economic reform — and a popular mandate to his name.
That name was Abe and he…
No. Let’s just cut to Morgan Stanley on the ‘tragedy’ of Abenomics so far, and its potential ‘rebirth’: Read more
A brief history of Japan’s stock market, charted by Nomura. Do click to enlarge/ to spot the bubbles:
Jeff Megall: Do you know what time it is in Tokyo, Nick?
Nick Naylor: No.
Jeff Megall: 4 pm tomorrow. It’s the future, Nick.
–Thank You For Smoking (film)
Back when Japan first entered the world of zero inflation and zero interest rates, many Western economists and policymakers thought it was a freak event never to be experienced in their own countries.
But it turned out Jeff Megall was right: far from being unusual, Japan was simply further along in the process of debt-fueled boom and slow deleveraging. Hence the attention paid to Prime Minister Abe Shinzo’s efforts over the past two-and-a-half years or so to boost growth, particularly the ambitious programme of monetary stimulus called Quantitative and Qualitative Easing. Read more
Another data point for those keeping track of the impact of “Abenomics”, via a recent speech by Bank of Japan governor Haruhiko Kuroda:
The first rule of currency wars is: you always talk about currency wars.
The second rule is: you can always find one to talk about if you look hard enough.
This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas (our emphasis): Read more
Since we can’t put charts in the Cut without borking format for a bunch of readers, here’s what a surprise commitment from the Bank of Japan to raising the monetary base by around Y80tn a year from Y60-70tn, a tripling of annual purchases of ETFs and REITS, and a certain (probably coordinated) GPIF rumour doing the rounds will do to Japanese equities and the yen.
More on the GPIF rumour and the positive and negatives of this latest Kuroda splurge near the bottom.
The Bank of Japan has bought bonds, bills, stocks and property since embarking on its radical monetary easing programme last April.
Now it’s buying time. Read more
As Shinzo Abe unveils his new reform-minded cabinet — here’s Goldman’s chief Japan economist Naohiko Baba from their latest Top of Mind report (with our emphasis):
Both the Japanese government and the BOJ outwardly maintain that the realized negative impact of the April tax hike is within the scope of expectations. But with the authorities’ more optimistic scenario failing to play out, they are likely inwardly rattled. The government is due to make a call in December 2014 on a second hike in the consumption tax – to 10%, from 8%, slated for October 2015 – based on GDP for 3Q 2014. Given the sharp GDP contraction in 2Q (after consumption had been pulled forward to the pre-tax period), GDP is likely to snap back meaningfully in 3Q. But with exports sluggish and real wages declining sharply, the overall picture remains one of a brittle economy that might well derail the debate on a second tax hike heading toward December.
Japan raised its consumption tax rate by 3 percentage points back in April. Unsurprisingly, spending jumped in the few months before the hike and then plummeted when households were forced to bear higher costs with unchanged incomes.
It’s hard to determine the magnitude of the damage this early, but one interesting test is to compare this tax hike to the previous rate increase in 1997, which is often blamed for pushing the country back into recession. (The coincident timing with the Asian financial crisis certainly didn’t help.) Read more
Been a little while since we checked in on Japan and Abenomics but this from Credit Suisse on Abe’s plan to cut the effective corporate tax rate, from more than 35 per cent to “somewhere in the 20s [per cent] within several years”, is worth a look.
The move itself is no real surprise but the potential seigniorage element is further proof of the reliant, intertwined, parent-subsidiary, nature of the Bank of Japan’s relationship with the Abe government. From CS’s Hiromichi Shirakawa and Takashi Shiono: Read more
If you were a Japanese prime minister intent on being radical (where it’s practical) and you had the world’s second largest public pension reserve fund refusing to switch out of domestic bonds and into riskier assets as aggressively as you’d prefer it to…
You too might consider shaking things up. Read more
If these are Abe’s yakuza tactics, they’re a bit disappointing. Should still be fun to watch though.
From The Japan Times:
On Thursday, trade minister Toshimitsu Motegi said his office would publish the outcome of the labor talks known as “shunto,” meaning [unions'] “spring offensive,” and reveal which members of Japan Inc. heeded the wage-hike call issued by Abe.
“The ministry plans to conduct a survey on the leading 1,800 companies about this year’s shunto talks and disclose the results at latest by May,” Motegi, head of the ministry of economy, trade and industry, told a Diet committee.
That shows 94 per cent of analyst from Bloomberg’s monthly survey expecting more QE from the BoJ, be it this quarter or not. There’s “priced in” and then there’s maybe over-priced in… Read more
Big declines for the Japanese benchmarks, with the Nikkei 225 rapidly approaching 14,000 from the wrong direction to leave it and the broader Topix firmly in correction territory.
There are reasons aplenty. Japan vied with Portugal for most go-go market last year, Chinese growth appears to be slowing, the US had a bad day, and then there is the whole taper-related, Turkey-inspired return of general angst.
Still, momentum watchers may have reason to be concerned by the following chart: Read more
Optimism from the mouth of Haruhiko Kuroda, in the FT:
At this stage, we are not thinking about any other policy tools since we are on track and we are likely to achieve the 2 per cent inflation target within the two-years time band.
But there’s a slight problem. From the pens of Credit Suisse (via our inbox):
Neither financial market participants nor the general public appear to have any real confidence in the BOJ’s ability to achieve +2% inflation. The expected inflation rate priced into the JGB linker market points to a steady state closer to +1% after the April 2014 consumption tax hike (Exhibit 1), while households appear to be anticipating even weaker inflation over the coming year.
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