The third quarter was bad, but it was a revision of Q2 GDP data — from 0.1 to -0.1 per cent, seasonally adjusted and annualised — that puts Japan in official recession:
Japan’s election on December 16 is going to be a doozy.
It’s probably the first election where the role and independence of the central bank is a key issue, says Gavyn Davies. There’s also rather a lot of yen short positions that are riding, at least in part, on the outcome — IMM data out over the weekend shows net shorts have built to levels not seen since 2007. Read more
We’ve been moaning about the old stealing our jobs for quite a while but we may have been missing an obvious trick. Much like their advanced toilet habits, Japan is leading the way demographically and has come up with an alternate to our more “soylent green” approach to the problem. Read more
THE YEN IS DOOMED, don’t ya know? And, to be fair, the longer term arguments are hard to fight against but the risk of a near to medium-term yen bounce is significant. Read more
The Bank of Japan’s unprecedented joint statement with the Japanese government after the central bank’s October meeting raised eyebrows around the world. The BoJ was already widely seen as having come under increased political pressure in recent months as the country’s economy had slowed; so what did the joint statement mean?
The statement contained a couple of key declarations: “The Bank strongly expects the Government to vigorously promote measures for strengthening Japan’s growth potential”, and “The Government strongly expects the Bank to continue powerful easing as outlined in section 2 until deflation is overcome.” Read more
Well, we’re cheating a bit here as the anniversary was two days ago, but it still allows for a discussion of the “government versus the central bank” thing going on in Japan and gaining traction everywhere else. It’s been just over a year since Japan’s Ministry of Finance last threw a whole heap of yen at the US dollar — the selling started on October 31 and ended on November 4. Read more
So the Bank of Japan basically did what what was expected of it as did the yen, which gained 0.5 per cent against the dollar as traders saw massive selling of dollar-yen going through as the Bank’s decision hit the wires.
So far, so predictable. We thought UBS’ Paul Donovan summed up the BoJ’s move fairly well:
Japan saw the Bank of Japan defy government pressure to increase the asset purchase program by JPY10tn. They increased it by JPY11tn. No doubt this will be as effective as all the previous actions which have already raised the level of the BoJ balance sheet to 32% of GDP.
But the increasing pressure that is being piled on the Bank by the government is worth drawing attention to. As well as the Bank’s attempts to shift it right back to the government. Read more
And this one might prove more precipitous than its famous US cousin.
From the FT’s Ben McLannahan:
In an echo of worries in the US over the $600bn of spending cuts and tax increases due to take effect in January – the so-called fiscal cliff – Japanese politicians are at loggerheads over a bill that would allow the government to borrow the Y38.3tn ($479bn) it needs to finance this year’s deficit.
It seems odd — and it may well be short-lived — but the US is beginning to shape up as a rare bright spot in the world economy.* Or indeed almost the only bright spot in the world’s economy, except for the Gulf petro-states. That is, if you were to base such an assessment solely on Japan’s September export data, released on Monday.
Japan’s preliminary September trade data tell a story not dissimilar to China’s — exports to Europe are slowing (unsurprisingly) by a lot, down 26 per cent for the month, year-on-year. Read more
So far, the dispute with China over the Senkaku/Diaoyu islands doesn’t seem to have hurt Japan’s exports to China as much as the headlines might suggest. True, as Dow Jones points out, exports to China were 14.1 per cent lower than in September 2011. However Nomura’s fixed income strategists Naokazu Koshimizu and Asuka Tsuchida note that exports to China actually rose 0.5 per cent compared to August, “suggesting to us little sign of an impact from anti Japan protests in September”. Read more
Markets in Asia were apparently very skittish earlier today in partdue to fears that earnings could be affected by tensions between Japan and China over the Senkaku/Diaoyu islands. This in turn was no doubt exacerbated by the news that not only are the big four Chinese banks skipping this week’s IMF meeting in Tokyo, but the PBoC governor and the finance minister are also sitting it out, instead sending along their respective deputies.
From Bloomberg: Read more
Currency wars are back in fashion. Even if you ignore the idea that those who fire the opening shots do so as an after-thought, there is still a feeling this may tip into widespread conflict.
But, the idea of currency wars as a negative may be fundamentally misunderstood (we blame the ‘war’ branding thing). Read more
China’s official manufacturing PMI figure was reported at 49.8 for September, an increase from 49.2 in August. Meanwhile, on Saturday the HSBC/Markit Economics PMI was 47.9, confirming the 11th month of contraction — the longest in the survey’s history.
Some China economists have welcomed the official PMI coming within a whisker of 50, but we don’t see a lot to be excited about — it seems indicate little, apart from support for a “new normal” in Chinese growth. The components of the main figure all improved, including the important “new orders” and “new export orders” numbers. However, employment fell slightly to 48.9 from 49.1. Read more
To what extent has Japan’s soft growth over the past 20 years been due to its population ageing? And to what extent unfavourable demographics can be offset by increases in labour market participation (especially by old people) and/or labour productivity gains?
Citi’s Nathan Sheets and Robert Sockin have put together a very useful comparison of (mostly supply-side) measures for the US, Japan and eurozone that examine these questions. They’ve “decomposed” real GDP-per capita down into labour productivity, employment rate, labour force participation, and the share of the working-age population. Read more
Cheap labour isn’t forever. The act of taking advantage of it enriches the work force over time. At least, that’s what should happen.
As America proved, a work force can, in effect, end up aiding its own overall decline due to a lack of competitiveness on wages and pensions. That sort of rigidity, whether good or bad, isn’t the only thing that can lead to a decline in manufacturing employment. Automation can too. Read more
This chart about Japan’s machinery orders (from Scotty Barber) tells us two things: Read more
On the back of the glorious victory in yesterday’s Thomson Reuters Extel survey, Societe Generale’s Albert Edwards has a note out on Spanish banks (his emphasis):
The Spanish banking sector is a victim of deflationary policies enacted at the behest of German economic orthodoxy. A bailout will solve nothing. Read more
Charts via Nomura’s European bank analyst, Jon Peace:
Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while.
His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey. Read more
Tetchiness about Japanese bonds seems to be reaching an all-time high lately. But JGBs are not, so far, playing along. The Japanese parliament’s failure to raise the sales tax in the early hours of Wednesday didn’t do much to rattle Japanese bondholders, as the WSJ’s Real Time Japan blog notes. Strong domestic demand, and foreign buyers expecting that the yen might not remain at the lower rates seen over the last month are two reasons ventured. It’s what Andy Xie described this week as the wrong but self-fulfilling belief in the (perpetually) strong yen, in a lengthy piece about a looming crisis for the currency.
The yen has, nonetheless, seen something of a weakening recently, thanks to the BoJ’s Valentine’s Day intervention. And there is some optimism around Japan’s economic growth generally, though a lot of it relates to the post-tsunami rebuilding effort. Both the rebuilding and the weaker yen are cited as one of the reasons the Nikkei is performing relatively well this year and has returned to its pre-tsunami level. Read more
Come another season… come another seasonal distortion. The following argument is pegged on the end of the Japanese financial year on March 31 and its potential impact on the yen.
Now, it seems there are always a few old market myths thrown around at this time of year. Read more
We think the following chart from Nomura’s Richard Koo on Wednesday is something that every inflationista and goldbug should study closely:
Investors in Tokyo Electric Power Co’s shares have sued its executives for a record 5.5 trillion yen in compensation over last year’s Fukushima incident, Reuters says. Some 42 shareholders filed the claim in a Tokyo court on Monday, accusing current and former executives of ignoring warnings about risks to the plant from a tsunami. Executives in Japan have never been pressed for compensation on this scale, making it uncertain whether damages can be claimed even if the shareholders win. Meanwhile businesses based in Japan’s north-east, hit worst by last year’s tsunami, continue to shoulder large financial burdens, the FT reports. Read more
Japan is “in the final stages” of talks with the US on a deal to make deeper cuts to its Iranian oil imports, its foreign minister has said, according to the FT. A deal to reduce reliance on Iran’s crude would be made in return for Japanese banks avoiding tough US sanctions on dealings with Iranian financial institutions. Amid the clampdown on Iranian exports, more and more questions are being asked about the true extent of Saudi Arabia’s “spare capacity” to replace lost supply, the FT adds. A Western release of strategic crude reserves, also to meet demand, would meet the logistical problem of the oil market being tightest in Asia, Reuters says. Read more
Elpida, the Japanese chipmaker, has filed for bankruptcy protection on $5.56bn of debt, Reuters reports. It is the largest Japanese corporate failure in the post-war period. The strong yen and weak chip prices had weighed on Elpida, which increased capital spending in order to catch South Korean and Taiwanese rivals. Elpida’s core DRAM chip business has also taken hits from consumers’ move from PCs to tablets. ”We never imagined the yen would become this strong,” the company’s president told a Tokyo news conference, according to the WSJ. Read more
Olympus has appointed a new board including a chairman linked to its largest creditor, Sumitomo Mitsui, the FT says. Yasuyuki Kimoto, a former Sumitomo director, would become chairman, the scandal-hit camera-maker said. Hiroyuki Sasa, an Olympus executive officer, would be promoted to president. A former executive of another of Olympus’ creditors, Bank of Tokyo-Mitsubishi UFJ, became a board member, says the Daily Telegraph. Foreign shareholders who say they seek a clean slate for Olympus have attacked the continued influence of the company’s creditor banks. Read more
A nuclear operator is to tap the Japanese bond market for the first time since the Fukushima crisis, providing a litmus test of investor demand, the FT reports. Tohoku Electric Power, which was the operator most affected by the crisis after Tokyo Electric Power, is expected to issue Y25bn ($310m) of five- and 10-year bonds. Investors in the deal will likely receive a premium to Japanese government bonds times what debt issued by nuclear operators used to command before the March 2011 earthquake. While Tohoku could open the market to weaker operators, the ultimate fate of the industry remains unclear, the WSJ says. Read more
Sumitomo Mitsui has denied that it is attempting to take over the board of scandal-hit Olympus, although it might seek to install a former exeuctive as chair, Reuters reports. Foreign investors have charged that the bank, which is both the biggest creditor and shareholder of Olympus, is blocking their proposals to bring outsiders on to the board. Japanese banks once commonly supported their borrowers through shareholdings in the 1990s, before bad debts forced them to slash investments. But the traditional relationship that kept banks closely involved with their borrowers remains at some companies, including Olympus, the FT says. Read more
Bank of Japan easing policy has sent the yen to lowest level against the dollar since July, with the spread between two-year US Treasuries and Japanese debt widening the most since August, says Bloomberg. The yen has lost 3.7 per cent since the BoJ unveiled a one per cent inflation target on February 14. UBS reckons the BoJ’s shift could see the yen at ¥85 by the end of year, although the yen could return to its 2011 rally if Japan resumes posting a trade surplus in 2012, according to the WSJ. Read more