In addition to John Authers… please welcome James Mackintosh, the FT’s Investment Editor, as an Alphaville blogger. Like John, James has written for us before, on everything from fair value accounting to EM hot money.
Economists have been worrying about Europe turning Japanese. Investors seem to be more concerned about Japan turning European: for the first time since IBES started compiling forward price/earnings ratios in the 1980s, Japan is cheaper on this widely-used measure than Europe (as this chart shows): 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
The recent economic news out of Japan hasn’t been encouraging.
The FT’s Jonathan Soble writes that export growth in particular has disappointed given the decline in the yen, and accounted for much of the shortfall in Monday’s release of Q4 GDP: 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
Consider this chart from Morgan Stanley:
And then this from Barc: Read more
It’s well known that Japanese society is ageing, rapidly. Here’s the trend charted, by Nomura’s Kyoichiro Shigemura. Click to enlarge,
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.
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
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
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
George Magnus, senior economic advisor at UBS has always been fond of demographics. In fact, he’s always warned the world about the dangerous side-effects of an ageing society, with specific reference to the case of Japan.
As he reminds us in a note on Wednesday: 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
That’s from Deutsche Bank today.
We joke, we joke. A little. Deutsche had of course already joined the commodities-supercycle-is-dead chorus, and this note is not from the commodities side but by Asia chief economists Taimur Baig and Jun Ma. Read more
It’s probably too early to say concretely that the great yen short of Abenomics has turned into the widowmaker of all widowmakers.
But evidence in favour of such a suggestion is certainly mounting by the day.
We present some examples from the commentary space… 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
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
From the pen of South Korea over the weekend:
South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen.
In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called Abenomics on currency markets.
First: “unintended consequences”? Not sure about that. It all seems very intentional from where we’re sitting. Read more
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
John Calverley and team at Standard Chartered have a big report out looking at how a selection of developed economies are doing post-2008. The short answer is that the US has largely recovered from the crisis, with growth there likely to be above trend in 2014. The UK and Japan, meanwhile, are still behind in terms of balance sheet adjustment and effective monetary policy, while poor Spain “still has a long way to go.” Read more
The Nikkei 225 was clearly over-cooked. But just how over-cooked, we found out on Thursday…
Yes, the rally in Japanese equities has caught many an eye. There’s been hardly a step backwards in six months.
Yet prices seem to be accelerating from here. With the Nikkei 225 already up 1.6 per cent on Wednesday, closing at 15,627. Here is the after-hours action, courtesy of the CME: Read more
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