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from Breakingviews:
U.S. protests won’t stop Japan’s yen meddling
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The U.S. Treasury has rightly criticised Tokyo for trying to artificially weaken the yen. Currency intervention of the kind Japan wheeled out after March’s earthquake, and again in October, has a limited impact, and exporters have learned to live with a strong yen anyway. But fears that traders see the yen as a one-way bet mean more meddling is likely.
Japan’s $7 billion current account surplus places natural pressure upward on the yen. Authorities in Tokyo make little secret of their determination to fight against it. A stronger currency makes exports less competitive overseas and so the government periodically rattles its sabers, warning traders it will strike if the currency rises too rapidly. Occasionally the Bank of Japan makes good on the threat by selling yen for dollars.
The usual reason to weaken a currency is to protect exporters, who become less competitive when the currency strengthens. The yen has more than doubled against the dollar since 1985. But it’s not clear Japan’s exporters need such support. They have adjusted, cutting costs and moving production abroad. Profits in Japan’s electronics sector have thus recovered since the financial crisis to where they were six years ago, despite a yen 50 percent stronger, according to Goldman Sachs.
from MacroScope:
Will U.S. criticism affect Japan’s FX stance?
Currency analysts are divided over whether U.S. criticism of Japan's forex policy will change Tokyo's currency stance. While some say it could raise the hurdle for further Japanese intervention, others think it might not have much impact. Rob Ryan, FX strategist at BNP Paribas in Singapore says the effect will be limited given uncertainty about the Japanese economy's outlook and current levels of dollar/yen and cross/yen pairs.
"I think if they (Japanese authorities) feel they have to intervene, they will intervene," Ryan says, adding that a dollar drop down to the "low 76s" might be enough to prompt further action from Japan.
from Breakingviews:
Delphi slips Tokio Marine a $2.7 bln spiked cocktail
By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Somebody slipped the executives of Tokio Marine Holdings a Mickey Finn on their last trip to Delaware. That’s one explanation for the Japanese insurer’s Godzilla-sized payment for Delphi Financial. Tokio’s $2.7 billion purchase comes at a near 80 percent premium to what normal investors were willing to pay for the U.S. insurer. It looks like another example of Japan Inc throwing shareholders under the bus in the name of international expansion.
It is easy to understand the mentality of Japanese companies, given the challenges of their home market. As the country’s population shrinks by a net one million people a year for the next two decades, expanding abroad must feel like a do-or-die proposition. That’s got to be doubly true for anyone, like Tokio Marine, active in the life insurance business. And with a strong yen to boot, it might even feel like a smart case of market timing.
from MacroScope:
Are Treasuries the new JGBs?
Anemic economic growth in the United States has sparked fears the country was entering a Japan-style “lost decade.” The comparison also has implications for government bond markets. Some traders see the U.S. Treasury market’s new, lower-yielding structure as eerily reminiscent of trading patterns seen in JGBs (Japanese government bonds). Says George Goncalves at Nomura:
There has been much debate since the start of the '08 credit crisis over whether the US is turning into Japan and if so how to trade it. We have spent a fair deal of time over the last two years developing a framework for how US rates investors can leverage these insights to "Trading USTs like JGBs.” […] One thing is clear: momentum trading starts to wane and narrower ranges will become the norm in a low yielding world with the Fed on perma hold meanwhile a lack of alternative fixed income products is still forcing investors to buy USTs.
from Breakingviews:
Olympus must dump its board to save itself
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Olympus’s board wants to hang around until March and possibly April. That’s too long. Though the three directors implicated in the Japanese company’s ongoing accounting scandal have resigned, the remaining bunch failed to spot their scam. They also fired the only director brave enough to cry foul once it emerged. The company still needs to placate regulators, woo creditors and repel litigious investors. For that, it needs a fresh board as soon as possible.
from Breakingviews:
Olympus’ ex-CEO no shoo-in for post-scandal return
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Michael Woodford may not be the right fit to run a post-scandal Olympus. Two months after he was fired for blowing the whistle on an accounting scandal, the former chief executive wants to return to the helm. Woodford knows the Japanese group well, but his short, divisive tenure as CEO makes him an awkward choice. Though Woodford should make any shortlist, Olympus shareholders would be wise to consider other candidates.
Woodford is rounding up a posse of investors and bankers to oust Olympus’s board and put him back in charge. He’s promising to shed jobs and side-show units like face cream in an effort to boost earnings at Olympus, which has 70 percent of the global market for scopes that peek into people’s insides. The trick will be mustering shareholders who’ve owned at least 3 percent of the stock for at least six months and can force an extraordinary general meeting. Some of the biggest and most vocal – like Southeastern Asset Management – can’t do that because much of their stake is held on behalf of clients.
from James Saft:
Japan and the debt faith crisis
James Saft is a Reuters columnist. The opinions expressed are his own.
Could Japan be the next victim of the crisis of faith in government bonds?
Despite carrying public debt more than twice the size of its economy and suffering from poor growth and an aging population, Japan's government can still borrow money for 10 years at just over 1 percent.
The big story in global markets, perhaps even in global economics, in 2011 has been the transformation of government debt markets, which are now being driven by the realization that sovereigns can and sometimes do default.
from Ian Bremmer:
Why the U.S. is not—and never will be—Japan
By Ian Bremmer
The opinions expressed are his own.
Though I’ve already written about the recent Munk debate in Toronto elsewhere, it’s worth taking some space to expand on my position, and why the U.S. truly is not going to experience a Japan-style lost decade of economic stagnation.
(The debate was on this resolution: Be it resolved North America faces a Japan-style era of economic stagnation. I joined Larry Summers in arguing the Con side against Paul Krugman and David Rosenberg.)
from Breakingviews:
Japan Inc’s earnings problems are home grown
By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Something is amiss with Japan’s biggest names. Sony, Panasonic and Honda were three whose earnings were battered in the latest quarter, but they weren’t alone. Earnings at the 493 Japanese companies that announced results as of Oct. 31 were 57 percent short of their forecasts, according to Deutsche Bank. Excuses abound, from earthquakes to weak U.S. demand. But it’s problems at home that make them so susceptible.
from Breakingviews:
Tough markets prompt Nomura soul-searching
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Western banks in Japan often complain that Nomura’s long-term dominance means they can’t get a look in. It turns out that works both ways. Tough markets have hit Nomura’s operations in the United States and Europe harder than most, driving the Japanese group to a $589 million loss in the third quarter. With far bigger rivals also set on shrinking, it is hard to see how Nomura’s global ambitions will survive.
