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from Breakingviews:

Japan helps Nomura put a bad year behind it

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Who wants to be a global investment bank anyway? Not Nomura. The Japanese financial group delivered a solid quarter-on-quarter boost in underlying pre-tax profit in the final three months of 2012, driven largely by a recovery in its home market. Last year’s insider trading scandal and subsequent resignations punctured the global dreams Nomura was pursuing when it bought parts of bankrupt Lehman Brothers in 2008. For investors, that may be no bad thing.

Deducing Nomura’s profitability means digging through numerous one-offs. Strip away the 23.3 billion yen charge caused by increases in the value of Nomura’s own debts, a 24.1 billion yen write-down on real estate, and a gain of 13.2 billion yen from selling a private equity portfolio, and the headline 13 billion yen in pre-tax profit becomes a more creditable 47 billion yen, a third above the previous quarter’s figure.

While Japan now makes up just a quarter of Nomura’s investment banking revenue, the domestic market sets the tone. It accounted for half of the quarter’s revenue growth in equities and fixed income, as Tokyo’s market bounced in anticipation of prime minister Abe’s election victory. Meanwhile, Japanese companies angered by the insider trading fiasco look to have been placated by the corporate seppuku of its then-chief executive. Nomura ended the year back at the top of Japan’s equity underwriting league tables.

from Global Investing:

Hyundai hits a roadbump

The issue of the falling yen is focusing many minds these days, nowhere more than in South Korea where exporters of goods such as cars and electronics often compete closely with their Japanese counterparts. These companies got a powerful reminder today of the danger in which they stand -- quarterly profits from Hyundai fell sharply in the last quarter of 2012.  (See here to read what we wrote about this topic last week)

Korea's won currency has been strong against the dollar too, gaining 8 percent to the greenback last year. In the meantime the yen fell 16 percent against the dollar in 2012 and is expected to weaken further. Analysts at Morgan Stanley pointed out in a recent note that since June 2012, Korean stocks have underperformed Japan, corresponding to the yen's 22 percent depreciation in this period. Their graphic below shows that the biggest underperformers were consumer discretionary stocks (a category which includes auto and electronics manufacturers). Incidentally, Hyundai along with Samsung, makes up a fifth of the Seoul market's capitalisation.

from Breakingviews:

South Korea may need a rate cut to fight weak yen

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Japan’s weak yen policy could be South Korea’s biggest economic enemy this year. The strengthening won, which has risen 23 percent against the yen in the past six months, was partly to blame for the country’s anaemic GDP growth in the fourth quarter. It’s also putting the squeeze on manufacturers like Hyundai. Lower interest rates could help to ease the pressure.

from Breakingviews:

BOJ must now make its bold inflation goal credible

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

After more than a decade of feigning helplessness against falling prices, the Bank of Japan has finally signed up for combat duty.

from Global Investing:

Korean exporters’ yen nightmare (corrected)

(corrects name of hedge fund in para 3 to Symphony Financial Partners)

Any doubt about the importance of a weaker yen in thawing the frozen Japanese economy will have been dispelled by the Nikkei's surge to 32-month highs this week. Since early December, when it became clear an incoming Shinzo Abe administration would do its best to weaken the yen, the equity index has surged as the yen has fallen.

Those moves are giving sleepless nights to Japan's neighbours who are watching their own currencies appreciate versus the yen. South Korean companies, in particular, from auto to electronics manufacturers, must be especially worried. They had a fine time in recent years  as the yen's strength since 2008 allowed them to gain market share overseas. But since mid-2012, the won has appreciated 22 percent versus the yen.  In this period, MSCI Korea has lagged the performance of MSCI Japan by 20 percent. Check out the following graphic from my colleague Vincent Flasseur (@ReutersFlasseur)

from MacroScope:

Trade entrails

An exercise in divination using the entrails of last week's U.S. international trade report shows signs of a move with larger implications than just the gaping deficit that caught analysts wrong-footed: the possibility of a persistent burden on the American economy caused by Japanese and German imports, like in the 80s.

The U.S. trade deficit widened 16 percent in November to $48.7 billion, the Commerce Department said on Friday, above the $41.3 billion expected. The negative surprise prompted economists to cut hastily their U.S. gross domestic product estimates for the last quarter to a negligible rate. The stock market took a hit.

from Breakingviews:

Japan’s fiscal stimulus is call for action to BOJ

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Japan’s new prime minister has thrown the country’s central bank a $117 billion challenge.

from Breakingviews:

A how-to guide for Japan to escape deflation

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Japan has a real chance of ending deflation. But the authorities need to act boldly. It will be hard for the Bank of Japan to dispel a decade of accumulated pessimism by merely adopting a formal inflation target. The goal of the central bank and the finance ministry should be to make people believe that price gains that didn’t occur in the past 10 years will now take place. A de facto currency peg may be the way to engineer those expectations.

from MacroScope:

Japan finally takes Bernanke-san’s advice – 10 years later

This post was based on reporting by Leika Kihara in Tokyo

Japan has crossed the monetary rubicon: the government is actively intervening in the affairs of the central bank, pressuring it to more aggressively tackle a prolonged bout of deflation and economic stagnation. The Bank of Japan is expected to discuss raising its inflation target from the current 1 percent level during its next rate decision on January 21-22.

Overnight, a Japanese newspaper reported the finance ministry and the central bank were considering signing a policy accord that would set as a common goal not just achieving 2 percent inflation but also steady job growth.

from Global Investing:

A yen for emerging markets

Global Investing has written several times about Japanese mom-and-pop investors'  adventures in emerging markets. Most recently, we discussed how the new government's plan to prod the Bank of Japan into unlimited monetary easing could turn more Japanese into intrepid yield hunters.  Here's an update.

JP Morgan analysts calculate that EM-dedicated Japanese investment trusts, known as toshin, have seen inflows of $7 billion ever since the U.S. Fed announced its plan to embark on open-ended $40-billion-a-month money printing.  That's taken their assets under management to $67 billion. And in the week ended Jan 2, Japanese flows to emerging markets amounted to $234 million, they reckon. This should pick up once the yen debasement really gets going -- many are expecting a 100 yen per dollar exchange rate by end-2013  (it's currently at 88).

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