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from Anatole Kaletsky:

The radical force of ‘Abenomics’

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Japan's Prime Minister Shinzo Abe in the cockpit of T-4 training jet at the Japan Air Self-Defense Force base in Higashimatsushima, Miyagi prefecture, May 12, 2013. REUTERS/Kyodo

'The 3.5 percent gross domestic product growth announced by Tokyo Wednesday suggests that Japan may be the fastest-growing economy in the G7. Since the Tokyo stock market hit bottom exactly six months ago, the Nikkei share index has soared almost 80 percent. Meanwhile, the yen has experienced its biggest six-month move against the dollar. All these events appear linked to the election of Shinzo Abe and the regime he has installed at the Bank of Japan.

Even after 20 years of stagnation, Japan remains the world’s third-largest economy, with a 2012 GDP of $6 trillion, equal to France, Italy and Spain combined. Financiers, business leaders and economists everywhere are starting to ask the obvious question: Is Japan finally taking the truly radical action required to fix its economy and end its “lost decades”?

This, however, is the wrong question. It confounds two very different issues – which need to be carefully distinguished to understand what’s happening in Japan.

from Global Investing:

Why Abenomics is leading to a squid shortage in Japan

"Abenomics" -- Prime Minister Shinzo Abe's aggressive reflationary fiscal and monetary policy -- is widely praised for injecting optimism into the world's third largest economy and making Tokyo stocks the best performing equity market in the world this year.

However, in Japan, something odd is happening as a result of Abenomics -- a big shortage of squid.

from Global Investing:

Abenomics rally: bubble or trend?

"Abenomics" is the buzzword in Japan these days -- it refers to Prime Minister Shinzo Abe's aggressive reflationary fiscal and monetary policies that triggered the yen's 10 percent decline against the dollar and 17 percent rally in Tokyo stocks this year.

So it's no wonder that the Japanese mutual fund market, the second largest in Asia-Pacific, enjoyed the largest monthly inflows in almost six years last month, raking in as much as $11 billion.

from Global Investing:

Korean exporters’ yen nightmare (corrected)

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(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 Global Investing:

Japan… tide finally turning?

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Until recently, when you mentioned  "Japan" in the investment context, you could almost hear a collective sigh of disappointment -- it was all about recession, deflation and poor investment returns.

However, sentiment does seem to be finally changing, not least because Tokyo stocks have rallied almost 20 percent since the start of the year, outperforming benchmark world and emerging indexes.

from George Chen:

Firing and hiring

GS

By George Chen
The opinions expressed are the author’s own.

Today is April Fools' Day, a rare opportunity to make fun of friends and colleagues with pranks and practical jokes. Ever ahead of the game, Goldman Sachs produced an amusing mistake yesterday making it look more than a little foolish, as many investors and rival bankers may attest.

The bank's Asia structured products unit said yesterday that trading in four index warrants it issued in relation to the Nikkei 225 was abruptly suspended in Hong Kong because of errors in supplemental listing documents. The formula of "cash settlement amount per board lot" for the warrants was misstated, Goldman Sachs Structured Products (Asia) Ltd said in a filing with the Hong Kong stock exchange. Click here to read the Goldman Sachs statement (PDF).

from Eric Burroughs:

Notes on Japan

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It was a brutal and at times scary week. There are plenty of unknowns around the radiation risks tied to the Fukushima nuclear plant. But the fact remains that this nuclear crisis after the quake/tsunami shock may not deal the economy too severe a blow. If nothing else, the shock is prompting a policy response that was always lacking in Japan before: hefty fiscal spending is on the way, and the Bank of Japan has injected money into the system like never before, and via all kinds of channels. The BOJ’s response has helped to quickly stabilise funding markets and asset markets as a whole. The G7 is backing up Japan on yen intervention. Foreign institutional investors were cited in the last few days as steady buyers of Japanese equities, seeing this as an opportunity as the price-to-book on the TOPIX once again fell to a meagre 1.0 (for comparison, it is in the company of Serbia, UAE, Lebanon, Italy, Greece and Venezuela – so yes maybe cheap). From a markets point of view – a minor one in this crisis – Japan did an admirable job shoring up the markets after their were gripped by panic. Keep in mind that sharp policy responses to panics linger for a while, usually well into any recovery. Just as the Fed launched QE2 the moment the U.S. economy was picking up a head of steam, Japan may be countering an economic shock that may not be as big as feared. If so, it could be just the jolt the Japanese economy has long needed just as it was gathering momentum. All that said, the radiation risks, factory shutdowns and threat of power outages will add to the doubts about how quickly the economy will bounce back in the next few months.

JGB risks: The chart below says a lot. Over time, gradually, investors are seeing greater risks in JGBs. Not just those supposed speculators in CDS, but even in the mostly domestic market where the yield curve has stayed historically steep for a while now. The risks are now even greater. Does the need for greater borrowing push JGBs closer to a tipping point? The BOJ may step in to help fund some of the reconstruction costs, but it has showed a great reluctance to be seen underwriting the government. Whatever the BOJ does, the JGB outlook is one that keeps slowly deteriorating. Near-term risks include insurer selling and the lack of buyers heading into fiscal year-end. Beyond fiscal-year end is the big question. A lot of liquidity is in the banking system, and households may start boosting savings again. But the risks are building.

from Global Investing:

RIP 2008-2009

It was down, down, down in 2008 and up, up , up in 2009. So what will 2010 bring?

Year

from Breakingviews:

The no-return decade in stocks makes dividends look good

Christopher Swann2.jpgBy Christopher Swann and Edward Hadas
For the first time in modern stock market history, investors in U.S. equities are likely to finish a decade empty-handed. The S&P 500 Index is set to provide a negative 0.8 percent average annual total return. Even the grim 1930s did better. While share prices fell, dividends made the average total return positive, by 1 percent a year.

Investors may bemoan their misfortune, especially when they consider annual inflation of 2.5 percent in the period, compared to annual deflation of 2 percent in the 1930s. But they can take two small comforts.

from Summit Notebook:

Nikkei recessive exuberance

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If the Nikkei's spring rally from multi-decade lows whet appetites for a "Japan is back" soaring benchmark, it's time to check that excessive exuberance, says Deutsche Securities' Naoki Kamiyama, who sees a top of 10,500 yen for the Nikkei 225 and 1,000 for the Topix over the next year.

No one was expecting a return to 30,000 or even 20,000 for the Nikkei, which has found upside tough after a recent crack above the 10,000 line. But the veteran of many years of Japan asset-watching says market optimism is now meeting reality, with gains of less than 10 percent from current levels likely.

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