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.

Japan Squid Fisheries Association (JAFRA) decided to halt all fishing operations this Friday and Saturday because a weaker yen is pushing petrol prices higher, to the extent that going out to the sea will bring a guaranteed loss. The yen has lost more than 13 percent against the dollar since the start of the year.

Squid fishing is highly energy-intensive because fishers use light to lure squid at night. Fuel makes up around a third of the cost of fishing.

There is a government subsidy for fishermen when energy prices surge. But according to JAFRA, even with the subsidy, the average loss per boat can go up to as much as 200,000 yen ($2,009) per year at the current dollar/yen exchange level of around 100.

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.

With all that new money coming in, will you be late to the game if you haven’t gone in already?

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)

David Baran, co-founder of Tokyo-based Symphony Financial Partners, notes the relative performance of Hyundai and Toyota (Hyundai shares have fallen 2.5 percent this year adding to 13.5 percent loss in the last quarter of 2012. Toyota on the other hand is up 5 percent so far in 2013 after gaining 31 percent in Oct-Dec last year). Baran says he has gone long the Nikkei and short the Seoul index (the Kospi) and (Hong Kong’s) Hang Seng, while taking a short position on the yen. He says:

Japan… tide finally turning?

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.

The yen has also been on a (rare) declining trend since the start of February, with the selling momentum accelerating since the Bank of Japan set an inflation goal of 1 percent in a surprise move and boosted its asset buying programme by $130 billion on Feb 14.

RIP 2008-2009

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

Year

from Raw Japan:

Government stock rescue?

Japanese stocks are sinking towards levels unseen since 1982, sending alarmed government officials scurrying to come up with some way of propping them up.

MARKETS-JAPAN-STOCKS Officials are looking at steps to support stocks after the plunge, which has taken the benchmark Nikkei to within sight of a 26-year low hit last October.

That slices into the value of huge share portfolios held by Japanese banks and erodes their capital just when the economy needs them to boost lending.