Japans markets and Economy in 2014

Since Prime Minister Shinzo Abe's reign began last year, Japans economy has drastically improved. Abe promised to end the two long decades of deflation and slow growth. As such, Japans economy can continue doing well if some themes and events are emphasized.

Discussed here are some of the key themes and events that Michael Lane, the Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management, predicts will have an important role to play in shaping Japans markets and Economy in 2014.

1. Consumption tax increase
With the sales tax hike in place, Japans government will be collecting an extra 8 trillion Yen which is expected to shape the economic growth. Japans economy is anticipated to experience an increase in demand in the first quarter, a decrease in the second quarter, and then recovery in the final half of the year. However, Japans debt surpassed $10.46 trillion or 1 quadrillion Yen, which is close to 240% of the GDP, in the second quarter. In fact, the debt is larger than those of France, UK and Germany combined. Yes, you heard me right! The tax hike will affect the economy positively by helping raise the revenue and showing commitment to fiscal reports, and negatively by dragging economic growth. It is like a two edged sword that can cut using both sides. To counter the effects, the Japanese government has rolled out a 5.5 trillion Yen stimulus package because it is aware that the growth may not be compared to that in 1997, the last time they embarked on such a move. Shizuoka Capital Wealth Management predicts a 1.5% growth compared to 1.8% this year. The growth is forecast to slow further to 1%. Japans national sales tax is will be raised to 8% in April and further to 10% in 2015 without the government's fiscal consolidation plan.

2. TPP or Trans Pacific Partnership
Within the first few months of 2014, Shizouka Capital Wealth Management expects an agreement on the 3 year old TPP or Trans Pacific Partnership talks that have been spearheaded by Japan and the U.S. The talks have been stagnating for a while now and ended 2 weeks ago in Singapore without any deal being struck. According to the Japan Times, Prime Minister Abe was determined to conclude the TPP talks without making any easy concessions. The talks have been delayed due to differences over tariffs among other issues. With the TPP, the Japanese economy is expected to grow by 2.25% by 2025. For the talks to yield fruits, the Japanese government has to be willing to reduce the measures it has put in place to protect farmers. If the government is not willing to do so, then expect nothing from the talks.

3. Energy
Abe is pushing for the restarting of the 50 usable reactors that generate 30% of Japans energy and plans to increase the production to 40% unlike prior to the Fukushima nuclear disaster in 2011 that led to their closure. Since 1970, Japan has never been completely without nuclear energy, and the trade deficit has skyrocketed because of two reasons, a weaker Yen and energy importation. The Nuclear Regulation Authority that is supposed to inspect said that it was unsure whether the inspection will be complete in November. Japan is the largest importer of liquefied natural gas and is seeking cooperation with India to cut down on importation costs.

4. Reforms
Implementation of reports will be critical in 2014 to determine whether Japan will be able to transform the stimulus recovery momentum into sustainable long term growth. The 142 page strategy that the Japanese government rolled out does not address pressing issues like tax reforms and labor-market that most people expected would be clearly addresses. Abe plans to encourage more women to join Japans shrinking and aging workforce so that they make up 30% by 2025. The main reason is because the Japanese women make up 49% of graduates and 45% of those that qualify for employment. What is surprising is that they make up less than 1% of the CEO's. Abe believes that women can provide the solution to Japans workforce problems that continue to threaten the economic growth even further. The Japanese government is currently working on a bill that aims to set up National Strategic Special zones that will provide deregulation and tax incentives. Other major reforms that will positively impact on the Japanese markets and economy are to be undertaken in the agricultural sector, energy sector, fisheries industry and forestry.

5. Politics
There is limited political risk in 2014 if Abe's government and Abenomics can succeed in boosting growth. But minus the growth, the situation could be completely different. In fact, the Japanese government will be able to regain its stability after having a half a dozen prime ministers within six years. Both the upper and lower houses are controlled by the Liberal Democratic Party or LDP, the ruling party, while the Democratic Party of Japan, which offers the largest opposition, is like a toothless bulldog politically. In case the lower house is not dissolved early enough, there will be no national elections until the upper house election in summer 2016.

6. Bank of Japan
In the last meeting of the year, the Bank of Japan concluded that the inflation sharply increased, just like predicted by the BoJ's in 2013. The growth is expected to be felt in the run up to next year's sales tax increase. Currently the board has no urgency of releasing additional easing. It will be expected to do in the third quarter of 2014.

7. Markets outlook
Shizouka Capital Wealth Management predicts that the Yen will continue performing poorly against the dollar to 110 by the end of the year, as the Fed tightens and BoJ's policy remains expansive. The on-going monetary stimulus is anticipated to keep the Japanese government bonds anchored at 0.75%. And that is not all; the on-going recovery coupled with a weaker exchange rate is without doubt expected to lift the stock market. Shizouka Capital Wealth Management forecast end 2014 for the Nikkei to be 16,250.

Source: Michael Lane Global Co-Head of the Investment Management Division

About: Shizukoa Capital Wealth Management

Founded in 2006 with headquarters in Tokyo, Japan. The company is engaged in wealth management services such as securities, the buying and selling of corporate debt, handling mergers and acquisitions, private and fixed income.

Japan agrees to release a whopping $116 billion to support its economy

It is evident that the Japanese Government has been making efforts to boost its economy. According to the latest news, the government has given its approval to release $116 billion Yen into the economy. The government is hoping that the extra money being pushed into the market will help Japan overcome recession.

This money will be spent on improving infrastructure and businesses. In the long run, the government hopes that this will attract more and more investors.

The government is also hoping that this extra money will lead to the creation of approximately 600,000 new jobs and will boost the economy by 2%.

The world has been hit by slowed global demand. This, accompanied with reduced domestic consumption and exports, has affected the Japanese economy negatively. The Japanese economy faced constant contractions during the last two quarters and has now gone into recession.

Shinzo Abe, the Prime Minister of Japan, put blame on the previous government. Talking to a group of journalists, the Prime Minister said that Japan is today in a state of recession because the previous administration failed to boost the economy and create growth. He further said that to fight the current scenario, Japan must design a strategy that focuses on creating jobs and raise incomes. This is the only way to achieve sustainable growth in Japan.

The money that the Japanese government is releasing will be used to rebuild areas destroyed by the earthquake and tsunami of 2011 and support regional economies. It will also be used for promoting education and social security.

Yen has been declining
The Prime Minister of Japan has promised to take efficient measures to bring the Japanese economy back on track. One of the first things that the Japanese government plans to do is to make Yen fall in value.

Financial analysts are of the opinion that a weakened Yen will affect the exports positively. Once the Yen devalues, the price of Japanese products will also reduce for foreign buyers. This will lead to an increase in exports. Not just that, Japanese exporters will help pull the economy out of stagnation by putting their extra earnings back into the Japanese markets.

Fortunately, since last November, the Yen has already dropped by 12% against the Dollar. On Friday, it measured 88.97 per dollar.

In a recent statement, the government clarified that it has been keeping an eye on the Yen and will intervene if need be.

In other good news, Japanese share prices have gone up. This has led the Nikkei 225 to gain 1.4%.
Japan has been fighting deflation and stagnancy for many years now. All efforts of Japanese policy-makers to pull the economy out of deflation have failed in the past. The government hopes that the $116 billion stimulus being pushed into the Japanese economy will puncture deflation.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management says," Until now, whatever measures the government has taken, have been aimed at kick-starting the economy. At this point, the government needs to think beyond that."

Japan has been hit by low demand from its three key markets -- US, Eurozone and China. While demand from the US and the Eurozone has declined as these two zones are struggling with their own economies, a decline in demand from China has occurred due to Japan's territorial dispute with the China. These factors have directly affected Japan's exports and economy.

Japan's territorial dispute with China has hit the country especially harder. China is one of the biggest trading partners of Japan. It is also one of the fastest growing consumer markets. At this point, Japan cannot afford to offend China.

Lane says, "If Japan wants to take the road going towards economic growth, it must work on its relations with China. The economists have already predicted that the US and Eurozone will take a while to come out of the financial crisis that has hit them. In such a situation, China can play a pivotal role in improving Japan's exports and its economy."

Lane further added, "Other than working on its relations with China, Japan needs to make further efforts to improve its economy. If Japan wants to fight recession, it must attract the attention of global investors across the world. To achieve this, the country will have to start by spending on key areas like healthcare, retail, construction and agriculture."

Source: Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management

Contact: https://shizuokafinancial.com