The Yen has Performed Remarkably Well Recently. Why?

This week, the Japanese currency surprised money managers when it reached an all-time high. According to experts, this surge can be best attributed to the changes in bond market.

Given the fluctuations in the Japanese economy, the authorities had not expected such a rise in the Yen. However, the currency astonished some when it showed a gush of about 3% against the dollar this week. This has been Yen's most noticeable and substantial surge since February. What's more surprising is the fact that this surge came at a time when the country's bond yields are negative for most maturities. In the past, negative bond yields had been the key factor responsible for dwindling interests in the Japanese currency.

However, the banks have been pointing to a decrease in inflation as the prime factor that could have led to such an unexpected rise in the Yen. They have been studying different metrics to pin-point various factors that could have caused the Yen to perform so well. It's believed that another factor that could have led to this change is the decrease in United States real yields in the recent past. The banks have now predicted that by the end of September, the dollar could drop further down to 105 Yen.

According to Michael Lane, the Global Co-Head of the Investment Management Division of Shizuoka Capital Wealth Management based in Tokyo, who manages $2bn of institutional investor’s assets, "When we take into account the decreasing inflation, it becomes easier to overlook the 10-year Japanese Debt which United States holds over the country."

According to Mr. Lane, if the United States manages to keep real yields high, it will be able to diminish the export of capital which has been a key factor in causing Yen's rise against the dollar.

The Yen’s gains weren’t limited to the dollar. The Yen has performed well against most major currencies. It has showed a boost of almost 2% in general. This has been Yen's strongest performance since October 31, 2014 when the Japanese authorities released the monetary stimulus program to support the Japanese economy.

So, what does the future hold for Yen?

The Japanese currency, has registered a growth of almost 11 percent since the start of 2016. This was a blow to some analysts who had predicted In early January, that the Yen would fall during the year, down to 124 against the dollar by March end.

The Yen's strong performance has been even more surprising given the fact that Japanese economy has been struggling since the middle of 2013. Machinery prices have been declining and producer prices have been dwindling too.

The Japanese authorities have voiced their concern on the issue. Taro Aso, the Japanese Finance Minister, gave a statement saying that an unpredictable and undesirable growth in any currency is a trend that should be seen with some suspicion. Similar statements were also heard coming from Yoshihide Suga, the Chief Cabinet Secretary of Japan. However, the Prime Minister of Japan, Shinzo Abe, quelled all such concerns by pledging to stay away from arbitrary intervention.

Traders continue to bet on the Yen.

Speculators, however, have been undisturbed by these recent developments. They have continued to show trust in the future of the Yen.

According to the Shizuoka Capital Wealth Management, analysts and hedge funds have escalated their net bullish position on the Japanese currency. By the end of April 5, about 60,000 contracts had showed trust in the future of the Yen and had predicted a further rise in Japan's currency. These contracts weigh highest since 2008 - a positive sign for Yen values.

Yet another important thing to keep in mind is that United States’ dominance over Japan has reduced since Japan's real yield on 10-year U.S debt has reduced from 1.1 percentage point to 0.6 percentage point.

According to Michael Lane, "The Yen will continue to rise even more in the coming term. Since inflation is expected to continue to decline, Japanese real yields will show positive growth and influence the country's currency positively."

About Shizuoka Capital Wealth Management

The company is engaged in wealth management services such as securities, the buying and selling of corporate dept, handling mergers and acquisitions, private equity and fixed income. Founded in 2006 with Headquarters in Tokyo, Japan. As of 2015 the company assets were in the region of $6bn.

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

Japan's GDP lifted by foreign trade

Impressive growth from Japan’s regional neighbors, most notably China, seems to be lifting the country out of its recent recession as an increase in exports and boost in capital spending has translated to positive reports from financial authorities, with the growth at 4 percent annualized for the last 3 months of the year.

Profits for many Japanese firms rose significantly at the tail end of 2009, even considering the issues at two of the nation’s corporate titans, Toyota and Japan Airlines Corp., which has grabbed most of the headlines.

Japan is by no means home and dry, however. The huge stimulus injected into the economy is set to end soon, and the country may lose the number two world ranking it holds by a small margin over its biggest trading partner China by the end of the year. Substantial public debt will make it very difficult to sustain the recovery, along with ongoing deflation and growth spurred only by significant cost-cutting.

The outlook remains positive according to the nation’s financial authorities and economic experts who claim the latest reports “show that Japan could finally be reaching a level of sustainable recovery.” That was the opinion of parliamentary secretary Keisuke Tsumura. He added that the danger of another quick dip into recession has become unlikely.

The surprising lift in the nation’s economy may stave off further quantitative easing from the Bank of Japan, at least in the short-term. The central bank’s aim for interest rates now stands at around 0.2 percent. The BOJ also assists with much needed liquidity to the currency markets hoping to boost demand. The central bank’s board will meet next week and analysts expect their policies to remain as they are.

With other major world economies such as China, with nearly 11 percent growth, and the United States, which reported 6 percent expansion, following in Japan’s footsteps the global outlook looks more positive. Japan itself announced a 5 percent annualized growth rate for Q4.

The only region lagging behind at this time is the European bloc with just a 0.5 percent gain for the same time period.

“The performance by most of the big 300 Japanese firms is very encouraging,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management who conducted a survey released on Tuesday. “The companies reported a combined 220 percent gain in profits during the last quarter. The recovery is on.”

Japan’s economy may have weathered the storm

According to a press release on Tuesday, faster-than-predicted growth in the last quarter of 2009 means that it is almost certain Japan will not face another recessionary dip.

A government representative of the ministry of finance, Naoto Kan, said that Japan had “shown encouraging signs of a mini-recovery” after the world’s second largest economy suffered its worst slump since World War Two. “We seem to be avoiding a secondary dip,” he said.

The upswing is mostly down to increased domestic demands and a significant improvement in exports, a factor on which Japan is hugely dependent. These two recoveries led to a gain in the nations GDP by over 1 percent compared to the previous quarter, or nearly 5 percent annualized.

The exact dimensions of the recovery are still a concern for Mr. Kan however, and he commented that tax jumps may be needed to stabilize the economy further.

“The economies of other countries affects us enormously due to our reliance on international trade, also there is a drop in employment we need to consider. As such, we need to stay cautious, there are still risks,” he said.

The government have been injecting large amounts of stimulus into the economy and most observers believe that growth could taper off sharply once the effects of those policy actions dissipate.

“It’s difficult to try and predict what will happen in the second half of this year as there has been so much intervention by the government,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management.

“They are unlikely to spur domestic demand as they already have their hands full keeping their own policies in check,” he added.

With net exports contributing to 1 percentage point of the GDP expansion in the fourth quarter, Japan’s heavy reliance on exports for economic growth was further highlighted.

Japanese stocks seem to have been relatively unaffected by the recent news, having only started trading again since China’s own fiscal action last month. The Nikkei index finished with a surprising 0.9 percent dip.

It’s widely viewed that the nation’s new government will take a hard look at how the finance ministry interpret these kinds of financial reports and want to find ways of measuring the country’s economic health more easily.

As it is, the recent data offered some relief from the gloomy global news emanating from abroad, and confirmed that Japan is second only to the United States in the world economy rankings.

Japan’s central bank intervenes to kick start economy

Following an emergency meeting on Friday, The Bank of Japan (BOJ) has revealed they will take action to boost the flagging economy and attempt to stem rising deflation.

The BOJ have promised an injection of over $100 billion into the economy by way of budget short-term loans to the nation’s banks.

They hope by doing this that banks will be more likely to increase corporate and private lending, but financial specialists are pondering whether this may simply be an empty political move rather than a genuine effort to prop up the world’s second largest economy.

“The general feeling is that the government have been prodding the BOJ to do something,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in his monthly newsletter to clients.

“The central bank’s position on financial issues hasn’t changed recently, so they certainly wouldn’t be doing this independently,” Lane added.

In an announcement following the meeting, the BOJ said the move would “act as a counterbalance and assist the economy back to growth.”

There seems to be no end to the government’s plans to kick start Japan’s economy, with further stimulus packages being prepared, totalling around 3 trillion yen, according to BBC reports.

Ten months ago, the outgoing administration spent nearly 16 trillion yen to stimulate the economy, which successfully diverted the nation away from recession.

Another sign that the recent move was more for political drama than anything else was the meagre amount of the package. Director at Mizuho International, Seijiro Takeshita, described the amount of extra funds as “negligible” and it was all about “political timing”.

Takeshita commented that there were far better ways for the BOJ to help the economy grow such as bringing down the borrowing interest levels or purchasing high yield bonds from the government.

However, Takeshita also said the move is a sign that the government is taking the financial crisis and Japan’s own decent into recession far more seriously than before.

It was a widely held view that the country would remain largely unscathed by the global downturn, but it is clearly now feeling a part of the pain the rest of the world community has gone through in the last two years.

Exports bring Japan out of the darkness

A 6.4 percent increase in exports has dragged Japan out of its most serious recession since WW2.

It is the nation’s first quarter of economic growth for over 12 months and GDP saw an annualized rise of 3.8 percent and a 1 percent rise compared to the previous quarter.

It is the first gain in exports figures since the beginning of 2008 and the largest gain since Q2 of 2002.

The news follows encouraging signs in Europe as the two dominant economies in the financial bloc, France and Germany, reported their first positive growth in the current quarter.

Many experts thought Japan would take years to recover from a dip brought on by plummeting foreign demand for its major exports, something Japan heavily relies on for economic success and the factor that has made Japan the number two ranked economy in the world.

The cautious optimism is being mirrored in other regions.

Contraction in the United States has been the smallest for 12 months at only 1 percent annualized last quarter. A 0.1 percent contraction was Europe’s most encouraging result for a year also. China’s growth, albeit assisted by a massive stimulus package
somewhere in the region of half a trillion dollars, jumped nearly 8 percent from last year.

Although the promises of the nation’s Prime Minister, Taro Aso, that their own economy would be the first to come out of the darkness seem to have been born out, it is thought by onlookers in the know that the recent recovery won’t be enough to keep him in the job following the next general election in 2 weeks’ time.

“The Lib Dems won’t survive,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management. “Aso will be feeling good at the moment though. His stimulus package plan was mocked at the time but it has worked, and his cash hand outs and the incentives for green energy have provided the economy with many short term boosts. He is to be commended.”

Not everyone has such a positive outlook. The modest export-focused growth is great news, but the yearlong contraction that translated to over a 13 percent dip in annualized GDP in the last quarter of the year was a huge blow to the nation’s prospects.

The economic and fiscal policy minister, Yoshimasa Hayashi warned that a sustained recovery was not certain. “Employment figures are still poor and our production levels are in a trough,” he said. “We will need to work very hard to keep this recovery going and must be aware of the negative risks.”