A group of IMF researchers have found that Japan’s unorthodox currency easing policy has had a surprisingly positive effect on most surrounding economies in the region, and have released their findings in a paper.
The country’s interventions into the currency exchange markets, an attempt to lower the yen’s value, have been ill received by the U.S. with both nations coming together at a G-7 summit in Japan this week where the subject is likely to be hotly debated.
The research paper is the first of its kind and claims to offer a model of the knock on effect of Japan’s monetary easing policy on emerging S.E. Asian economies.
Qualitative and quantitative easing (QQE) has been practised for over 3 years now and has been targeting a number of assets including various funds, bonds and real estate as well as directly affecting the currency markets. The outcome has been a significant drop in the yen versus the greenback from 80 at the start of easing to about 120 last year.
The report shows that regional economies are benefitting from this. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the findings in a phone interview, “What we are seeing is a positive effect on emerging S.E. Asian currencies as the QQE goes full throttle in Japan. Equity prices go up all across the region in response to the policy, not just in Japan.”
Lane added, “There has been a gain in output, inflation and capital investment in the smaller economies. Basically all this means a generally positive effect on economic growth and a healthy outlook for the region overall.”
The paper also reports that the jumps in equity prices also prompts a rise in general confidence, which spurs further investment. A good example is China, a country with particularly solid trade partnerships with Japan.
The International Monetary Fund research report is by no means the official line, nor does it represent the consensus view of IMF staff, however, with Japan likely to come up against stern opposition from the United States at the forthcoming Group of seven summit concerning this issue, the paper comes as welcome and much needed ammunition for the Finance Minister Taro Aso as he looks to gain allies to his side of the argument and build backing for monetary easing to counter the inevitable U.S. objections.
Michael Lane continued, “The meetings are going to be very interesting. Japan has these new stats coming from a very prominent source and this could tip the balance in their favour.”
Thursday, June 23, 2016
Saturday, June 11, 2016
Fed announcements expected, Greece bail out discussed
All ears will be on U.S. Federal Reserve officials this week as focus shifts to a possible coming interest rate hike. Meanwhile, in Europe, finance ministers are in negotiations concerning a final plan for aid to struggling Athens.
Investors have reacted positively to recent Fed press releases and meeting minutes with the dollar gaining together with euro zone bond yields.
The general consensus in the market is that the Fed will bring in a hike soon; the only question is whether it will be this month or July. Comments from officials in the last couple of days haven’t changed that sentiment.
“It’s likely the Fed will hold off until next month,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management, “They will have a look at the outcome of the G-7 economic summit in Japan this week which could affect things. Major events in Europe could also play a part,” he added.
With the Brexit referendum due next month, the Fed could very well hold off.
The minutes from the latest meeting indicated that their most important preconditions for a rate increase were signs of economic growth this quarter as well as positive improvement regarding inflation and employment data.
“Q2 is expected to look very solid as data has showed that the economy performed much better than expected in the first quarter,” Lane said via email. “Data from Britain has shown that fallout from the Brexit vote is unlikely to shake up the bigger economies in Europe.”
Greece talks
With the Eurogroup meeting of finance ministers coming up this week, the feeling is that a new agreement will be worked on to help Athens continue to pay off its creditors in the coming year.
Officials have also commented that they may help Greece to restructure its debt obligations in order to make it more sustainable. The IMF has previously offered objections to the idea and these differences will need to be straightened out before any firm plan can go ahead.
The IMF insists that investors need more transparency with regard to the debt repayment situation, while European authorities want to wait a few years until a final decision is made on that issue.
Analysts at RBC Capital said, “Concessions are likely from the euro side as bringing the IMF on board with any plan is crucial. We don’t expect a firm decision this week but very soon in the near future.”
Investors have reacted positively to recent Fed press releases and meeting minutes with the dollar gaining together with euro zone bond yields.
The general consensus in the market is that the Fed will bring in a hike soon; the only question is whether it will be this month or July. Comments from officials in the last couple of days haven’t changed that sentiment.
“It’s likely the Fed will hold off until next month,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management, “They will have a look at the outcome of the G-7 economic summit in Japan this week which could affect things. Major events in Europe could also play a part,” he added.
With the Brexit referendum due next month, the Fed could very well hold off.
The minutes from the latest meeting indicated that their most important preconditions for a rate increase were signs of economic growth this quarter as well as positive improvement regarding inflation and employment data.
“Q2 is expected to look very solid as data has showed that the economy performed much better than expected in the first quarter,” Lane said via email. “Data from Britain has shown that fallout from the Brexit vote is unlikely to shake up the bigger economies in Europe.”
Greece talks
With the Eurogroup meeting of finance ministers coming up this week, the feeling is that a new agreement will be worked on to help Athens continue to pay off its creditors in the coming year.
Officials have also commented that they may help Greece to restructure its debt obligations in order to make it more sustainable. The IMF has previously offered objections to the idea and these differences will need to be straightened out before any firm plan can go ahead.
The IMF insists that investors need more transparency with regard to the debt repayment situation, while European authorities want to wait a few years until a final decision is made on that issue.
Analysts at RBC Capital said, “Concessions are likely from the euro side as bringing the IMF on board with any plan is crucial. We don’t expect a firm decision this week but very soon in the near future.”
Sunday, June 5, 2016
TV-Internet Takeover "will drive investment”
Over 30 million consumers in 40 states of the U.S. will be served by a brand new entity formed by the recent combination of Charter Communications Inc. and Time Warner Cable. Bright House Networks LLC is also included in the new company.
Charter Communications announced Thursday that final stages of its acquisition of the two other companies had been completed, effectively creating the nation’s largest internet provider.
All this comes nearly a year after the first announcements of the deal was made. Charter has fought hard for federal and state regulatory approval since then, which has finally been passed.
According to Charter, the deal to acquire Time Warner Cable and Bright House is valued at nearly $70 billion, not including debt.
Experts believe the merger has created an attractive new company for investment. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented in a phone interview, “This deal is not only good for the end consumer, making internet services faster and developing infrastructure for the networks….it will also drive investment into the new company. They are a market leader in the communications sector now.”
The deal didn’t sail as smoothly through the regulators as Charter would have liked, with the U.S. Justice Department giving antitrust approval only with a firm set of conditions attached that will limit the company from using its influence to stifle competition.
As technology moved forward the pay TV industry has seen a rapid decline due to web services such as Hulu and Netflix. These companies lack live TV and current shows, however others, such as HBO NOW and Sling TV could give Charter a run for their money in the field.
A condition of the Justice Department deal is that Charter will not have power over the content providers, allowing sales of their products online. There will also be FCC restrictions on the company for six years more years.
Charter will be required to branch out their internet services to a further 2 million customers within the set time period, with a competitor serving another million.
The chase to acquire TWC goes back around 3 years. Billionaire CEO of Telecommunications Inc, John Malone had courted the company with his offshoot Liberty Media Corp, which backs Charter.
Time Warner initially rejected early offers and referred to the bids as “unsolicited”. Comcast Corp, then the top cable company in the country, nearly came to the rescue with a rival offer, but the deal eventually collapsed, leaving the way clear for Charter to continue their acquisition.
Charter Communications announced Thursday that final stages of its acquisition of the two other companies had been completed, effectively creating the nation’s largest internet provider.
All this comes nearly a year after the first announcements of the deal was made. Charter has fought hard for federal and state regulatory approval since then, which has finally been passed.
According to Charter, the deal to acquire Time Warner Cable and Bright House is valued at nearly $70 billion, not including debt.
Experts believe the merger has created an attractive new company for investment. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented in a phone interview, “This deal is not only good for the end consumer, making internet services faster and developing infrastructure for the networks….it will also drive investment into the new company. They are a market leader in the communications sector now.”
The deal didn’t sail as smoothly through the regulators as Charter would have liked, with the U.S. Justice Department giving antitrust approval only with a firm set of conditions attached that will limit the company from using its influence to stifle competition.
As technology moved forward the pay TV industry has seen a rapid decline due to web services such as Hulu and Netflix. These companies lack live TV and current shows, however others, such as HBO NOW and Sling TV could give Charter a run for their money in the field.
A condition of the Justice Department deal is that Charter will not have power over the content providers, allowing sales of their products online. There will also be FCC restrictions on the company for six years more years.
Charter will be required to branch out their internet services to a further 2 million customers within the set time period, with a competitor serving another million.
The chase to acquire TWC goes back around 3 years. Billionaire CEO of Telecommunications Inc, John Malone had courted the company with his offshoot Liberty Media Corp, which backs Charter.
Time Warner initially rejected early offers and referred to the bids as “unsolicited”. Comcast Corp, then the top cable company in the country, nearly came to the rescue with a rival offer, but the deal eventually collapsed, leaving the way clear for Charter to continue their acquisition.
Sunday, May 22, 2016
Swiss Holding Company Forecasts Chinese Stock Climb
After another anonymous article by an “economic oracle” in the People’s Daily describing an "L-shaped" growth trend, Credit Suisse AG is projecting that same forecast to the stock market.
The SSE Composite Index, which keeps track of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange, will still trade in channels after mass sell-offs at the beginning of the year. This is despite another economic “communication” like those before the last two runs of declines in Chinese equities, according to the Swiss holding company.
The reference to the L shaped trend by Credit Suisse’ Equity Manager Li Chen was first seen in January, when the People's Daily newspaper printed an interview by an "authoritative person" who forecast “a sustained period” with an L-shaped development trend, rather than a quicker V or U recovery. The announcement from Credit Suisse Group AG comes after the third mysterious communiqué last week also appearing on the front page of the national publication, which is usually reserved for in depth articles covering the movements and actions of the president of the nation, multiplying the interview’s importance.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the state of play on Tuesday, “The general sentiment of the interviews has investors worried more than the actual fine print. The facts communicated in the articles are pretty fundamental. Building up huge debt is very risky and China needs to take a hard look at its underperforming loans.”
Unlike the previous lengthy interviews that appeared in the paper there is little chance this one will be a prelude to large scale sell offs. The SSE Composite Index is predicted to fluctuate between a 2,600 to 3,000 margin, quite close to the current levels of 2,843, as a supply of equities that is fast accelerating is reined in by multiple components such as cheap valuation.
According to Chen, "The primary reasons for stock decline, spoken of in financial circles, differs from the policy changes in the articles by this mysterious expert“, the comments coming despite China's local A-share market reduced markedly after the first two printed interviews.
The first article, this time last year, concentrated on “risk control” and a sell-off was subsequently brought on by deleveraging in the stock market, Chen said, and the second piece came before yuan declines that sent the Chinese stock market on a vicious downturn even though the report followed supply side reforms.
The SSE Composite Index, which keeps track of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange, will still trade in channels after mass sell-offs at the beginning of the year. This is despite another economic “communication” like those before the last two runs of declines in Chinese equities, according to the Swiss holding company.
The reference to the L shaped trend by Credit Suisse’ Equity Manager Li Chen was first seen in January, when the People's Daily newspaper printed an interview by an "authoritative person" who forecast “a sustained period” with an L-shaped development trend, rather than a quicker V or U recovery. The announcement from Credit Suisse Group AG comes after the third mysterious communiqué last week also appearing on the front page of the national publication, which is usually reserved for in depth articles covering the movements and actions of the president of the nation, multiplying the interview’s importance.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the state of play on Tuesday, “The general sentiment of the interviews has investors worried more than the actual fine print. The facts communicated in the articles are pretty fundamental. Building up huge debt is very risky and China needs to take a hard look at its underperforming loans.”
Unlike the previous lengthy interviews that appeared in the paper there is little chance this one will be a prelude to large scale sell offs. The SSE Composite Index is predicted to fluctuate between a 2,600 to 3,000 margin, quite close to the current levels of 2,843, as a supply of equities that is fast accelerating is reined in by multiple components such as cheap valuation.
According to Chen, "The primary reasons for stock decline, spoken of in financial circles, differs from the policy changes in the articles by this mysterious expert“, the comments coming despite China's local A-share market reduced markedly after the first two printed interviews.
The first article, this time last year, concentrated on “risk control” and a sell-off was subsequently brought on by deleveraging in the stock market, Chen said, and the second piece came before yuan declines that sent the Chinese stock market on a vicious downturn even though the report followed supply side reforms.
Sunday, May 8, 2016
UN’s Monetary Situation Solid
A top UN administration official reported today that their financial circumstance is "solid and positive," taking note of "some stress" with respect to the regions of customary budget and holds.
"The budgetary shape of the UN is by and large stable," said Yukio Takasu, Under-Secretary-General for Management in a press meeting at UN HQ in New York, amid which he additionally noticed some worries with respect to the normal spending plan and holdings.
Mr. Takasu's briefing came after a 6 monthly presentation to the General Assembly’s Fifth Advisory group, which is tasked with managerial and budgetary concerns, and where he concentrated on evaluation issues, unpaid surveyed commitments, accessible money assets and exceptional installments to included States.
His review included subtle elements on the four principle evaluation zones; the general spending plan, UN peacekeeping operations, worldwide tribunals, and the Capital Chief Strategy.
Mr. Takasu highlighted that the Association's financial balances were good toward the end of 2015, aside from the customary spending plan, which demonstrated a deficit of $217 million. This deficit is being subsidized by a "small backup," he said.
"I believe it's reasonable to survey the sufficiency of the stores," he said, including that he had made this point to the General Assembly prior to today. "The customary spending plan is consistently tight in the last quarter of the year, and this is normal in 2016. The inquiry is whether or not the span of the reserve is adequate," he added.
For the 2015 spending plan, Member States were committed to contribute an aggregate of $2.771 billion, an expansion of $159 million from 2014. Installments were $237 million higher in 2015 than in 2014, Mr. Takasu said.
Unpaid surveyed commitments remained at $1.43 billion starting 30 April 2016, down $163 million from the same period the year before.
For peacekeeping operations, which work on a 1 July to 30 June monetary cycle, Mr. Takasu said the aggregate of unpaid appraisals toward the end of 2015 was $976 million, mirroring a decrease of $306 million from the previous year.
“Starting 30 April, new appraisals of $3.9 billion had been issued, of which $2.4 billion stay unpaid,” he said.
He stated that unpaid installments to Member States – which added up to $824 million toward the end of 2015 – were anticipated to drop to $818 million before the end of the year, as an after effect of a continued increase in the speed of installments received for troops, police and hardware.
The UN Secretariat will consolidate the data given by Mr. Takasu today into a report from Secretary-General Ban Ki-moon that will be introduced to the Fifth Council on 11 May.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented “I think this is excellent news from the UN showing that Member states finances are in great hands moving forward. I’m very confident in the UN’s ability to handle the collective finances responsibly”.
"The budgetary shape of the UN is by and large stable," said Yukio Takasu, Under-Secretary-General for Management in a press meeting at UN HQ in New York, amid which he additionally noticed some worries with respect to the normal spending plan and holdings.
Mr. Takasu's briefing came after a 6 monthly presentation to the General Assembly’s Fifth Advisory group, which is tasked with managerial and budgetary concerns, and where he concentrated on evaluation issues, unpaid surveyed commitments, accessible money assets and exceptional installments to included States.
His review included subtle elements on the four principle evaluation zones; the general spending plan, UN peacekeeping operations, worldwide tribunals, and the Capital Chief Strategy.
Mr. Takasu highlighted that the Association's financial balances were good toward the end of 2015, aside from the customary spending plan, which demonstrated a deficit of $217 million. This deficit is being subsidized by a "small backup," he said.
"I believe it's reasonable to survey the sufficiency of the stores," he said, including that he had made this point to the General Assembly prior to today. "The customary spending plan is consistently tight in the last quarter of the year, and this is normal in 2016. The inquiry is whether or not the span of the reserve is adequate," he added.
For the 2015 spending plan, Member States were committed to contribute an aggregate of $2.771 billion, an expansion of $159 million from 2014. Installments were $237 million higher in 2015 than in 2014, Mr. Takasu said.
Unpaid surveyed commitments remained at $1.43 billion starting 30 April 2016, down $163 million from the same period the year before.
For peacekeeping operations, which work on a 1 July to 30 June monetary cycle, Mr. Takasu said the aggregate of unpaid appraisals toward the end of 2015 was $976 million, mirroring a decrease of $306 million from the previous year.
“Starting 30 April, new appraisals of $3.9 billion had been issued, of which $2.4 billion stay unpaid,” he said.
He stated that unpaid installments to Member States – which added up to $824 million toward the end of 2015 – were anticipated to drop to $818 million before the end of the year, as an after effect of a continued increase in the speed of installments received for troops, police and hardware.
The UN Secretariat will consolidate the data given by Mr. Takasu today into a report from Secretary-General Ban Ki-moon that will be introduced to the Fifth Council on 11 May.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented “I think this is excellent news from the UN showing that Member states finances are in great hands moving forward. I’m very confident in the UN’s ability to handle the collective finances responsibly”.
Friday, April 22, 2016
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.
Thursday, December 19, 2013
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.
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.
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