Japan’s economy grew by 1% sequentially, and 4% on an annualized basis in Q2, smashing expectations of a 2.5% print and well above the upward revised 1.5% in the first quarter; it was also the the highest quarterly growth since a 5% print in Q2 2015, Japan’s Cabinet Office reported, and the 6th consecutive quarter of expansion for recently embattled Prime Minister Shinzo Abe, who has plunged in the polls following a series of corruption scandals.
This post was published at Zero Hedge on Aug 13, 2017.
The shock landslide defeat of PM Shinzo Abe’s Liberal Democratic Party (LDP) in the recent Tokyo metropolitan elections – and the triumph there of Tokyo Governor Koike’s new party (Tomin First) – has lit a faint hope that the radical Japanese monetary expansion policy could be on its way out. The flickering light though is not strong enough to soothe the mania in Japan’s carry trades and so the yen continued to slide in the aftermath of the elections. Between mid-June and early July the Japanese currency depreciated by some 5% against the US dollar and 10% against the euro. The perception in currency markets is that Japan will not be embarking on monetary normalization this year or next, in contrast to Europe where ECB Chief Draghi has hinted that the train (to monetary normalization) will start next year, even though the journey promises to be very slow. The US train to normalization continues at a glacially slow pace including some periods of reverse movement. Moreover the monetary climate prior to the journey commencing is even more extreme in the case of Japan than in Europe or the US. It was possible to imagine that the shock election setback for the LDP could have caused Shinzo Abe to withdraw support from his money-printer in chief, Bank of Japan governor Haruhiko Kuroda (whose term ends in April 2008), thereby signaling an early end to negative interest rates and quantitative easing. But markets in their wisdom have concluded this is not to be. Many elderly Japanese are pleased with their stock market and real estate gains even though they complain about negative interest rates and the threat of inflation. In any case it was young voters, responding to the stink of alleged corruption scandals, who turned out en masse for Governor Koike’s new party.
Almost exactly ten years ago, on September 12, 2007 Japan’s current prime minister Shinzo Abe resigned less than a year into a tenure dogged by scandals, the suicide of a minister, a raft of resignations and corruption allegations, and a humiliating election drubbing for his Liberal Democratic Party. Never one to shrink away from resposibility, Abe blamed it on crippling diarrhea: Shinzo Abe resigned as Prime Minister, claiming that diarrhea was preventing him from carrying out his duties. The diarrhea was due to ulcerative colitis, a bowel illness caused by ulcers. Abe had suffered from this illness for decades, but after becoming Prime Minister, the stress of his job apparently made the symptoms worse. Apparently it did not prevent him from taking on the job again some five years later, when he was reinserted in the prime ministerial position again, largely as a smokescreen meant to keep the government together as BOJ’s then-new governor Haruhiko Kuroda unleashed the greatest “wealth creation” and bond monetization experiment in the history of Japan, which has culminated with the Japanese central bank owning nearly 100% of Japan’s GDP in Japanese Government Bonds. Unfortunately for Abe, it may be time to buy Imodium again.
This post was published at Zero Hedge on Jul 16, 2017.
There’s ‘very little’ that Japan can do about its mounting debt pile, which presents a potential risk to growth, according to Pacific Investment Management Co.’s Jamil Baz. With a government debt load that’s 2 1/2 times the size of annual gross domestic product and a total national borrowing burden that’s six times as large, ‘Japan is suffering from the excesses of the past’ and the country ‘is in a bind right now,” the fund manager’s head of client analytics said in an interview in Sydney last week. Japan’s economy is still struggling to gain traction even after policy makers hit it with repeated doses of budgetary stimulus and unprecedented monetary easing to drag the country out of its deflationary funk. The Bank of Japan’s adoption of negative interest rates has pushed down debt financing costs for now, but repeated delays to a planned sales tax increase, a new 28 trillion yen ($272 billion) fiscal boost from Prime Minister Shinzo Abe and the pressures of an aging population mean the borrowing pile is likely to keep on growing.
After first-quarter earnings in Japan wrapped up this month with the steepest plunge since 2011, the prospect for an increase in annual profits is about to get even dimmer. Expect a round of corporate earnings downgrades in September, said Norihiro Fujito, a strategist at Mitsubishi UFJ Morgan Stanley Securities. Trends that slammed profit in the first quarter – a stronger yen, negative interest rates and slumping China growth – haven’t reversed. At stake is a second straight year of earnings decline that could bury Prime Minister Shinzo Abe’s push for companies to boost capital spending and raise wages to spur economic growth. ‘A lot of companies may be lowering their forecasts in September,’ said Fujito. A slower recovery in the U. S. economy than some had expected is also weakening the outlook for Japan’s carmakers and other exporters, he said.
Prime Minister Shinzo Abe’s ‘bold’ plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor.
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. Here is a brief summary of what just happened: first, contrary to the global trend of incumbents falling from grace nearly everywhere, Shinzo Abe and the LDP achieved a resounding election victory. This victory inter alia allows Abe to proceed with his militaristic agenda unhindered and to keep promoting his economic program that is best described as a mad-cap flight forward. Secondly, an estimated five seconds after the votes were counted, Abe announced that he would indeed continue to follow the Keynesian playbook by doing even more of what hasn’t worked in over 25 years. His government plans to launch a major new ‘stimulus’ program, rumored to cost 10 trillion yen (approx. $100 billion). Stimulus is the euphemism for shifting taxpayer funds to various favored political cronies. In the process taxpayers will be left with even more bridges to nowhere, so they will at least get a few new eyesores out of it. Financial market participants immediately assumed that the central bank’s printing press would also be involved in this effort to create prosperity by bureaucratic fiat and consequently decided to lean on the yen (which was slightly overbought anyway). They also bought Japanese stocks, on the theory that they offer at least a small modicum of insurance against the monetary debauchery that is certain to be in train.
This post was published at Acting-Man on July 20, 2016.
Japan’s discount-seeking shoppers drove some retailers into the red last quarter as an uncertain economic outlook persuaded consumers to tighten their purse strings. Supermarkets and clothing stores will probably cut prices more to spur sluggish sales, which caused Aeon Co., the nation’s biggest retailer by sales, to report its worst first quarter in eight years – a 6.3 billion yen ($62 million) loss. Seven & i Holdings Co. posted operating profit that missed analysts’ estimates as its department store business that includes retailer Sogo & Seibu widened its operating loss to 1 billion yen. Aeon joined Fast Retailing Co. in pledging to offer cheaper products – a strategy that may drag down spending and frustrate Prime Minister Shinzo Abe’s effort to fight deflation and revive the world’s third-largest economy. Last month, Abe postponed a sales-tax increase by two years to avoid further declines in consumer spending. ‘The exit from deflation is getting more distant, or rather the deflationary mindset is rising,’ said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. ‘The drops in stock prices, the negative interest rates and the delayed tax hike – all you get is something bad. Consumers’ psychology is not heading in a positive direction.’
With a little more than a week until Japan goes to the polls for an upper-house election, a batch of economic data released Friday underscores the challenge Prime Minister Shinzo Abe faces in convincing voters that his policies are working. Consumer prices excluding fresh food fell for a third straight month and household spending declined, undermining efforts to revitalize the world’s third-largest economy. While corporate confidence and unemployment were unchanged, there is still little pressure for higher wages. Friday’s data followed reports earlier this week showing that industrial production fell more than economists had forecast and retail sales were flat in May, adding to concern that Japan’s recovery may be faltering after the economy returned to growth in the first quarter. The U. K.’s vote to leave the European Union has strengthened the yen and roiled financial markets, increasing risks to corporate earnings for Japanese companies. The data will put more pressure on Bank of Japan Governor Haruhiko Kuroda to expand monetary stimulus at the policy meeting later this month, especially with the stronger yen and the central bank far from its 2 percent inflation target. ‘High Chance’ of Easing ‘Given concerns over the effects of the Brexit vote and the strengthening yen, there is a high chance that the BOJ will ease further at its July meeting,’ said Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo. ‘If the BOJ doesn’t move this time, there’s a possibility that the yen will strengthen further.’
The stock market is still viewed as if it were a discounting mechanism, a system where information is processed and priced to deliver insight about the fundamental state of liquidity, markets, and the economy. That view has always been debatable, but never more so than the whole of this century so far. What were share prices suggesting, fundamentally, in March 2000? Or October 2007? Market efficiency proponents can only suggest that the ‘information’ flowing into stock prices changed, as if there weren’t any warnings in the years leading up to those peaks. You can make the same argument against stocks on the way up. In the US, starting just after QE3 and just before QE4, US stocks went on a rampage in anticipation of a full recovery drawn closer by the determined efforts of Ben Bernanke. It wasn’t the case that the recovery was then at hand; far from it, since throughout 2012 there were more hints of recession than anything else. Instead, stocks were predicting that QE would work even though they ignored that it was third and fourth iterations that apparently suggested it. This is a universal question about not just stocks but monetarism and the financialism that has taken hold of what used to be free markets (where discounting was most likely). On September 25, 2013, Japan’s Prime Minister Shinzo Abe delivered a speech to the floor of the NYSE. He began by citing the Hollywood movieWall Street, inducing several cringe-worthy passages that were intended to show how Japan had just faded over time.
Tokyo: For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan (BoJ) backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17% in 2016, the world’s steepest declines behind Italy. Losing the faith of foreigners would be a blow to the Japanese Prime Minister – they’re the most active traders in a market Abe has held up as a litmus on his growth strategies. ‘Japan is back,’ and ‘Buy my Abenomics!’ he proclaimed during a visit to the New York Stock Exchange in September 2013, when shares were marching to an eight-year high. Now about half of those gains are gone and BlackRock Inc., the world’s largest money manager, is among firms ending bullish calls on Japan equities. ‘Japan has been disappointing,’ said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees about $115 billion. He’s a long-time fan of Tokyo equities who says he’s now looking for opportunities to sell. ‘A lot of people are starting to doubt Abenomics.’
Shunto’ season has failed to grip Japan. The country’s annual Spring assault on wages seems to have passed with little more than a whimper this year despite being billed as one of the most anticipated economic events in Japan’s recent history. Translating as ‘spring wage offensive’, Shunto marks the annual Japanese ritual of wage bargaining between business groups and labour unions. This year’s negotiations have been preceded by months of feverish lobbying from prime minister Shinzo Abe who has urged the country’s business groups to raise wages and help smash Japan’s deflationary mindset once and for all. The wages issue has become the latest lightning rod in the country’s two decade struggle to ensure long-term economic prosperity. Japan still can’t generate inflation Higher salaries encourage consumption and are vital in raising inflation. This in turn would help erode some part of Japan’s record 250pc of GDP debt pile – the highest of any developed country in the world.
It’s a strange world when bank accounts earning almost no interest are one of the most attractive investments around. Despite the Bank of Japan’s efforts to spur risk-taking with negative rates, cash is flowing out of funds targeting bills and commercial paper in favor of 0.001 percent savings plans, according to Deutsche Bank AG and Monex Group Inc. Eleven money-market funds stopped accepting new investment in February as banker association data showed deposits climbed almost 6 percent. The influx of cash is causing headaches for lenders that either have to pay to park reserves at the central bank or invest in a government bond market with negative yields in maturities as long as 10 years. It also undermines Prime Minister Shinzo Abe’s strategy of encouraging companies and households to invest more of their cash, a key part of his goal to reflate the world’s third-largest economy. ‘This is investment to savings – the exact opposite of what the government has been trying to promote,’ said Nana Otsuki, chief analyst at Monex, a Tokyo-based online securities firm. ‘The banks really don’t want excessive amounts of deposits that they can’t invest, but they do want the customers.’
Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases. While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts – where it can make its way back into the financial system and be put to productive use. That’s a big problem for Prime Minister Shinzo Abe and his central bank chief, Haruhiko Kuroda, as they try to spur consumption and reflate the stuttering economy.
The global financial Ponzi gets crazier by the day, and more often than not the mad men who run Japan Inc. are front and center. But even Japan’s whacko Prime Minister, Shinzo Abe, has outdone himself with the Japan Post Holdings IPO. We could start with the fact that after trading up roughly 25% from the offer price in an apparent fit of nationalistic mania, the holding company and its two subsidiaries were valued at $140 billion. Needless to say, that sporty valuation was not owing to the fact that Japan’s 24,000 unit postal savings system experienced a sudden spurt of growth. In fact, revenue has been falling for years, and net profits have been nothing to write home about. Indeed, the group’s offering release indicated an expectation that the net income of Japan Post Holdings would drop 23% to 370 billion yen in the year ending next March 31. Stated differently, Abe & Co have foisted on Japan’s retail public, which got upwards of 75% of the shares sold this week, the vastly inflated stock of a dying public bureaucracy which by its own admission is now ‘earning’ 33% less than it did in FY 2013.
Japan’s Prime Minister Shinzo Abe declared last week that Japan is no longer suffering from deflation the day after his own government statistics showed that Japanese prices declined for the first time since QQE began. That is actually great news for the Japanese people, though Abe and Kuroda at the Bank of Japan continually pledge to end the relief. Abe’s direct synthesis, however, is jarring in that it is exposing the internal framework of global monetarism. Rational expectations itself may have once been nothing more than a forced equality in order to gain the ‘E’ in DSGE statistics, but in 2015 it is showing its true, modern manifestation of being ‘all talk.’ Central banks, for all the posturing, don’t actually do all that much aside from heap generous transaction premiums upon the broker class. In economic reality, bank reserves are divorced from function leaving room only for those who wish to believe in the magic. That is what all the fuss is about inflation expectations, since most people don’t care enough to figure out what a central bank actually does (this is especially true of economists). They are supposed to be taken at the word, which is fine when those words at least vaguely resemble what is transpiring or what has transpired. Instead: Prime Minister Shinzo Abe’s updated plan for reviving Japan’s economy and achieving a GDP target of 600 trillion yen ($5 trillion) suggests a recognition that earlier policies are not doing the trick… Japan’s inflation rate remained flat at 0.2 percent in August, according to data reported Friday, with core inflation excluding volatile food prices slipping 0.1 percent. A preliminary survey of manufacturers released Thursday showed a sharp drop in export orders. Recent corporate investment figures were likewise worse than expected. To which Abe replied:
More than a year after a sales-tax increase tipped Japan into a recession, efforts to clamp down on soaring pension payments are suppressing arecovery in consumer spending. The problem highlights how difficult it has been for Prime Minister Shinzo Abe to generate a sustained economic rebound for an economy with an aging and shrinking population – amid efforts to rein in a world-record debt load. Welfare payments are more and more important to people’s income and pensions comprise about 80 percent of cash social security benefits in Japan.
There’s a difference between bad economic news and the devastating variety that Japan received Monday. Prime Minister Shinzo Abe might have been able to weather the second-quarter data showing a drop in Japanese consumption and a 1.6 percent decline in annualized growth. But it’s not clear his government can recover from the latest news about sputtering exports, which fell 4.4 percent from the previous quarter. An export boom, after all, was the main thing Abenomics, the prime minister’s much-heralded revival program, had going for it. The yen’s 35 percent drop since late 2012 made Japanese goods cheaper, companies more profitable and Nikkei stocks more attractive. But China is spoiling the broader strategy. The economy of Japan’s biggest customer is slowing precipitously, which has imperiled earnings outlooks for Toyota, Sony, and trading houses like Mitsui. But Abe needs to recognize, as China already has, that this is only the latest sign of a broader reality: Asia’s old export model of economic growth no longer works. China’s devaluation last week raised fears of a return of the currency wars that devastated Asia in the late 1990s. That’s a reach, considering that exports are playing less and less of a role in China. McKinsey, for example, found that as far back as 2010, net exports were contributing only between 10 percent and 20 percent of Chinese gross domestic product. The services sector is growing in size and influence to rebalance the economy – not fast enough, perhaps, but change is nevertheless afoot.
Japan’s retail sales dropped for the third time this year, sapping an economy that analysts say struggled last quarter amid sluggish exports and production. Sales slid 0.8 percent from May, following declines in January and March. The median forecast in a survey byBLOOMBERG was for a drop of 0.9 percent. Weakness in consumer spending adds to risks to the world’s third-biggest economy, whose manufacturing sector has struggled with softness in exports to Asia. The task for Prime Minister Shinzo Abe is to convince companies to continue to boost wages to help consumers cope with a rise in living costs that the central bank sees picking up quickly this year. ‘Consumers are hitting the brakes and I don’t think the economy is getting any upward momentum at all,’ said Yasunari Ueno, the Tokyo-based chief market economist at Mizuho Securities Co. ‘I don’t see a strong, sustainable catalyst for growth. Exports are fragile, capital investment is limited.’
Prime Minister Shinzo Abe came to power vowing to drag Japan out of deflation and stagnation. His logic was that rising prices would drive higher salaries and increased consumption. More than two years on, prices are rising, but wages adjusted for inflation have sunk to the lowest since at least 1990. A record 62 percent of Japanese households described their livelihoods as ‘hard’ last year in a survey on incomes. A sales-tax increase in 2014 helped drive up living costs faster than wage gains. At the same time, the Bank of Japan’s quantitative easing drove down the currency, boosting the cost of imported energy.