David Fuller and Eoin Treacy's Comment of the Day
Category - Japan

    Markets Are Betting That Japan's Abe Would Win a Snap Election

    This article by Masaki Kondo for Bloomberg may be of interest to subscribers. Here is a section: 

    Markets are suggesting that any snap election called by Japanese Prime Minister Shinzo Abe would take advantage of his opponents’ weakness and see him retain power.

    A victory would ensure the continuation of Abenomics, the recipe of mega monetary easing, flexible fiscal policy and selective deregulation that’s helped Japan’s economy to its longest sustained expansion since before the global crisis. Abe, who’s expected to decide on the early ballot after returning from a U.S. trip, is capitalizing on growing public support for his management of the North Korean crisis.

     

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    China's Robot Revolution May Affect the Global Economy

    This article from Bloomberg caught my attention. Here is a section:

    “By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
    Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

    “Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

     

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    Japan: Ignore Autos and Electronics to Profit

    Thanks to a subscriber for this article by Emma Wall for Morningstar may be of interest to subscribers. Here is a section:

    With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

    Suppliers Immune from Domestic Threats
    While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

    “There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

    That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

    “No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

     

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    Ten-years from global financial crisis: a decade in charts

    This article by Ritvik Carvalho for Reuters may be of interest to subscribers. Here is a section:

    Ten years ago on Wednesday marked the start for many observers of the global financial crisis - a series of rolling credit shocks and bank crashes that led to the deepest world recession for a generation and a decade of slow growth and painful repair.

    On Aug. 9, 2007, the European Central Bank flooded its money markets with billions of euros of emergency cash to prevent a seizure in the European banking system after France's BNP Paribas became the latest to shut down investment funds hobbled by a collapse of U.S. mortgage and asset-backed bond markets.

    Serial bank collapses in Britain, the United States, Germany and elsewhere were to follow over the following 18 months. These culminated in U.S. investment bank Lehman Brothers being allowed to go bankrupt in September 2008, triggering a world financial panic, deep recession and eventual rescue package by the U.S. government, Federal Reserve and the rest of the G20 economic powers.

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    Japan Inc. Might Finally Have to Fatten Paychecks

    This article by Daniel Moss for Bloomberg may be of interest to subscribers. Here is a section:

    It's all a question of the tipping point: When do labor shortages become so acute that there's a scramble and employers both big and small have to pay up or risk, literally, running out of people? 

    Izumi Devalier, head of Japan Economics at Bank of America- Merrill Lynch, thinks we've reached that point. "There have been many false dawns, so making the case this time can be quite difficult," she acknowledges over lunch. But, using an admittedly anecdotal example, she observes that famously high levels of service at Japanese restaurants are starting to slip subtly because of the gathering labor shortage. "People know that if they don't secure talent now, it's going to get harder and harder."

    For those that want to stay in business, the need to retain staff will outweigh all others. Yamato Holdings Co. Ltd., the parcel delivery company with the cat-and-kitten logo that seems to be everywhere in Tokyo, is instructive. Faced with a shortage of drivers and efforts by competitors to poach those it did have, the firm raised its base rate for customers in April.

    It took almost three decades, but what's important is that it happened. Fierce competition among delivery firms had made Yamato Transport wary of raising prices, but overworked and underpaid staff had better offers. Something had to give. Forty- seven thousand employees were subsequently compensated for unpaid overtime.

    One might compare the shock to the system to the 1985 Plaza Accord, when Japan and West Germany agreed to let their currencies strengthen against the dollar. Among other things, Plaza accelerated the overseas expansion of Japanese corporations. Now companies need to make equally wrenching decisions about how best to deal with shrinking labor liquidity.

     

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    Email of the day on Japanese Bank funds

    Hello Eoin! Thank you for all your hard work for us! You highlighted the Japanese Banks a few Days ago! Is there a Japanese Banks ETF or a closed end Bank fund, that you know of. Best regards. (an FM since 1988).

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    On Target June 26th 2017

    Thanks to Martin Spring for his topical newsletter. Here is a section on the potential for a military strike against North Korea:

    The diplomatic route that is being pursued by Donald Trump, as it was by his presidential predecessors, is not going to work. China is never going to take actions tough enough to force Pyongyang to give a “victory” to the US-led coalition.

    Secondly, because the consequences of another war in Korea, even if brief and limited, would not be catastrophic for Americans... only for Koreans, and perhaps Japanese.

    Thirdly, US willingness to act so decisively would convey the strongest possible message to a potentially much more dangerous would-be nuclear power, Iran, to forget the whole idea and behave.

    Fourthly, foreign adventures are a classical method for national leaders to divert attention from political difficulties at home. “Trump, facing ever-expanding scandals, continually-low polling numbers, and even potential impeachment proceedings, may decide that a pre-emptive strike on North Korea is worth the costs and consequences,” Micah Zenko writes in Foreign Policy.

    Much-respected analyst George Friedman of Geopolitical Futures concludes that the US continues to be “on the path to war.”

    The US is not likely to unleash an attack until it has a casus belli, or a challenge from North Korea that it can point to as a defensible cause for going to war.

    That hasn’t happened yet. But the situation could change very quickly if the US becomes convinced that the North has developed intercontinental ballistic missiles. Sudden falls in the South Korean and Japanese stock-markets would be an early warning of pending military conflict.

     

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    Japan Business Investment Rebounds as Corporate Profits Jump

    This note by Connor Cislo and Maiko Takahashi for Bloomberg may be of interest to subscribers. Here it is in full:

    Capital spending in Japan topped estimates during the first quarter of the year as the tightest job market in more than two decades drove investment in labor-saving technologies.

    Highlights

    Capital expenditure rose 4.5 percent in the first quarter of 2017 from a year earlier (estimate +4 percent).Corporate profits climbed 26.6 percent. Company sales rose 5.6 percent.

    Key Takeaways

    A moderate economic recovery and a labor shortage have created a favorable environment for business spending, prompting companies to invest in technology. Today’s figures will be used to revise first-quarter growth, with the result due to be released next week. The preliminary reading showed an annualized expansion of 2.2 percent.

    Economist Views

    * “Non-manufacturers are taking the lead” as they try to save manpower to deal with the labor shortage, said Takeshi Minami, chief economist at Norinchukin Research Institute. “That’s a good trend. It’s long been said that old production systems are weighing on productivity.”

    * “The business-spending figure in the GDP report may be revised up slightly” after the data, said Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo. “With corporate profits rebounding a lot, companies are probably making investments to renew their old facilities and equipment or to boost productivity.”

    Other Details

    * Spending minus software rose 5.2 percent from a year earlier (estimate +4.1 percent).

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    Some reflections on Japanese monetary policy

    This article by Ben Bernanke for The Brookings Institute may be of interest to subscribers. Here is the conclusion:

    If all goes well, the BOJ’s current policy framework may yet be sufficient to achieve the inflation objective. We’ll have to wait and see. If not, there are relatively few options available. The most promising possibility—should we get to that point—is more explicit coordination of monetary and fiscal policies. Monetary policy that is aimed at limiting the impact of fiscal expansion on the government’s debt could both make fiscal policymakers more willing to act and increase the impact of their actions. The BOJ may be reluctant to take such a step. In the possible future state that I am contemplating, however, there would be no real alternative other than to abandon the fight to raise inflation and, perhaps, even to accept a new bout of deflation. After such a long and valiant effort to end deflation and raise interest rates from their effective lower bound, that would be a most disappointing outcome.

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