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Japan Stocks Tumble After BOJ Holds Off on Adding to Stimulus

This article by Yuko Takeo, Toshiro Hasegawa and Yuji Nakamura for Bloomberg may be of interest to subscribers. Here is a section:

“We’ve had the knee-jerk reaction to no change as the majority expected some form of action,” said Cameron Duncan, Sydney-based co-head of income strategies at Shaw and Partners, which manages the equivalent of $7.6 billion. “In, hindsight, it’s probably consistent that they haven’t done anything because they eased three months ago.

There’s typically a lag in terms of response to that sort of easing. It’s the Bank of Japan and they’re pretty conservative and they are still waiting to see what the impact of that is.”

Goldman Sachs Group Inc. and HSBC Holdings Plc were among those expecting the central bank to add to ETF buying. Goldman Sachs estimated the BOJ would expand annual purchases to 7 trillion yen, while HSBC predicted an increase to 13 billion yen.

The central bank’s decision to forgo additional easing this time hasn’t deterred some from expecting more stimulus in the future. It’s inevitable that economic growth and inflation will take a downturn and given the outlook for a stronger yen, the BOJ will likely boost stimulus eventually, SMBC Nikko Securities Inc.’s chief market economist Yoshimasa Maruyama said.

Driven to Ease
“The situation the BOJ is in won’t change for the better because of its decision today,” Maruyama wrote in a note to clients. “It’ll be driven into easing further sooner or later.”

The Topix is down 13 percent this year, making it the worst performing developed market in 2016, after starting 2016 tumbling into a bear market on worries over oil prices and slowing global economic growth. The measure has climbed back 12 percent from a Feb. 12 low, bolstered by a recovery in oil prices and signs of stabilization in China’s economy.

 



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Email of the day on hedged exposure to Japan:

I always enjoy your service very much. But todays comment & audio was extraordinary it deserves to be a classic. Congratulations. I now have a question: You had been very bullish on Japan last year, especially on hedged instruments on the Japanese market. It does not seem to be going that way recently. Do you think it is the right time to lighten hedged Japanese equity positions?



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Japan Stocks Start New Quarter With Biggest Loss in Seven Weeks

This article by Yuko Takeo and Toshiro Hasegawa for Bloomberg may be of interest to subscribers. Here is a section: 

Big companies across all industries plan to cut capital expenditure by 0.9 percent this fiscal year, more than the median economist estimate of 0.7 percent.

Large manufacturers based their plans on an assumption that the yen will average 117.46 per dollar over the next 12 months, a level more than 5 yen weaker than its rate Friday.

“The data has worsened overall, regardless of industry sector and company size,” Koya Miyamae, an economist at SMBC Nikko Securities in Tokyo, wrote in a note. “There’s especially an indeterminate sense of concern for the outlook." 

Strategists are turning cautious after the best month for the Topix since October helped pare the first quarter’s losses.

The Japanese benchmark started 2016 by tumbling into a bear market as global shares plunged, and has been lagging its peers amid the global recovery. The Japanese gauge is the second-worst performing developed market this year, as the yen has weighed on exporters’ earnings prospects.

 



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Yen Set for Longest Winning Streak Since September on Haven Bid

This article by Rachel Evans and Andrea Wong for Bloomberg may be of interest to subscribers. Here is a section: 

The yen has gained for a third week, the longest streak since the five days ended Sept. 4. That move has come even after Bank of Japan Governor Haruhiko Kuroda unexpectedly adopted negative interest rates at the end of last month, sparking speculation the central bank may intervene to arrest the currency’s gains.

Japanese authorities will find it “very difficult” to step in should the yen’s appreciation accelerate before Group-of-20 finance ministers and central bankers meet next weekend in Shanghai, said Mansoor Mohi-uddin, senior markets strategist in Singapore at Royal Bank of Scotland Group Plc.

The premium for options protecting against gains by the yen, compared to those insuring against a loss, rose to near the highest since 2010, three-month risk reversals show. Dollar- yen’s 14-day relative strength indicator is, however, close to 30, a level that some traders view as a signal the currency has reached extreme levels and may reverse.

Forecasters are also unconvinced that yen strength will be sustained. Goldman Sachs sees the yen weakening to 120 per dollar “in the near term,” and 130 by year-end, Goldman analysts led by chief currency strategist Robin Brooks wrote in a note to clients Friday.

The median of more than 50 estimates compiled by Bloomberg calls for the yen to slump to 120 per dollar by the end of March, and to 123 by year-end.

 



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Japan Adopts Negative-Rate Strategy to Aid Weakening Economy

This article by Toru Fujioka and Masahiro Hidaka for Bloomberg may be of interest to subscribers. Here is a section:

Bank of Japan Governor Haruhiko Kuroda sprung another surprise on investors Friday, adopting a negative interest-rate strategy to spur banks to lend in the face of a weakening economy.

The move to penalize a portion of banks’ reserves complements the BOJ’s record asset-purchase program, including 80 trillion yen ($666 billion) a year in government-bond purchases, which was kept unchanged at the board meeting. By a 5-4 vote, Kuroda led his colleagues to introduce a rate of minus 0.1 percent on certain excess holdings of cash.

Long a pioneer in adopting unorthodox policies to tackle deflation and revive economic growth, the BOJ is now taking a page out of European policy makers’ playbooks in the goal of stoking inflation. The yen tumbled after the announcement, which came after Kuroda just last week rejected the idea of negative rates.

“This clearly shows the BOJ wanted to weaken the yen and raise the price of import goods and boost inflation,” said Daisuke Karakama, an economist at Mizuho Bank in Tokyo. “We don’t know this negative rate policy will be good for the economy in the end,” he said, adding that success in Europe doesn’t guarantee the same for Japan.

 



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Japanese Stocks Plunge Deeper Into Bear Market Amid Global Rout

This article by Anna Kitanaka and Yuko Takeo for Bloomberg may be of interest to subscribers. Here is a section: 

“The ground right now is so unstable, and there’s so much anxiety,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which has $453 billion under management. “We saw an early rally, but people are just bottom- fishing. There are no real reasons to stem drops right now.”



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How are traditional Safe Haven assets performing?



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Email of the day on how the risk of a stronger Yen may affect Fanuc

Dear friends, I wonder if Fanuc would still be a good idea if this scenario develops. Best wishes for all of you



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JPMorgan Says Japan Inc. Must Prepare for Yen Below 100 a Dollar

This article by Kevin Buckland  Kazumi Miura for Bloomberg may be of interest to subscribers. Here is a section:

“Different from past episodes of the yen carry trade, this time the major sellers of the yen are Japanese," he said, referring to a strategy where investors borrow yen cheaply to invest in higher-yielding nations. “Japanese will need to unwind those positions eventually. The yen is no longer the ideal funding currency.”

Funding carry trades in yen lost money against every major currency in the second half except the New Zealand dollar.

Neither the BOJ nor politicians want additional weakness, as wage gains have failed to keep pace with surging food prices, squeezing consumers, according to Sasaki. The yen drop also spurred a record number of bankruptcies among small- and medium-sized businesses dependent on imported materials. JPMorgan sees its benefits as exaggerated.

“The economy is not driven only by the foreign-exchange rate,” he said. “If the growth momentum is strong, I think the Japanese economy can overcome it.”

 



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Japanese Stocks Whipsaw After BOJ Unveils New ETF Buying Program

This article by Anna Kitanaka and Nao Sano for Bloomberg may be of interest to subscribers. Here is a section:  

“Investors are losing hope because the amount isn’t big,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which has $453 billion under management.

“At first it seemed like the BOJ was progressing with easing, but when you look at what’s inside that, it’s nothing much.

They’re focusing more on qualitative, rather than quantitative, easing.” The central bank kept its main target for monetary stimulus of 80 trillion yen ($650 billion) a year in asset purchases unchanged, indicating confidence in the economy after data from capital spending to business confidence and unemployment exceeded expectations. The announcement follows this week’s decision by the Federal Reserve to raise U.S. interest rates for the first time in almost a decade.

The central bank said it will extend the average maturity of holdings of Japanese government bonds to between seven and 12 years, and also boost the amount it can purchase in
Japanese real-estate investment trusts to 10 percent from the current 5 percent limit. It will also extend the time frame for selling the shares it purchases by five years, with the new deadline for completion being March 2026. The new ETF program will start from April, when the BOJ plans to resume selling shares it had purchased from banks.

“The BOJ is slightly expanding areas related to ETF and bond holdings, but investors are starting to see that the changes aren’t as big as they thought,” said Hiroaki Hiwada, a Tokyo-based strategist at Toyo Securities Co. “Investors were buying on hope. People are disappointed after looking at the details closely.”

 



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