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

    Japan Stocks Surge Most Since June 2013 on GPIF Buying Optimism

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

    Japan’s $1.2 trillion Government Pension Investment Fund will increase its allocation target for local shares to about 25 percent from 12 percent, the Nikkei newspaper reported without attribution. GPIF will also boost its holdings of foreign bonds and stocks to about a combined 30 percent from 23 percent, while reducing domestic debt to the 40 percent level from 60 percent, the Nikkei said Oct. 18

    “Twenty-five percent is more than the market expected,” said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc., Japan’s second-largest brokerage. “They probably can’t buy all the Japanese stocks they need to get to 25 percent by the time they announce it. However, it wouldn’t be a surprise if they’ve already started moving bit-by-bit.” 

     

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    Shiozaki Roils Yen Bears as GPIF Reform Takes Japan Center Stage

    This article by Mariko Ishikawa and Hiroko Komiya for Bloomberg may be of interest to subscribers. Here is a section: 

    The yen fell the most in a week and domestic stocks unwound some of their slide after Shiozaki, whose ministry overseas the nation’s $1.2 trillion Government Pension Investment Fund, said today the government will conduct some reforms within the existing law and there is no intention of postponing the process. The GPIF changes are accompanying Abenomics, a three- pronged policy of radical monetary easing, fiscal stimulus, and pro-growth policies.

    The currency strengthened 0.3 percent yesterday, the most since Sept. 3, after a Yomiuri newspaper report cited Shiozaki as saying that he is in no hurry to submit a bill needed to review GPIF’s allocations.

    “The yen’s reaction after Shiozaki’s remarks explains how closely the market is listening to him,” said Daisaku Ueno, the Tokyo-based chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “It helps explain the enormous expectations there are around how the minister in charge of the world’s largest pension fund will revamp GPIF in a way that cater to Abenomics’ fight to exit deflation. Shiozaki is ‘Mr. Risk-on’.”

     

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    Fed Interest Rate Projections Increased

    Thanks to a subscriber for this report from Commonwealth Bank of Australia focusing on yesterday’s Fed statement. Here is a section:

    With asset purchase tapering close to completion and the turning point in the Fed’s monetary policy cycle approaching, focus on the Fed’s monetary policy normalisation process is growing. On this front, the FOMC released a supplementary document that outlined its “policy normalisation principles and plans”.

    The FOMC stipulated that the recent discussion on the topic of normalisation is part of its “prudent planning” and did not imply it “will necessarily begin soon”. According to the FOMC, many of the normalisation principles adopted in mid-2011 remain applicable. However, in light of changes to the System Open Market Account (SOMC) portfolio in recent years and other enhancements in the tools available to the FOMC, some adjustment to the previous guide may be necessary.

    All but one member of the FOMC agreed on the following key elements of the approach intended to be taken when monetary policy normalisation was deemed appropriate:

    (a) When less policy accommodation is warranted, the FOMC will raise the “target range” for the funds rate. During normalisation, the Fed intends to move the funds rate into the target range “primarily by adjusting the interest rate it pays on excess reserve balances” (IOER).

    (b) The Fed also intends to use an overnight reverse repurchase agreement facility and other supplementary tools to help control the federal funds rate. In our view, this is designed to keep the effective fed funds rate from falling too far below the IOER rate.

    (c) The size of the Fed’s balance sheet will be reduced in a “gradual and predictable” manner, primarily by ceasing to reinvest repayments of principal on securities. The FOMC expects to “cease or commence phasing out reinvestments” after it beings to raise the target range for the federal funds rate. Selling of Mortgage Back-Securities is not anticipated to be part of the normalisation process. But should limited sales be warranted in the longer run, such sales would be communicated in advance. 

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    Rakuten Climbs Most in Five Months After Deal to Acquire Ebates

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

    Rakuten Inc. rose the most in five months after it agreed to buy U.S. rebates website Ebates Inc. in Japan’s largest e-commerce deal, a move that will more than double the e-retailer’s transactions from overseas.

    Rakuten will pay $1 billion in cash for all of Ebates, it said yesterday. San Francisco-based Ebates offers cash rebates to customers who buy products ranging from laptops to lipsticks from the website’s retail partners.

    Rakuten’s billionaire Chairman Hiroshi Mikitani is betting the purchase will help the Tokyo-based company push its global e-commerce strategy. Rakuten has also been investing in technologies such as mobile applications and online video as it seeks to add to its online marketplace business.

    “This deal doesn’t just mean we’ve started a cash-back website in the U.S., I think we can operate this model all over the world,” Mikitani told reporters at a briefing in Tokyo yesterday. The purchase will lift the proportion of Rakuten’s e- commerce transactions from outside Japan to 16 percent from about 6 percent now, he said.

    Rakuten, which operates Japan’s biggest online mall, aims to raise the proportion to 50 percent around 2020, said Mikitani, Japan’s fourth-richest man with a net worth of about $6.9 billion according to the Bloomberg Billionaires Index.

     

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    CLSA Sees Bond Danger in Pension Switch to Stocks

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

    Domestic ownership of JGBs has increased to 91.6 percent at the end of March from 91.4 percent in December 2012, when Abe took office, according to BOJ data. By contrast, Japanese financial institutions and individuals were net sellers of domestic stocks in the year to March 31, while overseas buyers boosted holdings of equities on Japanese bourses to a record 30.8 percent, Tokyo Stock Exchange data show.

    “Japan has increased its exposure to bonds and sold the equity to the foreigner,” in contrast to Kuroda’s prediction that local investors will shift from debt to riskier assets, according to Smith. He has been in Japan since 1987 and joined CLSA in August 2011 after working with Jardine Fleming Securities in the 1990’s and a four-year stint at hedge funds, according to biographical information provided by CLSA.

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    Abenomics Skepticism Grows as Price Gauge Retreats

    This article by Mariko Ishikawa, Yumi Ikeda and Kevin Buckland for Bloomberg may be of interest to subscribers. Here is a section: 

    Abe needs to push through structural reforms to spur the world’s third-largest economy, Fitch Ratings said in a report last week, after gross domestic product shrank the most in three years last quarter. Japan isn’t alone in facing reduced inflation expectations as stagnant wages in countries from the U.S. to Germany and Australia threaten to slow economic growth.

    “Japan’s economy has taken a severe knock which, inevitably, calls into question the credibility of the government’s reflationary program,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in an e- mailed response to questions yesterday. “Abenomics is far from dead and buried but it’s increasingly on life support.”

    GDP plunged an annualized 6.8 percent in the three-months through June, the sharpest contraction since the first quarter of 2011, the Cabinet Office said on Aug. 13. That clouds the government’s plan to raise sales tax next year to 10 percent after a three percentage-point increase in April to 8 percent.

    Disapproval Rating
    Three-quarters of people said they oppose a further levy, according to a Jiji survey conducted Aug. 7-10. The cabinet’s disapproval rating rose to 35.1 percent, the highest since Abe took office in December 2012.

    “The ‘Abenomics’ fiscal and monetary stimulus policies have been sufficient to bring Japan out of deflation, but this is proving a double-edged sword as wages are not keeping up with prices,” Fitch, which has an A+ grade on Japanese sovereign debt with a negative outlook, said on Aug. 13. “Sustained real wage contraction would risk tipping Japan back into sluggish growth around or below potential.”

    The cost of living in Japan grew at three times the pace of wage increases in June. Core consumer prices excluding fresh food rose 3.3 percent from a year earlier, while average overall monthly earnings gained 1 percent. When the effects of the consumption levy are excluded, inflation stood at 1.3 percent.

     

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    Topix Rises to Post Highest Closes Since January

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

    “The data suggests there are some structural issues at play,” Daiwa SB’s Monji said. “Maybe the weak export numbers are because of Japan lacking competitiveness abroad. It’s negative for the market.”

    Nikon sank 2.6 percent to 1,616 yen. JPMorgan reduced its rating on the stock to underweight from neutral, citing high costs and downside risks to existing businesses in the camera maker’s plans to increase its medical business sales.

    Even after a 8.6 percent rebound from its May 21 low, the Topix is still the worst performer this year among 24 developed markets tracked by Bloomberg. The measure capped a world-beating rally last year as the central bank pressed ahead with record monetary easing.

    The gauge traded at 1.2 times book value today, compared with 2.7 for the S&P 500 and 1.9 for the Stoxx Europe 600 Index yesterday.

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    Email of the day on Japanese bank leadership

    “If the Japanese market does move up, do you expect the financial sector to be a leader or a laggard?”

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    Japanese Shares Gain as Retailers Advance While Brokerages

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

    “The focus today was whether the gauge could recover losses from ex-dividends,” said Yoshihiro Okumura, a general manager at Chiba-Gin Asset Management Co. in Tokyo. “There are expectations that the market will rebound come the new fiscal year as the government enacts reforms and policies.”

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