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Sun, 22nd January 2017

Anirudh Sethi Report

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Archives of “Government of Japan” Tag

BOJ taking ‘a step forward,’ says Kuroda

The Bank of Japan revised its economic outlook for the first time in 19 months during the two-day policy meeting that ended Tuesday. But that is apparently the only step the central bank is taking at this time.

“The headwinds seen in the first half of this year have ceased,” BOJ Gov. Haruhiko Kuroda told reporters following the meeting. Markets were riled by heightened concerns directed at emerging economies at the beginning of 2016, only to be shocked in June by Britain’s referendum to exit the European Union. The BOJ was forced to loosen its policy in July, raising its target for exchange-traded fund purchases.

 During the second half of 2016, the economic landscape has slowly brightened, beginning with U.S. readings. The Japanese economy has followed suit with increased exports and production. Consumption also recovered from a slump caused by a soft stock market and inclement weather at the beginning of the year.

“Japan’s economy has continued its moderate recovery trend,” the BOJ said in a statement published after the meeting. The central bank had previously qualified that view by highlighting sluggish exports and production.

US 10-year yield climbs above 2.5%, stocks mixed

Oil prices surged to their highest level since July 2015 on Monday raising concerns about inflation and helped push the US 10-year Treasury yield above the 2.5 per cent mark.

The yield on the US 10-year, which moves inversely to price, climbed above 2.5 per cent for the first time in two years to 2.5005 per cent.

“The bearishness in the bond market is even more acute than the bullishness on equities,” David Rosenberg at Gluskin Sheff, said.

Alongside energy prices, Peter Tchir at Brean Capital also said the weakness in Japan “is concerning to global bond investors”. He noted the Bank of Japan had pledge in September to keep the 10-year yield on the Japanese government bond at or below zero per cent. Instead, the JGB is now at nearly 0.8 per cent. That “might be an indication of Central Banks losing their ability or willingness to suppress interest rates,” he said.

Despite the run up in oil prices, the S&P 500 was down 0.1 per cent to 2,257.67, while the Dow Jones Industrial Average was flat at 19,760.14 — less than 300 points shy of breaching the 20,000 level. The Nasdaq Composite was down 0.5 per cent to 5,420.70.

Investors appear to be pausing for breathe following the sharp run up in stocks in recent weeks.

10-year JGB briefly enters positive territory

The yield on the 10-year Japanese government bond briefly rose above zero Wednesday for the first time since March after the Bank of Japan said it would introduce a 10-year interest-rate target, part of a new policy framework aimed at stoking inflation.

In its latest monetary-policy assessment, the BOJ said it would aim to keep the 10-year rate around zero. It also said would keep its annual bond-buying target unchanged at 80 trillion yen ($785 billion) and left its deposit rate unchanged at -0.1%.

 Japanese stocks rose after the decision, led by shares in major banks, whose profit margins should benefit from higher long-term rates. The yen was down after the announcement.

The dollar was recently at Y102.50 after falling ahead of the BOJ decision to as low as Y101.00, the lowest since Sept. 7, according to EBS. That compared with the dollar at Y101.72 late Tuesday in New York. The dollar has fallen 15% against the yen so far this year.

Japan-Extraordinary Diet session to be convened Sept. 26: LDP official

An extraordinary session of Japan’s Diet is set to be convened Sept. 26 following an agreement between the government and the ruling Liberal Democratic Party, a top party official said Tuesday.

Speaking to reporters at party headquarters in Tokyo, LDP Secretary General Toshihiro Nikai said the party has settled on the date with the office of Prime Minister Shinzo Abe.

 The extra session follows the LDP’s strong showing in July’s House of Councillors election on a platform of stepped-up economic policy. The election brought Abe’s goal of amending the Japanese Constitution closer after pro-amendment lawmakers achieved a supermajority legally required to kick-start the process.

The start date for the session has been fixed out of consideration for the main opposition Democratic Party, which will hold a leadership election Sept. 15.

According to a senior LDP member, Abe had suggested to the LDP a start date of Sept. 13 or 16 in order to make time to introduce a bill to ratify the Trans-Pacific Partnership trade pact.

South China Sea Time Bomb: Beijing Sets “Red Line” on Japan-US Joint Operations

In this April 26, 2012 file photo released by China's Xinhua News Agency, Chinese navy's missile destroyer DDG-112 Harbin fires a shell during the China-Russia joint naval exercise in the Yellow SeaOn Saturday, diplomatic sources confirmed that China had issued a severe warning to Tokyo in late June demanding that Japan refrain from dispatching Self-Defense Forces to join US operations testing the freedom of navigation in the South China Sea.

Japan will “cross a red line” if SDF vessels take part in the freedom of navigation operations, Chinese Ambassador Cheng Yonghua conveyed to Tokyo at the time. Cheng threatened military action if Japan failed to comply with the ultimatum.

The warning came two weeks prior to The Hague international arbitration court’s adverse ruling deeming the waters and territory that the Chinese people had historically viewed as their own were to be stripped of their control and that Beijing must immediately remove itself from the disputed territory.

On Saturday, diplomatic sources confirmed that China had issued a severe warning to Tokyo in late June demanding that Japan refrain from dispatching Self-Defense Forces to join US operations testing the freedom of navigation in the South China Sea.

Is honeymoon over for BOJ and Japan’s government?

Despite the Bank of Japan’s first monetary easing in six months on July 29, long-term interest rates started rising after reports that the bank will conduct a “comprehensive assessment” of its monetary policy at its September meeting. Two trading days later, long-term interest rates rose to minus 0.025% on Aug. 2 from a level close to a record low of minus 0.3%.

“The bank’s easing policy of purchasing Japanese government bonds may have reached its limit,” an official at a Japanese brokerage said.

 The BOJ denies it is pursuing a policy of so-called “helicopter money,” which involves purchasing bonds directly from the government to help finance economic stimulus policies, because it buys JGBs in the market. The bank also denies the possibility of adopting the policy in the future. But the line has become blurred, and “the bank has already put one foot in it,” said Ryutaro Kono, chief economist at BNP Paribas Securities (Japan).

The BOJ purchases 80 trillion yen ($783 billion) worth of Japanese government bonds every year, about twice the amount of newly issued JGBs annually. The bank bought up one-third of JGBs in the market at the end of March and will near its limit in a few years.

Depth of Chinese anger over sea ruling bodes ill for Japan

The international tribunal rejection of Beijing’s South China Sea claims unleashed a torrent of online comments from angry Chinese. Some of these remarks, to this reporter’s surprise, came from business and personal acquaintances who had never shown much passion about politics.

With the government seeking to deflect anger away from itself, the ruling could have economic implications for a country with no territorial stakes in the South China Sea — Japan.

 “I’m not going to allow an inch [of the territory] to be lost,” one local friend of this reporter wrote on the WeChat messaging service on the night of July 12, just after the United Nations-backed tribunal handed down its ruling. Another friend said: “We’re going to defeat anyone who intrudes on our China, wherever they are.”

The people who made these and similar comments are company managers, corporate sales representatives and Chinese language teachers. All are well-educated; many have frequent contact with foreigners, through relationships forged at work and while studying abroad.

Knowing this made their outbursts that night more chilling. 

Abe’s stimulus plan experiencing headline inflation of its own

Japanese Prime Minister Shinzo Abe’s government is putting pressure on the fiscally conservative Ministry of Finance to satisfy expectations for a bold new shot of the first arrow of Abenomics — fiscal spending.

But critics say that the contents of the stimulus package matter more than its apparent size, which is easy to inflate. Some observers now see the tally rising to between 20 trillion yen and 30 trillion yen ($189 billion and $283 billion) after off-budget items are counted. 

 The chairman of business lobby Keidanren, Sadayuki Sakakibara, is among those urging “large-scale” on-budget expenditures, he told an audience in Nagano Prefecture on Thursday.

The trial balloon floated by the Finance Ministry missed expectations. There had been talk in the financial markets and elsewhere that general-account budget items alone — known as mamizu, or “fresh water,” in Japanese government jargon — would amount to 5 trillion yen to 10 trillion yen. Then came the revelation that flagging tax revenue growth and other constraints would leave less than 1 trillion yen available for stimulus.

ALERT-Japanese government considering 20 trillion yen stimulus package

Kyodo reports

One of the unsung reasons behind the USD/JPY rally today was a report, citing sources, that the Japanese government is considering a supplementary budget.

“The government initially envisaged compiling a stimulus package of somewhat more than 10 trillion yen . But the size is likely to double as the package will now include projects for fiscal 2017 and beyond and increase “zaito” low-interest government loans by 6 trillion yen,” Kyodo reports.

The stimulus could be even larger, they report. And able will look for the rubber stamp from the Cabinet in early August. About half will be earmarked for infrastructure.

ALERT : Japan to downgrade fiscal 2016 growth forecast

The Japanese government will cut its fiscal 2016 estimate for real economic growth from 1.7% to 0.9%, owing to uncertainty over the global economy and expectations of lower consumption after a tax hike set for the following year was delayed.

The nominal growth forecast will be lowered from 3.1% to 2.2%. The Council on Economic and Fiscal Policy will release the adjusted outlook Wednesday for approval by the cabinet. The new figures will not take into account a stimulus package to be put together as soon as early August.

 The downgrade owes partly to the postponement of a consumption tax hike that had been slated for April 2017. The January estimate had factored in a surge in demand ahead of the increase. With the hike having been pushed back, the government will cut its projection for real consumer spending growth from 2% to around 1%.

Another issue is uncertainty surrounding the global economy, stemming from such factors as the U.K.’s decision to leave the European Union. The yen’s unexpected strength and slowdowns in China and other emerging markets are expected to depress exports and capital spending.

The Japanese government plans to set its real and nominal growth estimates for fiscal 2017 at 1.2% and 2.2%, respectively. It sees growth picking up slightly as the world economy gradually improves.