Sat, 22nd July 2017

Anirudh Sethi Report


Posts Authored by: “Foo Zhiwei”

US-China honeymoon clearly over as dialogue runs aground

 imageDespite recent shows of cooperation, Washington and Beijing seem to once again be drifting apart after failing to achieve much of substance on trade or North Korea at a bilateral meeting here Wednesday.

Not long after the so-called Comprehensive Economic Dialogue began, the U.S. Treasury Department called off a news conference planned for that day. The dearth of room for compromise was apparently clear from the start.

 “We will end the theft of American prosperity,” President Donald Trump said at a roundtable with American manufacturing executives. Half a year after taking office, he remains far from delivering on such key promises as replacing predecessor Barack Obama’s health care law, while Russia and other controversies have made Trump one of the least popular American presidents this far along in his term.

Hoping instead for headway on the trade deficit, the administration pushed China to reform its steel, information technology and financial sectors and to open up its markets. But Washington failed to draw out any concrete assurances Wednesday. The most that came from the dialogue was an American statement that “China acknowledged our shared objective to reduce the trade deficit.”

ADB upgrades emerging Asia’s growth outlook to 5.9%

The Asian Development Bank on Thursday upgraded its outlook for emerging Asia’s growth rate of gross domestic product for this year to 5.9% from the previous figure of 5.7%, citing better-than-estimated Chinese economic growth.

The GDP growth rates in 2015 and 2016 were 6.0% and 5.8%, respectively.

 The key driver for the upgrade is China, up 0.2 points to 6.7%, backed by increased domestic consumption and exports. The Chinese government earlier announced that January-June GDP growth was 6.9%.

The previous outlook was published in April. On Thursday, the ADB also upgraded the growth outlook for 2018 to 5.8% from 5.7%.

The ADB’s outlook covers 45 countries and regions in the Asia-Pacific region, and excludes developed nations.

BREAKING : Japan earthquake – northern Japan & Tokyo

Fukishima also shaken (reports). Earthquake reported at a 4 on Japan’s 7 point scale

  • Japan’s public broadcaster with the news (NHK)
  • Northern Japan quake, felt in Tokyo
  • There has been no tsunami alert issued, said to be no tsunami threat
  • Magnitude 5.6 quake says NHK, Pacific Tsunami Warning Center says magnitude 5.8, hit Honshu (Japan’s main island)
More early reports:
  • Depth 52km
  • 97 km SE of Sendai-shi, Japan

The BOJ July meeting concludes today – here is when to expect the announcement

The BOJ does not have a fixed, scheduled time for announcing their monetary policy decision after their meeting

As a guide, expect the statement in the 0230GMT to 0330GMT time window. That’s based on past experience.
  • Past experience also suggests that for a meeting where no change in policy will be announced (no change is the expectation today, though they are likely to upgrade their outlook for the Japanese economy) the result will be earlier in that time window than later.
Here are the recent timings of the announcement after the meeting:

2017 so far …

  • 31 January 2017 1156AM Tokyo time, 0256GMT (maintains policy steady)
  • 16 March 2017 1154am Tokyo time, 0254GMT (maintains policy steady)
  • 27 April 2017 1214pm Tokyo time, 0314GMT (maintains policy steady, upgraded economic outlook, pushes out inflation forecasts)
  • 16 June 2017 1154am, 0254GMT (maintains policy steady, maintains economic outlook … boosts its outlook for private consumption)


  • 29 January 12.38pm 0338GMT – added easing (negative interest rate)
  • 15 March 2016 1235pm 0335GMT
  • 28 April 2016 12.01pm 0301GMT
  • 16 June 2016 11.45am 0245GMT
  • 29 July 2016 12.44pm 0344GMT (more easing, added in further ETF purchases)
  • 21 September 2016 1.18pm Tokyo time, 0418GMT (comprehensive review and a stack of new policy moves)
  • 01 November 2016 0254GMT
  • 20 December 2016 0251GMT

Dividends in Japan double from financial-crisis low

Japan’s publicly traded companies continue to return more profit to shareholders, with dividends headed toward a record 11.8 trillion yen ($104 billion) for fiscal 2016.

Payouts are on track to rise for a seventh straight year, climbing 7% from fiscal 2015 and doubling from the fiscal 2009 low in the wake of the global financial crisis. More than 600, or roughly 30%, of the companies with March book-closings plan to resume or increase dividends, as overall corporate profit looks set to reach a new high this fiscal year. Figures are based on Nikkei calculations of distributed and planned payouts.

 KDDI boosted its projected full-year payout earlier this month to 85 yen per share, up 15 yen from a year earlier and 5 yen more than previously planned. The mobile carrier is expected to report a record profit on the strength of increased data revenue.

The recovery in the resource market has put trading houses and related companies in a position to raise dividends as well. Mitsubishi Corp. had reported its first-ever net loss in fiscal 2015, hit by impairment charges from resource concessions. But with earnings rebounding sharply, the company plans to hike the full-year payout to 70 yen per share — up 20 yen from the prior year and equal to the previous high.

Advantest is among those boosting its payout ratio, or the portion of profit distributed as dividends. The manufacturer of chip-testing equipment is lifting the minimum ratio to 30% from 20% on a consolidated basis.

“We need to raise shareholder returns in order to retain long-term investors,” President Yoshiaki Yoshida said.

Tokyo Seimitsu, which produces chipmaking equipment, will increase its payout ratio and raise dividends even though net profit is projected to decline.

Retail investors directly hold just under 20% of listed companies’ shares, based on surveys by the Tokyo Stock Exchange and others. This means roughly 2 trillion yen will flow into pocketbooks, helping to underpin consumer spending.

Increased dividends help improve capital efficiency, a factor that can lead share prices higher.

“The ability of Japanese companies to sustain generous shareholder returns will influence the direction of Japan’s stock market,” said Kengo Nishiyama of Nomura Securities.

Strong yen helps push Japan Inc.’s profit down 25% in first half

Net profit at Japanese companies dropped 25% in the six months ended in September on weakness in emerging economies and a rising yen — falling for the first time in four years.

The 501 listed companies that had reported earnings for the half by Monday logged a total of 3.62 trillion yen ($34.5 billion) in black ink, according to The Nikkei’s calculations. The group contains 32% of Japan’s nonfinancial listings. Including estimates for companies that have not yet reported results brings the total to 9.8 trillion yen, or a 19% year-on-year decline. 

Sales at the 501 companies fell 7%. Pretax profit dropped as well.

Trouble abroad

The yen averaged 105.2 to the dollar during the half. While this rate is not quite as forbidding as the 70 to 80 seen around 2011, the currency was still 16.7 yen to the dollar stronger than in the year-earlier period — its biggest appreciation since 1999, when markets were reeling from the Russian financial crisis. Every 1 yen to the dollar gain in the Japanese currency weighs down overall profit by around 0.5%, a major securities company has calculated. By this reckoning, the strong yen could account for nearly 10% of the first-half drop.

Exporters have been hit particularly hard. Profit at makers of precision instruments dropped 19%, while that for electric machinery makers fell 14%. Alps Electric’s profit plunged around 70% as the yen strengthened beyond the company’s forecast of 110 to the dollar. Exchange effects sent Fujifilm Holdings’ profit sliding 30% despite brisk sales of medical equipment and trendy instant cameras.

BOJ Kuroda: To adjust policy as needed to hit 2 pct price goal

Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank will adjust monetary policy as needed to achieve its 2 percent inflation target with an eye on economic, price and financial developments.

“Japan’s economy is expected to expand moderately as a trend,” Kuroda said in a speech at the central bank’s quarterly meeting of its regional branch managers.

 The BOJ last month switched its policy to target interest rates and away from expanding the monetary base – or the pace of money printing – after years of massive asset purchases failed to jolt the economy out of decades-long stagnation.

Trading The Bank of Japan : Views From 15 Major Banks

Morgan Stanley: It’s Not About Easing For JPY; Its About Inflation Expectations.

The evolution of inflation expectations is dominant for the assessment of the JPY. Hence, the BoJ’s monetary policy statement due on Wednesday must be checked in respect of its impact on Japan’s inflation expectations. -Cutting rates and redirecting QE into the front end of the JGB curve may steepen the curve, but does little to support inflation expectations. –However, lifting the BoJ’s inflation target or the MoF announcing plans to increase the duration of its liability book could help in pushing inflation expectations higher. In this case, the BoJ yield curve steepening exercise would be part of a comprehensive strategy to reflate Japan. Should the yield curve steepening just come in isolation with no hint of how to increase inflation expectations then the JPY will continue to strengthen.

Barclays: JPY Set To Rally On BoJ Inaction –

We expect no BoJ easing this week. The Bank of Japan (BoJ) MPM (Wednesday) is be the main focus of this week and we expect BoJ to refrain from the further easing this time, but the BoJ could take a more flexible stance on the time horizon for reaching its price stability target of 2% and change the annual pace of increase in its JGB holdings to JPY70-90trn from the current JPY80trn. There is a risk that the BoJ will decide to take interest rates deeper into negative territory and become more flexible in its JGB purchases, as reported by several media sources (Nikkei, 14 September 2016) or the BoJ will raise expectations for further easing. According to a survey conducted by Bloomberg on 7-12 September, 54% of the respondents forecast further easing in September, of which, 61% expected deeper negative interest rates, 57% projected an increase in longterm JGB buying, 52% looked for an expansion of the monetary base, 30% predicted more JREIT purchases and 9% expected an increase in equity-linked ETF buying. Under our base scenario of no further BoJ easing, we expect some JPY appreciation after the MPM, but we should take a note that FOMC rate announcement is on the same day. Hence, USDJPY movement could also be affected by the FOMC decision. Under our risk scenario where the BoJ eases with a focus on further cuts to negative interest rates with measures to steepen JGB curve (or raises market expectations for further easing in the future), we expect JPY depreciation pressure to strengthen, at least in the near term. In assessing the durability of JPY depreciation in such case, the balance between scope and effectiveness of further easing via NIRP versus headwinds from JPY’s undervaluation and heightened global uncertainty will be the key

China August Industrial Production: 6.3% y/y (vs. 6.2% expected) + more data

China August data:

Industrial Production
 6.3% y/y BEAT
  • expected 6.2%, prior 6.0%
For the YTD, comes in at 6.0% y/y AS EXPECTED
  • expected 6.0% and prior 6.0%
Retail Sales 10.6% y/y BEAT
  • Retail sales expected 10.2% y/y and 10.2% prior
Fixed asset (excluding rural) investment at 8.1% y/y BEAT
  • expected 7.9% and prior 8.1%
Beats nearly across the board for this data. The veracity of the data will, as usual, be questioned. Can’t say I blame the questioners for doing so.
On face value, though, positive data that should be (for example) AUD supportive. And, it adds to the run of better data we have been seeing out of China (for August).

Japan’s emperor hints at possible abdication in public address

In a 10-minute video message to the nation, Japan’s Emperor Akihito opened up about his reported hopes of ceding the throne while his health lasts. The emperor did not directly comment on his wish to abdicate or use the word, but he said that a deterioration of his fitness levels has made him “worried that it may become difficult for me to carry out my duties as the symbol of the state with my whole being as I have done until now.”

Akihito, now 82, was diagnosed with prostate cancer in 2003 and underwent coronary bypass surgery in 2012. Rehabilitation and regular exercise have helped him stay healthy, but he said that after his two surgeries, he began “to feel a decline in my fitness level because of my advancing age,” and started “to think about the pending future, how I should conduct myself should it become difficult for me to carry out my heavy duties in the way I have been doing, and what would be best for the country, for the people, and also for the Imperial family members who will follow after me.”

He added: “It is my hope that … the duties of the emperor as the symbol of the state can continue steadily without a break. With this earnest wish, I have decided to make my thoughts known.”

Akihito also said that establishing a regency is undesirable because, “Even in such cases … it does not change the fact that the emperor continues to be the emperor till the end of his life, even though he is unable to fully carry out his duties as the emperor.”