The future US yield curve as well?
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Category Archives: Japan
2nd hand memo to clients
From an email I received.
And, of course, the global mainstream agrees.
The slow motion train wreck continues.
Main message: A policy deal may be brewing. The possibility may emerge that PM Noda would offer a BoJ Law change in return for LDP support for the tax hike bills.
The main opposition party, the LDP, has already drafted and begun deliberations on a bill to revise the BoJ Law. Meanwhile, the ruling DPJ’s committee on countermeasures for the strong yen has also discussed the same topic. These deliberations suggest that a deal may be possible between the two parties.
The content of both proposals is reportedly very close to that of the bill submitted in 2010 by Your Party – i.e. setting an inflation target and making the tenure of BoJ leadership dependent on not deviating too much from the target.
The outcome of Friday’s BoJ meeting will be important. If BoJ disappoints markets and the Diet, the forces in all parties that favor such a law change may accelerate their efforts.
Once the potential for a deal is clear, PM Noda may propose the deal to the LDP: “Pass my tax hikes, and I’ll support your BoJ Law revision.” If PM Noda were to make this proposal, I believe that the LDP would accept.
Should such a deal pass, the impact on the equity market would likely be highly positive. In my talks with clients, they put far more weight on the BoJ than on the tax hike.
OECD Head Urges Japan To Fix Finances, Hike Consumption Tax
It’s globally unanimous.
And it’s moving the euro zone closer to the waterfall.
OECD Head Urges Japan To Fix Finances, Hike Consumption Tax
By Kelly Olsen
April 25 (Bloomberg) — The head of the Organization for Economic Cooperation and Development said Wednesday that Japan must get its fiscal house in order, and he supports the government’s plan to raise the consumption tax to help achieve that.
Doubling the consumption tax to 10% by 2015 “is an important step,” Angel Gurria, head of the Paris-based organization, said in a speech.
The government of Prime Minister Yoshihiko Noda submitted legislation to parliament in March that would raise the consumption tax from the current 5% in two stages. But the plan has come under fierce criticism from opposition parties and members of Noda’s own ruling Democratic Party of Japan who fear it may damage the fragile economic recovery.
Gurria said the fiscal situation requires action, pointing out that while Japan’s public debt, at more than 200% of gross domestic product, has so far been manageable given relatively low interest rates, that may not always be the case.
“Japan is vulnerable to a run-up in interest rates,” Gurria said. He said the debt situation is in “uncharted territory.”
During a question-and-answer session, Gurria was asked if he would favor raising the consumption tax before 2014 by one percentage point a year.
“I think it makes sense,” he said, noting it would start generating revenue faster, could be combined with adjustments to other taxes, and suits the gradual nature of Japan’s politics. “I think it has less risks than the present formulation,” he said.
Japan Lacking Fiscal Plan May Be Deflation Cause, Shirakawa Says
Shared delusion…
Obama
By Paul Panckhurst
April 22 (Bloomberg) — Japan’s absence of “concrete reform plans” for the nation’s finances may be contributing to deflation and sluggish economic growth by discouraging spending by the public, central bank Governor Masaaki Shirakawa said.
Consumers may be limiting spending “on concerns over future fiscal developments,” Shirakawa said in remarks prepared for an event in Washington yesterday. This may be “one factor behind sluggish economic growth and mild deflation,” he said.
The Bank of Japan is under pressure from lawmakers to step up its attack on more than decade-long deflation as the government seeks to sustain a recovery from last year’s earthquake and economic contraction. Shirakawa has pledged to extend “powerful” easing until a 1 percent price goal is in sight and his policy board next meets on April 27.
The nation’s borrowings will exceed 1,000 trillion yen ($12.4 trillion) for the first time in this fiscal year, the Finance Ministry projects, while the Organization for Economic Cooperation and Development predicts Japan’s public debt will reach 219 percent of gross domestic product.
Shirakawa said yesterday that stability in Japanese government bond yields shows investors’ expectations that “fiscal soundness will be restored through structural reforms in both the economic and fiscal areas.”
“At the moment, such expectations are not firmly backed by concrete reform plans,” he said.
BOJ’s Shirakawa: Fully Committed To Asset Purchases To Meet 1% Inflation Target
Right, they’ve only been doing it for a couple of decades, monetary policy works with a lag…
BOJ’s Shirakawa: Fully Committed To Asset Purchases To Meet 1% Inflation Target
By Chana R. Schoenbergrand and Stephen L. Bernard
April 18 (Dow Jones) — The Bank of Japan remains determined to purchase more assets to meet its 1% inflation target, the central bank’s governor, Masaaki Shirakawa, said Wednesday night in New York.
“The Bank of Japan is fully committed to continuing powerful monetary easing through various measures, including maintaining the policy interest rate at practically zero and purchasing financial assets, until the current goal of year on year CPI inflation at 1% is deemed to be achievable,” Shirakawa said in his speech to the Foreign Policy Association.
But Shirakawa warned of the potential mismatch between what markets expect and what central banking policies can deliver.
BOJ Easing Would Trump Intervention in Weakening Yen, Okubo Says
Wrong wrong wrong
BOJ Easing Would Trump Intervention in Weakening Yen, Okubo Says
By Mayumi Otsuma and Kyoko Shimodoi
April 11 (Bloomberg) — Further stimulus by the Bank of Japan would be more effective in weakening the yen than currency intervention, a ruling party lawmaker said, a sign politicians will continue to press the BOJ to do more.
“It’s obvious that the central bank’s policies have more influence over the currency than intervention,” Tsutomu Okubo, a Democratic Party of Japan lawmaker, said in an interview in Tokyo yesterday, citing the yen’s depreciation of more than 4 percent against the dollar since the BOJ added stimulus Feb. 14.
The BOJ refrained from easing policy at a meeting on April 10, spurring calls from DPJ lawmakers including Takeshi Miyazaki for them to undertake “bold and large-scale” action when they gather on April 27. The BOJ’s February decision to increase its asset-purchase fund helped weaken the yen close to an 11-month low against the dollar on March 15.
“Interventions are effective in correcting extraordinary and speculative currency moves, but they aren’t very good at addressing structural and long-term problems,” said Okubo, who’s the deputy head of the DPJ’s policy research council and a former managing director at Morgan Stanley. “It’s obvious what kind of actions the Bank of Japan (8301) should be taking.”
Japan Must Overhaul Taxes to Avoid Bond Rout, Bank Lobby Says
Translation: Japanese bankers are against growth because it might cause losses from rate hikes?
Japan Must Overhaul Taxes to Avoid Bond Rout, Bank Lobby Says
By Shigeru Sato and Takako Taniguchi
April 1 (Bloomberg) — Japan must avoid delaying an overhaul of the tax system to prevent government borrowing costs from spiraling in the next decade, the new chief of the country’s banking lobby said.
“The risk of a tumble in government bond prices would increase if taxation and social security reform are left unsolved for years,” said Yasuhiro Sato, president of Mizuho Financial Group Inc. (8411), whose tenure as chairman of the Japanese Bankers Association began today. “The country’s financial assets are dwindling with the aging population dipping into savings.”
Japanese banks hold a record amount of the nation’s bonds, prompting central bank Governor Masaaki Shirakawa to warn in February that lenders risk incurring trillions of yen in losses if yields rise. Prime Minister Yoshihiko Noda faces opposition to his plan to double the sales tax by 2015 to pay for swelling welfare costs and contain the world’s biggest public debt.
“Any delays to the reform that’s being debated may raise concern that bonds may be unable to be absorbed domestically in the long run, say, in 2022,” Sato said in an interview last month. “But there are no signs of a JGB price plunge in the near term.”
Japan’s 10-year bonds yielded 0.985 percent late on March 30. The cost to insure Japan’s debt against nonpayment has been falling, with CMA data showing five-year credit default swaps declined to 98.6 basis points on March 29 from a record 154.8 on Oct. 4, indicating perceptions of creditworthiness are improving.
Hoarding Cash
Shirakawa said in February that a 1 percentage-point increase in benchmark yields would cause losses of about 3.5 trillion yen ($43 billion) on notes held by major banks. With households and companies hoarding cash rather than borrowing, lenders have been buying bonds, holding a record 167.8 trillion of sovereign debt in February, according to central bank data.
The International Monetary Fund dispatched a mission to Tokyo last month as part of a regular review it’s conducting this year into the stability of Japan’s financial sector. While the IMF’s Financial Sector Assessment Program contains a stress test for banks, brokerages and insurers, it’s unclear whether it will examine risks from their government bond holdings.
“Japan’s financial system is strong and stable,” Sato said. “It’s hard to imagine that the IMF would make any kinds of requirements for Japan” based on any examination of bonds held by financial institutions, he said.
Bond Profits
The nation’s three biggest lenders — Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. (8316) and Sato’s Mizuho — earned a combined 231 billion yen from trading bonds and other securities in the quarter ended December, almost double from a year earlier, according to Bloomberg calculations based on their latest earnings figures.
Japan’s government bond sales have largely been absorbed by the domestic market, with about 92 percent of the debt owned by investors at home, central bank data show. The capacity of households to fund public spending may decline in coming years as the growing ranks of pensioners withdraw assets.
Households had 1,483 trillion yen of financial assets at the end of December, down 0.3 percent from a year earlier, according to the Bank of Japan. Government borrowings will climb to 1,086 trillion yen in the year ending March 2013, the Finance Ministry forecast in January.
Prime Minister Noda is seeking parliament’s approval of his tax bill in the current Diet session, while opposition Liberal Democratic Party leader Sadakazu Tanigaki has suggested elections should be called first. Noda’s Cabinet on March 30 approved the proposal to raise the sales levy to 8 percent in April 2014 and 10 percent in October 2015.
“Japanese banks conduct their own simulations and assessments of various risks such as those arising from bonds and stocks,” Sato said. “We are now far from the situation where a bomb may explode in the near future.”
Global themes
- Austerity everywhere keeps domestic demand in check and export channels muted
- Non govt credit expansion pretty much stone cold dead in the US and Europe
- Rising oil energy prices subduing global aggregate demand
- US federal deficit just about enough to muddle through with modest GDP growth
- Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
- Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
- All good for stocks and shareholders, not good for most people trying to work for a living
- Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening
So still looking to me like a case of
‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’
The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.
But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.
Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.
Japan to purchase 65 billion yuan in China government debt
Part of the general move of the current govt to exit deflation via weakening the yen, as previously discussed. Look for Japan to be increasing total fx reserves, and in multiple currencies. The only thing that might stop them is being called on it by the US Treasury secretary.
Japan to purchase 65 billion yuan in China government debt
By Stanley White
March 13 (Reuters) — Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.
The timing of purchases hasn’t been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan’s Finance Minister Jun Azumi said.
Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.
China said on Monday it would continue its purchases of Japanese government debt but would reduce purchases when the yen is rising as China and Japan, holders of the largest and second-largest currency reserves, look to limit exposure to the dollar.
“We feel this is an appropriate amount when considering our mutual goal of strengthening economic cooperation between Japan and China,” Azumi told reporters.
Japan and China agreed at a summit in December to facilitate trade between the yen and the yuan as part of a broader push to strengthen economic cooperation.Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.
The timing of purchases hasn’t been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan’s Finance Minister Jun Azumi said.
Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.
China said on Monday it would continue its purchases of Japanese government debt but would reduce purchases when the yen is rising as China and Japan, holders of the largest and second-largest currency reserves, look to limit exposure to the dollar.
“We feel this is an appropriate amount when considering our mutual goal of strengthening economic cooperation between Japan and China,” Azumi told reporters.
Japan and China agreed at a summit in December to facilitate trade between the yen and the yuan as part of a broader push to strengthen economic cooperation.
Japan Not Immune To Debt Crisis, BOJ Kamezaki Says
Not to be outdone by the rest of the world’s central bankers:
Japan Not Immune To Debt Crisis, BOJ Kamezaki Says
By Tatsuo Ito
February 28 (DJ) — A Bank of Japan policy board member said Wednesday that Japan is not immune to a Europe-style debt crisis as confidence in the country’s government bonds could quickly weaken if concerns over its fiscal state mount.
The European crisis “is not a fire on the other side of the river,” Hidetoshi Kamezaki told business leaders in Fukuoka, western Japan, using an phrase frequently employed by Japanese policy makers over the last few months to warn that a Europe-style crisis could spread to Japanese shores.
“It’s not appropriate to assume there won’t be concerns about JGBs,” in the future just because the bonds continue to be smoothly bought in the market, Kamezaki said, adding that confidence in government debt can change unexpectedly.
Japan’s fiscal conditions are the worst among developed nations, with a gross public debt of around 200% of its annual economic output, but the country has so far avoided a Greece-style crisis as domestic investors hold almost all of its debt.
An ample and steady flow of funds from overseas in the form of a surplus in its current account — which includes trade — has financed the debt, but recent data suggest that could be changing.
Japan recorded a trade deficit for all of last year, meaning that if the trend were to continue, the country may need to rely on foreign capital to finance its debt, like many of the European countries being hit by the debt crisis.
Kamezaki played down the possibility of Japan’s current account moving into the red, saying flows of income stemming from the country’s external assets worth Y250 trillion could be maintained.
“The trend of Japan’s current account surplus will not change for a while unless the trade deficit grows rapidly,” Kamezaki said.
At around 0030 GMT, the benchmark 10-year government bond yield was at 0.965%.
Kamezaki also said the central bank should keep actively implementing policies to ensure the Japanese economy can overcome deflation and achieve sustainable growth with price stability.
“The BOJ should continue to pro-actively implement policies needed to achieve these purposes,” Kamezaki said.
The BOJ on Feb. 14 surprised the markets by boosting the size of its asset purchase program–the main tool for credit easing amid near zero interest rates–to Y65 trillion from Y55 trillion by increasing purchases of Japanese government bonds. It also clarified a near-term inflation goal for overcoming deflation.
The financial markets have reacted positively to the BOJ’s actions, with the dollar briefly hitting a nine-month high of Y81.66 on Monday and the stock market rallying.