David Fuller and Eoin Treacy's Comment of the Day
Category - Japan
Global Bank Indices
Why would North Korea's Kim and Russia's Putin want to meet?
This article from Al Jazerra may be of interest. Here is a section:
“North Korea did not leave the Cold War; it still has that production, and it has ordinance of the same Soviet/Russian calibres copycats, so that can actually provide Russia with things that the Russian military needs on the front line,” Felgenhauer said.
Buying munitions from North Korea would be a violation of UN resolutions, which were supported by Russia, that ban all arms trading with the isolated country. But now that it faces international sanctions and export controls over its war in Ukraine, Russia has been seeking weapons from other sanctioned countries, such as North Korea and Iran.
And
It’s unclear whether Russia would be willing to provide North Korea with advanced technologies related to nuclear weapons and ICBMs, Cha said. Russia has always tightly guarded its most important weapons technologies, even from key partners like China, he said.
Japan Public Workers May Get Biggest Salary Gains in 26 Years
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Wage levels are also set to rise for non-salaried workers. A labor ministry advisory panel agreed in late July to target lifting the national average for the minimum wage by 4.3% to above 1,000 yen ($7.05) for the first time, in what would be the largest boost since the ministry began keeping records in 1978. That change, which is expected to kick in from October, would affect about 20% of the labor force, according to JPMorgan.
Advances on incomes bode well for the Bank of Japan, where Governor Kazuo Ueda is watching income trends closely as a key factor that will determine the long-range likelihood of achieving 2% inflation on a sustained basis. Ueda has said repeatedly that for now there remains some distance to reaching that goal, implying that the bank will maintain its accommodative stance for a while.
BOJ Wades Into Bond Market After YCC Tweak Triggers Yield Spike
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The purchases are another reminder that Japan’s slow retreat from ultra-loose monetary policy brings a heightened risk of volatility and intervention across multiple asset classes globally. It also underscores the challenge in interpreting a rates regime that is built on gray lines to let the BOJ be flexible rather than clarity for markets.
“That flexibility is obtained with opaqueness on when they intervene,” said Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte in Singapore. “Flexibility is another word for optionality, which potentially manifests as volatility. No one knows exactly when, between 0.5 to 1%, does the BOJ step in meaningfully, which is an awfully wide range.”
Japanese Population Falls in All 47 Prefectures for First Time
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“The situation is dire and proves government policies to halt the declining birthrate have fallen short,” said Hideo Kumano, an economist at Dai-Ichi Life Research Institute. “The data shows there’s a limit on what can be achieved by easing the burden of raising kids with subsidies. What’s important is to secure employment opportunities in the regions, too.”
Last year, the number of children born nationwide fell under 800,000 for the first time since records began in 1899. The population of Japanese nationals has been falling continuously for 14 years, and for the first time this included the southern prefecture of Okinawa, historically known for a high birthrate.
Kishida’s promised to spend about ¥3.5 trillion ($24.8 billion) on measures to increase the birthrate, without fully explaining how this will be funded. Among the policies is an expansion of cash handouts to families with children, regardless of parental income. Experts have warned the policy package fails to tackle the root causes of the declining birthrate, such as a lack of stable job prospects.
Yen's Tumble Ends Up Helping Japan Bonds Outperform Major Peers
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The fattening up of currency-hedged, volatility-adjusted yields comes as the BOJ’s minus 0.1% policy rate and extra discounts on yen interest rates in the market — the so-called currency basis — make it even more lucrative for investors to short the yen for hedging.
“The yield pickup will remain attractive for foreign investors if the currency basis stays wide as a result of a cheaper yen,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo. That’s the case “despite the risk of yields falling across the curve” as the BOJ may avoid changes to its easy monetary policy, he said.
The combination of holding Japanese debt with hedging against a weaker yen doesn’t come without risks, though.
Should the BOJ lift its 10-year yield cap, it would cause capital losses. An end to the negative-rate policy makes it less lucrative to short yen, though most economists don’t see that coming this year. Hedging may also backfire if Japan intervenes to limit yen weakness, with chief currency official Masato Kanda warning last week of an appropriate response to any excessive moves in the market.
Yen Declines as BOJ Sticks With Super Easy Policy Unlike Peers
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Last year, the yen weakening toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998, though in the build up to that there were repeated official warnings about direct action. The Japanese currency has fallen more than 6% this year.
China Shifts to Stimulus Mode With Xi's Options Dwindling
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The new stimulus package under consideration has been drafted by multiple government agencies and includes at least a dozen measures designed to support areas such as real estate and domestic demand, according to people familiar with the matter.
A key component is support for the real estate market. Regulators are seeking to lower costs on outstanding residential mortgages and boosting relending through the nation’s policy banks to ensure homes are delivered, one of the people said.
The State Council may discuss the policies as soon as this Friday but it’s unclear when they will be announced or implemented, the people said.
“The aim of stimulus this time is to keep growth ticking over, consistent with the relatively conservative ‘about 5%’ gross domestic product growth goal, rather than to spur a round of robust growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “Policymakers are still wary of repeating the kind of debt hangover that the Global Financial Crisis stimulus produced and they spent the decade up to the pandemic trying to sort out.”
Property Woes
The weak property market remains a major drag on China’s economy, although policymakers appear reluctant to use its old playbook of driving up investment in real estate as a way to boost growth. Goldman analysts said in a recent report they don’t expect a repeat of the 2015-2018 shantytown renovation program that pumped central bank money into the property sector and sent home price surging.Beijing is seeking to reduce the economic and fiscal reliance on the housing market, Goldman said, which suggests an L-shaped recovery in coming years.
BOJ Is Said to See Little Need to Tweak Yield Control Now
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Still, officials aren’t confident enough to say achievement of the BOJ’s 2% price target is in sight, pointing to the need for continued monetary stimulus, the people said.
The yen fell and bonds rose after the report. The yield on 10-year Japanese government bonds fell 1 basis point, while bond futures ticked higher.
Governor Kazuo Ueda and his fellow board members will conclude a two-day policy meeting on June 16. Speaking in parliament Friday, Ueda said that recent data appear to show inflation deviating upward from the BOJ’s base case.
The final policy decision next week will be made after assessing economic data and developments in financial markets up until the last moment, the people said.
As the last anchor of global low interest rates, whether the BOJ will decide to pivot away from easing is a key factor that could cause ripples across global financial markets.
T. Rowe Price, BlackRock Inc. and the European Central Bank are among those warning that any policy normalization from the BOJ may send a wave of Japanese cash flowing out of global markets and surging back home.