The Weekly View: Dovish on the Fed, Bullish on Japan
Comment of the Day

January 14 2014

Commentary by David Fuller

The Weekly View: Dovish on the Fed, Bullish on Japan

My thanks to Rod Smyth, Bill Ryder and Ken Liu for their excellent timing letter, posted by RiverFront. 

Moving to Japan, as we wrote extensively last year, Japan’s Prime Minister Shinzo Abe’s economic policies, in addition to the world’s most aggressive central bank easing by the Bank of Japan, have kick-started growth after decades of stagnation and deflation.  This year’s challenge is to incorporate ‘third arrow’ structural reforms to sustain growth with monetary and fiscal initiatives.  We are focussed on: (1) wage hikes that should more than offset consumer tax hikes, driven by 2013 earnings growth of 40% following significant yen weakness; (2) approval of the Trans-Pacific Partnership (Japan is a major partner) – a bipartisan bill to support the President Obama’s ‘trade promotion authority’ is wending its way through congress, and (3) nuclear restarts following regulatory approval that will help reduce Japan’s fuel import bill, lower energy prices, and rebalance trade.  

David Fuller's view

I commend this issue of The Weekly View to subscribers.

FT Money remains optimistic about Japan’s medium to longer-term prospects.  In fact, the surprise is that a version of Shinzo Abe’s economic recovery program announced before his election last year did not emerge considerably earlier.  My biggest concern is over Japan’s energy costs following the Fukushima disaster.  Therefore I am interested to see The Weekly View’s third point above.  We know that Shinzo Abe and many Japanese corporations favour nuclear restarts following regulatory approval but this is a ‘hard sell’ in terms of Japan’s overall population.  Will Abe risk putting this to a vote?  Presumably only if he is sure of winning the vote but I will be pleasantly surprised if this occurs sooner rather than later.  


Meanwhile, Japan’s Nikkei 225 Index (weekly & daily) fell back sharply today.  It would be encouraging if it can hold above 15,000 and it may, given Wall Street’s rally following Monday’s decline.  Moreover, the yen weakened back to 104.24 against the dollar today, after rallying the two previous days.  Japan’s often leading Topix 2nd Section Index (weekly & daily) remains steady, albeit somewhat overstretched in the short-term. 

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