Investment Themes - Japan

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 174 results in Japan
July 12 2021

Commentary by Eoin Treacy

Investors in Japan Stocks Expect Turning Point After Olympics

This article by Gearoid Reidy and Shoko Oda for Bloomberg may be of interest to subscribers. Here is a section:

The Olympics and the success of the vaccine rollout are set to define Suga’s premiership. Suga must face two polls in quick succession after the emergency ends, with his term as leader of the ruling Liberal Democratic Party expiring and a general election set to take place in October or November.

“If the vaccines continue and clear away the uncertainties surrounding the pandemic, that’s advantageous for the government” in the election, Invesco’s Kinoshita said.

John Vail, chief global strategist at Nikko Asset Management Co., said when the Olympics are over and vaccination rates pick up, investors will turn positive as rebounds in industrial production and exports become evident.

“When Japan comes out of this, it’s going to surge,” Vail says of the economy. “A lot of people don’t believe it until they see it. Especially in Japan, people tend to worry first and think about the future later.”

Eoin Treacy's view -

Japan is considered a cheap market with the implicit view that it is cheap for a reason. One of the primary reasons Japan ranged for so long is because company culture changed and prioritised resilience. That’s not just about maintaining higher inventories, it means less leverage and higher cash balances.



This section continues in the Subscriber's Area. Back to top
July 07 2021

Commentary by Eoin Treacy

Email of the day on construction work, supply bottlenecks and Japan

Heard the construction work yesterday, hope you and the family will soon be peacefully settled in!!

A minor update on Japan.

Last year my Japanese portfolio performed well when the Nikkei was up , but this year, having tweaked my portfolio it performs in line with the Topix. Today was typical, percentage wise the Topix was up over double the Nikkei and my portfolio performed very well. Plus I think the Topix index will be the 1st to break it's psychological level of 2,000 before the Nikkei breaks the 30,000 level!! Take a look at the 10-year Topix chart, this year it has formed a perfect pennant, ready to pierce the 2,000 level. I believe the Topix is closer to following the 2nd section than the Nikkei. 

Eoin Treacy's view -

Thank you for your well wishes and this topical email. Our contractor is back again today so I apologise if there is any banging in the background while I record this aternoon.

We bought a newbuild home foreclosure that had been sitting on the market for eighteen months. The builder had gone bust so the final touches on the home were rushed and the kitchen was left unfinished. As far as we can make out the reason the house sat unwanted for so long was the starting price was too high back in late 2019 and the absence of a kitchen was a deterrent. There was also a leak in the dishwasher that led to significant mould growth in the kitchen island so that probably also limited demand.



This section continues in the Subscriber's Area. Back to top
July 02 2021

Commentary by Eoin Treacy

Secular Themes Review July 2nd 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “secular themes review”.

News today that Johnson & Johnson’s vaccine is effective against the delta variant should help to allay fears that the world is about to experience a round of upheaval similar to early 2020.

There is no question that the pandemic has acted as an accelerant. It forced migration and adaption to new conditions in a manner that might otherwise never have happened. Some of those changes will stick, others will fade away.

Everyone seems to think that the pandemic has to mean something and that we will never again get back to normal life. I don’t believe it. The surges back into social activity whenever restrictions are lifted is confirmation that humans are social beings. We crave physical contact and fellow feeling. That’s not going to change, even if we have a better appreciation for it today than since the demise of organised religion.  

As with every other crisis, the liquidity created to deal with the shock will remain in the system for much longer than it is strictly required. Central banks cannot afford to jeopardise the recovery they worked so hard to create. Meanwhile, populations everywhere are impatient for better conditions.



This section continues in the Subscriber's Area. Back to top
June 30 2021

Commentary by Eoin Treacy

Private Equity Gears Up for the Siege of Japan Inc.

This article by Jacky Wong for the Wall Street Journal may be of interest to subscribers. Here is a section:

Private-equity funds have a growing interest in Japan—and are making surprisingly good money there. The scandal at venerable Japanese electronics maker Toshiba could shape up as a test case for just how big the industry can grow in the world’s third-largest economy.

There are no offers publicly on the table for Toshiba, but there is no doubt the company is an attractive target for private equity—especially with management on the back foot after shareholders ousted former Chairman Osamu Nagayama last week. Toshiba had previously dismissed a bid from CVC Capital Partners valuing the company at more than $20 billion, which would have made it the biggest private equity-led buyout in Japan. Activist investors are demanding that management now welcome and encourage interest from potential suitors.

Unlike in the U.S., private equity doesn’t have a big presence in Japan. According to consulting firm Bain, 8% of Japan’s mergers and acquisitions involve private equity, compared with 15% in the U.S. And M&A activities, relative to the size of the economy, are much lower in Japan than in the U.S. or Europe.

But private-equity funds are gearing up to look for opportunities in the country now. Total assets under management in Japan-focused private equity amounted to $35 billion as of September last year, more than double the sum at the end of 2015, according to data provider Preqin. They are now sitting on $14.9 billion of cash. Moreover, a record 80 private-equity and venture-capital funds focused on Japan closed last year, raising $10 billion, says Preqin. Carlyle, for example, raised $2.3 billion for a Japanese buyout fund last year.

Eoin Treacy's view -

$35 billion for acquisitions is a pittance in the market of Japan’s size. The attraction of the market is obvious. Valuations are attractive, corporate leverage is low and cashflows are strong. The added incentive for private equity is the demographic transition.



This section continues in the Subscriber's Area. Back to top
June 22 2021

Commentary by Eoin Treacy

'Value' Label Haunting Japanese Shares Again: Taking Stock

This article from Bloomberg may be of interest may be of interest to subscribers. Here is a section:

As a key “value” market, Japan’s shares have gotten rolled up in the reversal of the reflation trade sparked by the Fed’s hawkish turn last week. The market capitalization of traditional value sectors financials, industrials, energy and materials is about 36% of the MSCI Japan Index, versus around 24% for the U.S. equivalent, according to data compiled by Bloomberg.

With stocks trading higher Tuesday, after a value share rally in the U.S. overnight, it would seem the path for Japanese shares -- at least in the short-term -- is linked to the fate of global reflation bets.

Back at home, the slow vaccination rollout is still a risk especially with the Olympics looming. Only about 6% of Japan’s population have been fully vaccinated, a sharp contrast to other Asian markets like Singapore and Hong Kong, where 35% and 17% of the population have received two doses, according to data compiled by Bloomberg.

“The vaccine rollout is picking up, but risks of a resurgence will increase as Japan lifts the state of emergency and welcomes thousands of Olympic athletes and officials,” wrote Barclays Plc’s Tetsufumi Yamakawa and Kazuma Maeda in a note Friday.

Eoin Treacy's view -

It would be nice to think that Japan’s growing success in vaccinating the population and fighting the pandemic is behind renewed demand in the stock market. Instead, the more likely scenario is there is a swarm of hot money lurching from one asset class to another as perceptions about growth and inflation ebb and flow.



This section continues in the Subscriber's Area. Back to top
June 21 2021

Commentary by Eoin Treacy

China's tech workers pushed to limits by surveillance software

This article from Nikkei may be of interest to subscribers. Here is a section:

In China, technology adoption promises its swelling middle classes an easier, more productive life. But as companies bring productivity-enhancing tools into everyday office life, their efficiency is being channeled, not into leisure time, but into squeezing ever more value from employees.

Just as algorithms have come to govern the workdays of blue-collar warehouse workers at Alibaba Group Holding and food delivery riders for Meituan, elsewhere, white-collar workers are becoming affected by the creep of software-driven management and monitoring into their professional lives.

This is particularly the case in China's tech industry, where rapid technological development, paired with poor labor regulations, has created a potential for labor abuse. The big tech companies themselves, locked in cutthroat competition for new business opportunities, are pioneering these technologies and tools in their own operations. From hiring and goal-setting to appraisal and layoff, productivity-enhancing technologies look to quantify workers' behavior by collecting and analyzing extensive amounts of personal data.

Some scholars warn that some practices can be unethical, invading employees' privacy and burdening them with greater workload and mental stress. Others draw parallels to the fatigue faced by factory laborers during industrial revolutions, where workers chased the pace of machines.

"I felt that I was getting busier and having less time for myself," said the engineer Wang, looking back on his five years at Chinese internet companies.

Eoin Treacy's view -

Asian work culture is not something many in the West are familiar with. Long hours, arriving before the boss and leaving after him are normal work practices. Not taking holiday, an expectation to do whatever is asked and the assumption of absolute loyalty are common characteristics of working in Japan, China, South Korea and elsewhere. When a Japanese newspaper talks about potentially overworking individuals it is worth paying attention. Afterall Japan has a word for being worked to death. (karoshi - death by overwork).



This section continues in the Subscriber's Area. Back to top
June 15 2021

Commentary by Eoin Treacy

June 09 2021

Commentary by Eoin Treacy

Warner-Discovery, French Deal 'Dramatically' Push M&A Up European TV Agenda

This article from the Hollywood Reporter may be of interest to subscribers. Here is a section:

While European broadcasters are still profitable, “and some very much so,” Godard highlighted, “savvy investors believe this is looking suspiciously like the high earnings of printed newspapers circa 2007, or a Wile E. Coyote run over the edge of the cliff. Broadcasters are capturing a declining share of total video audiences and their capacity to finance attractive content is shrinking as talent is bid up by SVOD operators.”

The analyst then outlined two consolidation options that have emerged in Europe.

“The first path — heralded by Bertelsmann RTL Group — would aim at creating national broadcasters with the content scale to operate compelling online platforms” via domestic acquisitions, Godard said, calling this the “possibly more defensive but also more realistic” option.

The second path is “more ambitious but lacking a credible backer,” he argued. It targets “the never achieved idea of pan-European synergies, leveraging increased international appetite for non-English language content” by merging assets across borders, something that the likes of Italy’s Mediaset and Vivendi have talked about. “But its champion, Italy’s Mediaset, lacks capacity to deliver,” Godard concluded.

“The group is already the biggest broadcaster in Italy and Spain and has built a 24 percent stake in Germany’s ProSieben, with the remaining shareholding fragmented,” he explained. “The problem is, if the cross-border strategy is sound, Mediaset may be its worst possible proponent. Besides bringing in strong leadership to its Spanish division, Mediaset never extracted significant synergies from its two Mediterranean units, despite their cultural affinity.”

Eoin Treacy's view -

National broadcasters survive because they have state backing and a captive audience. The value proposition they represent is tied to continued support from governments because they provide domestic language content. That does not transfer well internationally. This map of the 12 most spoken languages in the world suggest the biggest opportunities are in the Chinese, English, Spanish, Hindu-Urdu and Arabic speaking parts of the world. 



This section continues in the Subscriber's Area. Back to top
June 04 2021

Commentary by Eoin Treacy

Secular Themes Review June 4th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.



This section continues in the Subscriber's Area. Back to top
May 21 2021

Commentary by Eoin Treacy

Tokyo Traders See Faster Vaccine Pace Driving Markets Higher

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Looking at Europe, expectations for business sentiment increased when the inoculation rate reaches about 20-30%,” said Masashi Samizo, a senior market analyst at SMBC Trust Bank Ltd. in Tokyo. “Japan is still in single digits, but the trend is clearly accelerating.”

To be sure, vaccinations for professionals in Tokyo still seem far off, with little indication when they might get shots. While Japan has administered just 7 million first and second doses in a country of more than 126 million, compared with almost 60 million in the U.K., the pace has begun to increase as more local authorities in charge of vaccinations start to spin up their programs.

Japanese Prime Minister Yoshihide Suga surprised many earlier this month when he gave a formidable target for the country to achieve 1 million inoculations a day, seeking to finish administering doses to the country’s 36 million over-65s by the end of July. While around 86% of municipalities have said they expect to finish by that date, it’s unclear if the pace, which per capita would match some of the best days in the U.S., is realistic.

But the stock market’s mood has definitely changed for investors like Naoki Fujiwara, the chief fund manager at of Shinkin Asset Management in Tokyo. “It’s starting to feel real, whereas just a few days ago I was wondering when it would begin,” said Fujiwara, who expects the Moderna approval to support the market. “Should vaccination expand in the next month or so, Japanese stocks could rebound strongly again.”

Eoin Treacy's view -

Most of the island nations that successfully limited exposure to COVID-19 by cutting themselves off from the world have lagged in accessing vaccines. That has delayed economic recovery and the reopening of borders. For Japan the question of open borders is particularly pressing since they had hoped for a tourist influx with the Olympics. That missed opportunity is probably the motive force behind vaccination enthusiasm today. 



This section continues in the Subscriber's Area. Back to top
May 07 2021

Commentary by Eoin Treacy

Secular Themes Review May 7th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

After a crash everyone is wary. We all seek to learn lessons from our most recent experience because it is the only way to help us emotionally move past the trauma. Coming out of the pandemic most investors wished they had sold everything at the first sight of virus news in early 2020 and bought everything back again following the crash. Today they are worried that there is another big shock waiting around the corner that will cause a repeat of pandemic panic.

The challenge for investors is less to learn from the most recent mistake but rather to know when to deploy the lessons learned. The best time to be wary about a massive decline is when no one is worried about it. The time to take precautionary action is when it seems like a waste of time and when you are most afraid of giving up on the potential for even better gains. That’s the best time to remember the experience of the crash but the interval of time and the positive reinforcement of experience in an uptrend make it difficult.



This section continues in the Subscriber's Area. Back to top
April 15 2021

Commentary by Eoin Treacy

JAPAN VALUE An Island of Potential in a Sea of Expensive Assets

Thanks to a subscriber for this report from GMO which may be of interest to subscribers. Here is a section:

Successful cost cutting, rising profits and free cash flows, and a corporate culture of risk aversion stemming from the bursting of the Japanese bubble led to an ironic side effect: over-capitalized balance sheets. As Exhibit 4 indicates, over 50% of listed nonfinancial companies are “net cash” today.3 In the U.S., that figure is less than 15%.

Carrying large amounts of cash, especially in a negative interest rate environment like today, is troublesome for shareholders. Equity investors expect companies either to reinvest surplus capital in projects that generate returns above the cost of capital or return it to shareholders so they can reallocate to value-creating investments.

These “lazy” balance sheets have drawn the attention of Japanese regulators and government, two groups that are trying desperately to spark economic growth to help address the pension burden in a country with a declining population and negative yield on government bonds. Furthermore, the Japanese equity market is filled with inefficiencies that offer upside opportunities for patient investors. The number of analysts and investors covering the Japanese market has declined following decades of disappointing returns after the bursting of the 1980s Japanese bubble. Cultural and language differences also have diminished foreign investor interest in Japanese equities.

Eoin Treacy's view -

A couple of years ago Mrs. Treacy was looking for a factory to can Akoya pearl oysters in Japan. There are a small number of companies in the prefecture around Kobe that perform the service but we ran into a recurring problem. They did not have available capacity and would not consider taking on additional customers. The feedback we received was universal, they did not want new customers. 



This section continues in the Subscriber's Area. Back to top
April 01 2021

Commentary by Eoin Treacy

Secular Themes Review April 1st 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 



This section continues in the Subscriber's Area. Back to top
March 24 2021

Commentary by Eoin Treacy

PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia

This article by Wes Goodman for Bloomberg may be of interest to subscribers. Here is a section:

China hasn’t been this frugal in its cash offerings to banks in almost a year.

The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

Eoin Treacy's view -

The PBoC has been quite vocal in stating they do not want a bubble to form. They have very different priorities from the Federal Reserve. China’s administration wishes to preserve social harmony at all costs. In their view that is the only way to ensure the continued survival of single party rule. That means they will prioritise stability over asset price growth in the property or stock markets.

If that means restricting liquidity to the banking sector and curtailing the reach of the tech sector, those are deemed acceptable measures for China. The ChiNext Index is full of smaller companies that purportedly represent high growth. The Index has experienced it largest pullback since the lows and will need to find support soon if the benefit of the doubt is to be given to the recovery.



This section continues in the Subscriber's Area. Back to top
March 15 2021

Commentary by Eoin Treacy

Yields, ETF Buying BOJ Set to Add Flexibility

This article by Yuki Masujima for Bloomberg may be of interest to subscribers. Here is a section:

The basic elements of yield-curve control will probably remain unchanged, with the short-term rate anchored at -0.1% and the BOJ aiming to keep the 10-year JGB yield around 0% -- while allowing fluctuations depending on economic and price developments.

We expect Kuroda to renew the commitment to the 10-year yield range of +/-0.2 ppt around 0%, but -- importantly -- also indicate that temporary moves beyond the range would be acceptable, as long as the effects of monetary easing aren’t disrupted and the yield curve is consistent with economic activity, prices, and financial conditions.

In operational terms, this may mean the BOJ will conduct its JGB purchases with more flexibility -- changing the frequency of the operations and the menu of its purchases, depending on market conditions.

This would help improve the functioning of the Japanese government bond market in terms of price discovery and liquidity -- increasing policy sustainability.

Eoin Treacy's view -

The question investors are likely asking is if the Bank of Japan is willing to loosen its yield curve control bands, do they believe inflation is in fact returning with sufficient vigour to initiate a trend?

One of the primary reasons for the Yen’s strength is because deflation was a surety. The supply might increase but there was no chance of inflation eroding the holding overnight. Meanwhile, the positive current account balance acted as a counterweight to the increasing money supply. If the BoJ is willing to change their perception of inflationary pressures that’s toxic for the Yen.



This section continues in the Subscriber's Area. Back to top
March 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review March 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.



This section continues in the Subscriber's Area. Back to top
February 08 2021

Commentary by Eoin Treacy

Japan's Topix Surges to Highest in 30 Years as SoftBank Gains

This article by Shoko Oda and Komaki Ito for Bloomberg may be of interest to subscribers. Here is a section:

With more than half of the results out in the latest reporting season, more than 68% of companies in the Topix have beaten expectations, according to data compiled by Bloomberg. The Topix forward price-to-earnings ratio is now at 18 times, significantly higher than its five-year average of about 14 times.

Results from the current earnings cycle are pointing toward a major recovery next fiscal year, according to Frank Benzimra, Societe Generale’s head of Asia equity strategy. “Our thesis in Japan is that the market has been quite under-owned for some time, because there was not so much interest on earnings,” Benzimra told Bloomberg Television.

Eoin Treacy's view -

Veteran investors will remember about fifteen years ago there was an argument that Japanese equities would always trade at a higher P/E because of idiosyncrasies with the market. That proved incorrect and valuations have contracted considerably. The market is now a lot more attractive for international investors in search of earnings growth.



This section continues in the Subscriber's Area. Back to top
February 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review February 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “secular themes review”. 

Highlighting secular themes has been a hallmark of this service for as long as I have been a part of it. I first met David Fuller in Amsterdam in 2003. He was giving a talk to Bloomberg’s clients and we went out for dinner that evening. His way of looking at markets, with a focus on suspending ego to see what the market tapestry is telling us, answered all of the questions I had about how to interpret
markets. I felt honoured when he asked me to come work with him a few months later.

The easy way to find secular themes to is to look at long-term ranges. Prices can so sideways for a long time, sometimes decades, and the whole asset class can be forgotten by investors. These kinds of markets need a catalyst to reignite demand. Once that new theme gathers enough pace, prices break on the upside because the supply side is not capable to responding in a timely manner to the new phenomenon. Sometimes that’s because they don’t believe in the new trend, or it may be because they simply do not have the financial wherewithal to expand. As the power of the new catalyst gathers, it takes time for supply to respond and the market will proceed higher until there is a robust supply response. That can take a long time because demand continues to grow as the new theme increases its dominance of investor attention.



This section continues in the Subscriber's Area. Back to top
January 20 2021

Commentary by Eoin Treacy

Deflation Threatens to Push Yen Higher on Japan Real Yield Gain

This article by Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

“Japan’s real yields are high and are rising with deflation underway,” said Tohru Sasaki, head of Japan markets research at JPMorgan Chase & Co. “The real yield gap widening in the negative is very significant. It may eventually drag the yen higher.”

Consumer price growth in Japan excluding fresh food -- a measure closely watched by the country’s central bank -- has been negative or zero since April. Expectations for future inflation -- derived from 5-year breakeven rates -- sit at minus 0.12%. Equivalent U.S. breakevens are at 2.16%, up over 60 basis points and rising since November, as investors bet further stimulus under new President Joe Biden will help reflate the American economy.

Yen at 100
The result is a higher real yield in Japan, where 5-year inflation-protected notes trade around zero versus minus 1.73% in the U.S., increasing the relative attractiveness of the country’s bonds and its currency.

Eoin Treacy's view -

You know you live in a funny reality when a zero or negative interest rate produces a positive real yield. Japan’s deflationary environment has been an abiding characteristic of the market for decades and the vast quantity of debt accrued in that time is a headwind to risk taking, speculation and economic activity going forward. Attempts to reinvigorate the domestic demand story with immigration were beginning to bear fruit ahead of the pandemic. Japan has weathered the storm better than most so it will face less of a challenge in recovering as the world heads towards reflation.



This section continues in the Subscriber's Area. Back to top
January 18 2021

Commentary by Eoin Treacy

Email of the day - on the early stages of a secular bull market.

Until the beginning of last year you often spoke on the theme of the early stages of a secular bull market. David had begun speaking about it as long as 4 years ago. But with the onset of the pandemic, you have been largely silent about it. Has it stalled or, in your view, already peaked?

Eoin Treacy's view -

Thank you for this important question. In October 2008, I remember sitting at my desk and looking at the calculation that the S&P500 was sitting on the widest overextension relative to the 200-day ever. Acceleration is always a trend ending and the crash signalled the beginning of the bottoming process. By the time Wall Street reached its nadir in March 2009 many instruments were well off their lows and by the end of the year the leaders were making new highs.

Gold, commodities, ASEAN and technology took off. Of these, technology is the only one which had uninterrupted staying power all the way through the bull market to date.  

I started writing Crowd Money in 2011. At the time a host of big international companies, with global franchises, that dominate their niches were breaking out of long-term ranges. It was a clear signal that a new secular bull market was underway. By the time the book was published in 2013, it was still a minority view that a new bull market was underway.



This section continues in the Subscriber's Area. Back to top
January 15 2021

Commentary by Eoin Treacy

Carry Trades

Eoin Treacy's view -

There is nothing in the financial markets that can’t be made better with leverage. That’s the foundation most trading operations are based on. One of the most common trade patterns is to source cheap funding in a currency which is depreciating in value. That way when it comes to paying back the loan, you get to keep the profit on the currency trade as well as any gain from the assets you invested in.

Japan’s zero interest rates made it an ideal candidate for carry trades but the propensity for the Yen to strengthen meant that short yen carry trades tended to be rather volatile. It was common in the decade up to the introduction of Abenomics in early 2012 for unwinding of carry trades to contribute to profit taking across global markets.

As interest rates have trended towards zero across the world the opportunity to access cheap funding in a wide array of currencies has never been greater. The challenge today is to find the currency most likely to decline versus assets with high growth and yield potential.



This section continues in the Subscriber's Area. Back to top
December 22 2020

Commentary by Eoin Treacy

How Chinese Chip Giant SMIC Can Evade Trump's Newest Crackdown

This article from Bloomberg news may be of interest to subscribers. Here is a section:

Within the company, engineers are scrambling to assess the fallout and figure out workarounds to secure the equipment it needs, much like Huawei did two years prior, another person familiar with the matter said. At issue is the administration’s focus on drawing a line at 10-nanometer technology, banning the sale of equipment intended for use in more advanced processes. SMIC could conceivably repurpose 80% of older-generation gear to crank out more advanced chips, but that tactic won’t sustain production for the longer term and much depends on how far President-elect Joe Biden decides to take the rules, a third person close to the situation said, asking not to be identified discussing sensitive matters.

“The company has already got critical equipment and materials needed to continue production,” said Xiang Ligang, Beijing-based director-general of the Information Consumption Alliance. “In the past, China wasn’t too sensitive about the technological bottlenecks it has. But now, Beijing is fully aware of the potential damage and is determined to solve these issues.”

Chinese government-backed SMIC, a manufacturer of chips for global names from Qualcomm Inc. to Broadcom Inc., relies on U.S. gear for its longer-term technology road map. While its engineers may be able to sustain research and output in the short run, the latest sanctions basically freeze its capabilities while the industry advances. If a Biden White House takes it to the max, SMIC could be blocked from 7nm or more advanced technology while overseas rivals like Taiwan Semiconductor Manufacturing Co. dominate the market. The heightened scrutiny may also discourage clients leery of dealing with the uncertainty.

Eoin Treacy's view -

Self sufficiency in semi-conductors is a central policy objective for China. It is the basis on which the country seeks to compete with the USA in future. China may be able to do without Australian coal or wine but it has no hope of competing effectively on the geopolitical front without securing the supply line for technology’s basic ingredients.



This section continues in the Subscriber's Area. Back to top
December 04 2020

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review

Eoin Treacy's view -

On November 24th I posted a review of candidates I believe likely to prosper in the emerging post-pandemic market. It was well received by subscribers so I will post an update on my views on the first Friday of the month going forward. That way subscribers can have an expectation that long-term themes will be covered in a systematic manner and will have a point of reference to look back on.

Media hysteria about the 2nd or 3rd waves has not led to new highs in the number of deaths. The success of biotech companies in deploying vaccines means there is going to be a substantial recovery in the economic activity in 2021 and going forward.

The stay-at-home champions saw their sales growth surge in 2020. It will be impossible to sustain that growth rate in 2021. That’s particularly true for mega-caps. One-way bets on the sector are likely to work less well in the FAANGs going forward.



This section continues in the Subscriber's Area. Back to top
November 13 2020

Commentary by Eoin Treacy

Japan's Biggest Profit Beat in Years Seen Boosting Stock Appeal

This article by Kurt Schussler for Bloomberg may be of interest to subscribers. Here is a section:

“The number of positive surprises in first-half results has been greater than expected, so gains in earnings revision should accelerate and we expect more funds to flow in from overseas,” strategists led by Masashi Akutsu said in a note this week.

Eoin Treacy's view -

Japan has come through the pandemic better than most other developed countries. That’s a particularly admirable result considering the large numbers of elderly people in the population. The prospect of a return to growth for the export-oriented portion of the economy has helped to spur interest in the Nikkei-225 over other domestic indices. 

 



This section continues in the Subscriber's Area. Back to top
November 06 2020

Commentary by Eoin Treacy

Japan's Nikkei Hit 29-Year High as Buyers Look Past U.S. Vote

This article by Shoko Oda and Komaki Ito for Bloomberg may be of interest to subscribers. Here is a section:

 

Despite the American election turmoil, both of Japan’s major stock gauges posted their best weekly gains since May. “Since 1980s, if you look at U.S. Presidential election and stocks, you see that stocks will price in any risks before the election, like we saw in September and October when technology stocks corrected,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Once the election is over, there’s a trend for equities to rise with expectations for the next administration.”

Fujito sees a chance for the Nikkei 225 to reach 25,000, as central banks globally eye additional easing measures to stimulate economies. The Federal Reserve left its rates in hold Thursday but opened the door to a possible shift in its bond purchases in coming months, saying that more fiscal and monetary support are needed amid rising Covid-19 infections.

Eoin Treacy's view -

The Nikkei-225 hit a new closing high today and was up in a dynamic manner over the balance of the week. It may be in the process of completing an almost three-year range. The move was led by the market’s big industrials like Nippon Steel and Kobe Steel. The market is betting on infrastructure-led global reflation.



This section continues in the Subscriber's Area. Back to top
September 01 2020

Commentary by Eoin Treacy

What to Watch in Commodities: Buffett, OPEC, Gold, Fed, La Nina

This article by Grant Smith, Anatoly Medetsky and Stephen Stapczynski for Bloomberg may be of interest to subscribers. Here is a section:

Less than a month after making waves with news of a move into Barrick Gold Corp., Buffett is again rocking the world of commodities. This time, Berkshire Hathaway disclosed stakes in five Japanese trading companies that dominate the nation’s energy and raw materials industries. The quintet are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp.

Berkshire’s stakes amount to a little more than 5%, but Buffett made clear that they could be increased. The trading houses are known as “sogo shosha” and have roots dating back hundreds of years. While they operate in areas like textiles and machinery, they derive much of their revenue from energy, metals and other commodities, supplying resource-poor Japan with essentials.
 

Eoin Treacy's view -

Following the commodity bust many investment banks closed trading desks. There were a number of leading commodity trading houses which went through very lean years and even today Noble Group is struggling to get out of bankruptcy. Many of the big commodity traders like Trafigura, Mercator, Cargill and Koch Industries are privately held. Picking up Japan’s big trading houses is a tangential way of playing in commodities for Berkshire Hathaway. It also speaks to the company’s familiarity with pricing the balance sheets of banks rather than commodity producers.



This section continues in the Subscriber's Area. Back to top
August 28 2020

Commentary by Eoin Treacy

BOJ Is Said to See No Change in Policy Stance as Abe Quits

This article by Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section:

While the announcement of Abe’s resignation caused the yen to gain as much as 1% in the evening in Tokyo, the BOJ will continue to closely watch market developments, according to the people. The bank maintains its pledge that it will act without hesitation if necessary, the people said.

With the economy still healing from the biggest contraction in the post war era in the second quarter, an excessively strong yen will put pressure on the central bank to act if sustained. Abe came to power in 2012 pledging aggressive monetary easing and handpicked Kuroda to deliver it. Kuroda soon launched the “shock and awe” monetary bazooka, which increased asset purchases, leading the BOJ’s balance sheet to swell significantly larger than its global peers.

BOJ watchers will be closely monitoring who will replace Abe, because Kuroda is seen to have coordinated well with the government under the premier. The latest symbolic move was a joint statement between Kuroda and the government as the pandemic battered the economy.

Eoin Treacy's view -

Abe was driving force behind the global transition to simultaneous monetary and fiscal stimulus. His policies have been adopted at least in part by a host of countries as interest rates have trended towards zero.



This section continues in the Subscriber's Area. Back to top
July 14 2020

Commentary by Eoin Treacy

Global Macro Outlook: Virus curve flattening, markets stabilizing, slow recovery

Thanks to a subscriber for this report from Deutsch Bank by Torsten Slok. It is loaded with thought provoking charts which may be of interest.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

I found the chart comparing the Swedish and US COVID-19 infection rate to be particularly interesting. It suggests that anything less than total adherence to social distancing, effective testing and contact tracing is ineffectual. That’s a challenge because while some Asian countries have been able to implement these types of protocols swiftly, not least because of their prior experience with SARS, it seems beyond the ability of most countries to do. With cases in Hong Kong and Australia rising it is looking increasingly likely this is going to be a long hard slog until a vaccine is widely available.



This section continues in the Subscriber's Area. Back to top
June 01 2020

Commentary by Eoin Treacy

Japan Inc.'s Cash Stash Grew to 89% of GDP Before Emergency

This article by Yoshiaki Nohara for Bloomberg may be of interest to subscribers. Here is a section:

Corporate retained earnings rose to ¥484 trillion, roughly 89% of the nation’s gross domestic product (GDP) in the three months to the end of March, according to finance ministry data published today.

The extent to which firms tap into this cash hoard will likely be in the spotlight again as the current crisis unfolds, especially for companies that lay off workers.

Policymakers have been doubling down on their support for the economy. Since Abe called a national emergency in early April, his government has put together record stimulus packages worth ¥234 trillion or about 43% of GDP. The Bank of Japan’s special measures total ¥75 trillion.

With Covid-19 threatening jobs and businesses, economy minister Yasutoshi Nishimura in March urged companies to spend their cash savings to cope with the pandemic.

Japanese firms have taken a more cautious stance on spending their income since the global financial crisis with many of them looking to shore up their finances in case of future economic shocks. This conservative stance has drawn criticism from policymakers, namely finance minister Taro Aso, as not being aggressive enough to boost growth through higher wages and investment.

Eoin Treacy's view -

This record of retained earnings stands in sharp contrast to the kind of activity that has been prevalent on Wall Street over the last decade where companies have returned almost all of their net cashflow in the form of dividends and share buybacks. That has left them particularly exposed to the lockdown-induced recession. Generally speaking, Japanese companies are much more conservatively run. That means they don’t take the kinds of big risks technology pioneers do but they do tend to have solid margins.



This section continues in the Subscriber's Area. Back to top
May 12 2020

Commentary by Eoin Treacy

Email of the day on Japanese stocks and 6G:

I hope you and the family are handling the new normal? You certainly seem to, as there has been no decline in your daily's, in fact if anything they are like a good wine, getting better with age/experience.

I have recently checked all the Topix industrial indexes. Virtually all of them look like the majority of most world stock market indexes, except for two,

The Topix Telecommunication Index and the Topix Pharmaceutical Index.

They both compare more to the NASDAQ and one or two other stronger US indexes.

If you remember, late last year I sent you a list of Japanese 5G related companies, some of these are what my portfolio has consisted of most of this year. Many are performing in line with the NASDAQ, but when markets were selling off during March and April I added KDDI and DOCOMO to my list. I came across a DOCOMO white paper confirming their research into 6G!

Unfortunately, I do not have very much experience of the Pharma sector, except for the big names. So, if your collective could offer any ideas it would be much appreciated.

Thanking you in advance.

Eoin Treacy's view -

Thank you for your kind words and for highlighting the above sectors. This report from Sandvine highlights the fact 80% of all internet traffic is occupied by video streaming, gaming and social media. YouTube alone represents 15% while Netflix is 11%.



This section continues in the Subscriber's Area. Back to top
May 11 2020

Commentary by Eoin Treacy

Japan Stocks Rise on Optimism Over Restart of Economic Activity

This article by Min Jeong Lee and Ayaka Maki for Bloomberg may be of interest to subscribers. Here is a section:

“We can’t let our guards down, but the numbers of new infection cases are falling, allowing people to formulate some sort of outlook, which is being welcomed by the market,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. “The market is moving based on a scenario that the June quarter will be a bottom for the economy, followed by a recovery from the September quarter.”

Optimism that economic stimulus measures will help cushion the blow from the virus also buoyed sentiment. The government and the ruling party aim to finalize plans for a second supplementary budget for fiscal 2020 during the current Diet session, the Yomiuri reported.

“The 2 trillion yen being touted is sizable and the government is taking action faster than expected,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute.

 

Eoin Treacy's view -

The easing of lockdowns will allow the economies of the world to get off their knees and hopefully will allow some rationality to come back into public discourse. That’s not a guarantee by any means considering the emotionality in how coverage of the coronavirus is being reported. The equivalent of $200 billion in government supports is not all that large relative to what has been provided by other countries but it is supportive for asset prices.



This section continues in the Subscriber's Area. Back to top
April 28 2020

Commentary by Eoin Treacy

Bank of Japan Looks to Highlight Fiscal-Monetary Double Punch

This article by Toru Fujioka and Sumio Ito for Bloomberg may be of interest to subscribers. Here is a section:

“If you look at what we’re doing from the size of our balance sheet against GDP to our measures compared to the size of the commercial paper and corporate bond markets, the scale of the Bank of Japan’s easing is far larger than any other central bank,” Kuroda said at the briefing.

And

“Impressions matter in this kind of crisis. While the BOJ’s balance sheet is, of course, much bigger than its peers, the response to this kind of crisis is very important. If you look at that, the BOJ hasn’t been as aggressive compared with the Fed,” said Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official.

The additional measures announced by Kuroda’s board do show a greater degree of fiscal-monetary policy coordination, with Prime Minister Shinzo Abe’s administration finally submitting an extra budget Monday for its stimulus of more than $1 trillion.

“The government and the Bank of Japan are truly strengthening policy coordination,” said Japan’s economy minister, Yasutoshi Nishimura, following his attendance at the BOJ decision.

Eoin Treacy's view -

Japan was among the first countries to close schools but then did not move to close down the rest of the economy until quite recently. That has meant the number of cases has continued to rise. The benefit of lockdown early is the time to opening up again is shortened. That suggests Japan is going to have difficulty opening up swiftly.



This section continues in the Subscriber's Area. Back to top
March 06 2020

Commentary by Eoin Treacy

Covid-19 and Global Dollar Funding

Thanks to a subscriber for this edition of Zoltan Pozsar and James Sweeney’s report for Credit Suisse on the plumbing of the global financial sector. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The Credit Suisse team do an excellent job of highlighting where the risks are and provide a handy list of instruments to monitor to get an idea of how liquidity flows are functioning.

The repo market illiquidity in September was a signal to everyone that the tightening program had gone too far. There was nowhere near enough available capital in the system to allow the global money market to function. The Fed stepped in with a large swift injection of liquidity; inflating its balance sheet by $400 billion in four months.



This section continues in the Subscriber's Area. Back to top
February 21 2020

Commentary by Eoin Treacy

Japan Limits Large Gatherings to Thwart Coronavirus

This article by Alastair Gale for the Wall Street Journal may be of interest to subscribers. Here is a section:

Masahiro Kami, an infectious diseases expert, said he was skeptical that the suspension of some public events would have a significant impact on the spread of the virus. “Commuting on a packed train, for instance, is way worse than taking part in the Tokyo marathon,” he said.

Dr. Kami, who heads a nonprofit organization called the Medical Governance Research Institute, said a media focus on the few cases of serious illness from coronavirus infection in Japan had created a panic over the need to cancel events.

While Japan initially had a handful of cases involving people who had come from Wuhan, the center of the epidemic in China, or had direct contact with someone from Wuhan, a surge of cases in the past week included many whose path of infection wasn’t clear. The cases span from Hokkaido in the north to Okinawa in the far south.

More than 1,000 people disembarked from the Diamond Princess cruise ship between Wednesday and Friday, and they entered Japan without restrictions on their movements. All of those passengers tested negative for the virus, but in some cases people have tested positive after a negative test—including two cases reported Friday in Australia, which sent a flight to Japan to repatriate citizens who had been on the ship.

Eoin Treacy's view -

The coronavirus popping up in unrelated areas in Japan is not exactly good news. Additionally, the lax quarantine imposed on the passengers of the Diamond Princess cruise liner greatly increases the potential for the virus to spread even further. At a minimum the potential is for much tighter measures to contain the spread across Japan and other countries. This is also going to create a headache for Abe’s government.



This section continues in the Subscriber's Area. Back to top
January 09 2020

Commentary by Eoin Treacy

China's Steadying Inflation Leaves Door Open for Monetary Easing

This article from Bloomberg News may be of interest to subscribers. Here is a section:

“The PBOC is likely to continue to use interest rate and liquidity tools to loosen monetary conditions in 2020, though the easing will probably be less pronounced than last year,” David Qu, a China economist at Bloomberg Economics in Hong Kong, wrote in a note. “We expect the PBOC to stick to a stance of measured easing to counter the economic slowdown.”

For the year, consumer inflation for 2019 stood at 2.9%, in line with the government-set target of 3%, while producer prices declined 0.3%. Core inflation, which removes the more volatile food and energy prices, stabilized at 1.4% in December, signaling ongoing weakness in the broader economy.

China’s economy has shown signs of recovery in recent months as global demand steadies and trade tensions ease. As commodity prices rise and factories start restocking, PPI deflation is set to continue to moderate and some see it turning positive as soon as January.

Eoin Treacy's view -

The outlook for the Chinese economy represents the lynchpin for the global reflation trade and the prospects of steadying growth and continued stimulus are helping aid in the positivity surrounding the hiatus in the trade war.



This section continues in the Subscriber's Area. Back to top
January 03 2020

Commentary by Eoin Treacy

U.S. Strike Ordered by Trump Kills Key Iranian Military Leader in Baghdad

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

Iraqi Prime Minister Adel Abdul-Mahdi condemned the targeted killing as a violation of the terms underpinning the U.S. troop presence in the country.

Mr. Abdul-Mahdi said he had submitted a formal request for parliament to convene in order to adopt necessary measures “to protect Iraq’s dignity and sovereignty.” He didn’t say what those measures would be.

The killing of the two men is likely to mark the beginning of a dangerous new chapter in the rivalry between the U.S. and Iran, which escalated after supporters of an Iran-backed Shiite militia attempted to storm the U.S. Embassy in Baghdad earlier this week. Mr. Mohandes was deputy leader of the Popular Mobilization Forces, an umbrella group that led the embassy attack.

Eoin Treacy's view -

Anyway we look at it, the geopolitical risk premium just racketed up. Iran’s response to losing the commander of the Revolutionary Guard can be expected to be bloody and will probably splash around the entire region considering how broad Iran’s terrorist network is.



This section continues in the Subscriber's Area. Back to top
December 27 2019

Commentary by Eoin Treacy

Japan's Topix Advances, Set for Best Quarterly Gain Since 2016

This article by Min Jeong Lee and Shingo Kawamoto for Bloomberg may be of interest to subscribers. Here is a section:

Japan’s Topix index advanced, set for its best quarterly gain since 2016, after the latest economic data out of the U.S. indicated the labor market is solid.

Banks contributed most to the benchmark measure’s Friday gains. The Nikkei 225 Stock Average slipped 0.4% to 23,837.72, as 30 of its components traded without rights to receive the next dividend, including Canon Inc. and Japan Tobacco Inc. Next Monday will be the last trading day of the year.

The Topix extended its gain for the quarter to 9.2%, the biggest such increase in three years. Japanese equities have rallied since September, bolstered by signs of easing tensions between the U.S. and China.

U.S. jobless claims fell to a three-week low of 222,000 in the week ended Dec. 21, in another sign of health in the U.S. economy. Major U.S. equity indexes climbed to fresh records Thursday in holiday-thinned trading.

Eoin Treacy's view -

The Yen tends to strengthen when investors are worried and seeking a safe haven. With worries about trade and geopolitics easing, demand for the Yen is moderating and that is helping to stoke demand for equities.



This section continues in the Subscriber's Area. Back to top
December 05 2019

Commentary by Eoin Treacy

Japan Leans on Fiscal Stimulus to Keep Recession at Bay

This article by Toru Fujioka, Yoshiaki Nohara and Takashi Hirokawa for Bloomberg may be of interest to subscribers. Here is a section:

“In any country, the positive impact of extra monetary stimulus is limited, which is especially true in Japan and Europe where rates have turned negative. You have no effective choice but to execute fiscal measures to support growth,” said Harumi Taguchi, Tokyo-based principal economist at IHS Markit.

Earlier in the day, Abe described the stimulus as a three-pillared package designed to aid disaster relief, protect against downside economic risks and prepare the country for longer-term growth after the 2020 Tokyo Olympics.

He said the stimulus would be funded by a supplementary budget for the current fiscal year ending in March, and special measures in the following year. The package outlines 4.3 trillion yen in funding for the measures in an extra budget this fiscal year.

Eoin Treacy's view -

This stimulus helps to unwind some of the negative impact from the sales tax hike earlier in the quarter and is a further iteration of the global surge in fiscal stimulus as the expected positive growth effects of quantitative easing failed to materialise.



This section continues in the Subscriber's Area. Back to top
November 05 2019

Commentary by Eoin Treacy

Abe, Moon Break Ice After Worst Japan-South Korea Fight in Years

This article from Bloomberg may be of interest. Here is a section:

Moon and Abe shared the view that the relationship between South Korea and Japan is important and re-affirmed in principle that issues between the two nations should be resolved via dialogue, the presidential office said in a text message. Abe conveyed Japan’s “basic stance” on bilateral issues in his exchange with Moon, the Tokyo-based Kyodo News agency said separately, citing the Japanese foreign ministry.

The brief, 11-minute meeting at the Association of Southeast Asian Nations summit in Bangkok came as a long-simmering feud escalated into a trade-and-security dispute, leading to boycotts of Japanese imports and the decision to scrap an intelligence-sharing pact. The encounter followed a break-through meeting last month between Abe and South Korean Prime Minister Lee Nak-yon.

Moon proposed high-level talks, if needed while Abe said every effort should be made to resolve the feud, Moon’s office said. Abe last met Moon in September 2018 and passed up a chance to meet him for formal talks during Group of 20 events in Osaka in June.

The remarks were the most positive yet since South Korean courts issued a series of rulings last year backing the claims of Koreans forced to work for Japanese companies during the country’s 1910-45 occupation of the Korean Peninsula.

Eoin Treacy's view -

Six weeks ago sentiment was skewing rather negatively towards the opinion that acrimonious disputes between neighbours like Japan and South Korea, the UK and EU and competitors like China and the USA were going to get worse, a lot worse. Today peace seems to be breaking out globally and that is removing a risk premium from markets.



This section continues in the Subscriber's Area. Back to top
October 29 2019

Commentary by Eoin Treacy

Email of the day on Japanese growth stocks

Several weeks ago, I had the same feeling as you on Japan. For investment purposes I decided to concentrate on Japanese 5G related companies. Ignoring the major telecom co's, I then came up with the following list of companies involved in parts related to the 5G area:

Eoin Treacy's view -

Thank you for this insightful email. One of the factors I believe that is attracting investors to Japan is the fact it has a such a deep pool of companies that provide invaluable components for the growth of the wider global technology sector. The fact they have been underappreciated for so long is justification for investor interest, particularly if global growth is primed for recovery.



This section continues in the Subscriber's Area. Back to top
October 11 2019

Commentary by Eoin Treacy

Japanese Stocks Post First Weekly Gain in Three on Trade Hopes

This article by Shoko Oda and Toshiro Hasegawa for Bloomberg may be of interest to subscribers. Here is a section:

Seeing how the two countries split off back in July, markets may not have had high expectations for this round of talks,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui DS Asset Management. “But a partial agreement now seems probable, with topics like subsidies being shelved for next year.”

Investors are breathing a sigh of relief as they anticipate a partial deal to come after 18 months of negotiations. An earlier report said the White House was looking to implement a currency pact as part of a preliminary deal that could see the scheduled tariff increase next week suspended. China has also said the country was open to a partial deal with the U.S., with plans to offer non-core concessions like purchases of commodities.

“There was a risk that negotiations would be cut short,” said Nobuhiko Kuramochi, the head of investment information at Mizuho Securities Co. in Tokyo. “But with both sides continuing the talks, there’s an expectation that some sort of a mini-deal will come out in the end.”

Eoin Treacy's view -

In many respects Japan is a high beta play on the trade war. As a major exporter it obviously has an interest in a benign international trading environment which allows the free passage of goods. On the other hand, the Yen tends to rally during periods of uncertainty because of its safe have status. That acts as a headwind to the export sector and the nominal price of the stock market.



This section continues in the Subscriber's Area. Back to top
September 27 2019

Commentary by Eoin Treacy

Japan's Topix Set to Beat S&P 500 for First Time in Two Years

This article by Keiko Ujikane for Bloomberg may be of interest to subscribers. Here is a section:

“Japanese stocks underperformed for a long time and their valuations were left as very cheap,” Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management Ltd. in Tokyo. “A correction in cheaper valuation stocks have occurred globally and Japanese stocks are the most prominent example for that.”

September has been good to the Topix, which is set for its best month since October 2015. Up until late August, the gauge was one of this year’s worst-performers among the 24 developed markets tracked by Bloomberg.

Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, says Japan’s market is enjoying a “a typical return reversal.” Foreign investors may be taking profit on U.S. equities, while covering short positions on Japanese shares, he said.

Foreigners net bought 937 billion yen ($8.7 billion) of cash equities and futures in the week ended Sept. 13, according to Japan Exchange Group data. That was the fourth consecutive week of net buying.

Eoin Treacy's view -

The Topix Index (2.43%) currently yields more than the S&P500 (1.93%) which is both reflective of the compression in US yields but also the relatively high historical payout by Japanese firms.



This section continues in the Subscriber's Area. Back to top
September 19 2019

Commentary by Eoin Treacy

Bank of Japan Hints at Possible Action in October

This article by Megumi Fujikawa for the Wall Street Journal may be of interest to subscribers. Here is a section: 

“If I am asked if I feel more favorably about additional easing compared with the previous meeting [in July], my answer is yes,” Mr. Kuroda said at a news conference. “There is no sign of recovery in overseas economies.”

He added, “Even if we consider additional easing, I don’t think it’s necessary to change the current framework” of monetary policy, which includes setting a target yield for 10-year government bonds—currently zero—and buying riskier assets such as stocks.

Inflation has been running below 1% recently, short of the BOJ’s 2% target. The BOJ said in its policy statement that it needs to pay closer attention to “the possibility that momentum toward achieving the price stability target will be lost.”

“It is sort of a notice that the bank is going to take additional easing action,” said Hiroshi Ugai, an economist at JPMorgan in Tokyo and a former BOJ official.

Mr. Ugai said the BOJ would likely move next month, but might hold off if markets are calm or if it is having trouble assessing the impact of an Oct. 1 increase in the national sales tax to 10% from 8%.

Eoin Treacy's view -

The Yen has been weakening since hitting a new rally high in August but today’s announcement and the subsequent market reaction suggests some disappointment at the tepid response of the Bank of Japan. Investors remain of the opinion that the Japanese economy needs a weaker currency to drive competitiveness and are unlikely to support a short Yen/long equity play until they have clear evidence of how large a central bank assistance program will be.



This section continues in the Subscriber's Area. Back to top
September 11 2019

Commentary by Eoin Treacy

Factors or Fundamentals, Quant Tremor Is Field Day for the Geeks

This article by Sarah Ponczek and Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

You wouldn’t know it from benchmarks, but beneath a tranquil surface violent swings are lashing traders along obscure fault lines. Companies like real-estate firms that rose the most in 2019 are plunging, and some that have trailed are being pushed out front. It’s been a mild reckoning for hedge funds and others who have bet on the status quo persisting.

Amid all the churn has been a renewed focus on a quantitative concept known as factor investing, which groups companies not by industry but traits such as how fast their prices move or profits rise. A question gaining currency in the past few days is whether these categories are just handy descriptions of twists in the market -- or are at some level guiding them.

“It seems very mechanical right now,” said John Swarr, investment specialist at Penn Mutual Asset Management, which has $27 billion under management. “If you look within some of these stocks that are being hit the hardest, some are in much better shape than others and yet they’re all being affected similarly,” he said. “It does feel like it’s a rules-based rotation.”

Eoin Treacy's view -

The total of negative yields bonds was at $17 trillion for a brief time at the end of August and has since contracted to $14.3 trillion. That’s a big more in a little less than two weeks.

The failure of the German government to sell a full allocation of bonds and failed auctions at the US Treasury in August were probably the catalysts for sapping investor demand for bonds globally. The unwinding of leveraged long positions now has the scope for meaningfully move bond yields higher with clear upward dynamics evident across multiple markets.



This section continues in the Subscriber's Area. Back to top
August 02 2019

Commentary by Eoin Treacy

Japan-South Korea Feud Boils Over Amid Trade Actions, Protests

This article by Isabel Reynolds and Sam Kim for Bloomberg may be of interest to subscribers. Here is a section:

South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.

U.S. Secretary of State Michael Pompeo met his counterparts from both countries Friday, but the dispute, which simmered for months as the Trump administration sat on the sidelines, looks set to worsen amid protests, boycotts and economic warnings. “By bringing economic sanctions, they’ve really escalated it to another level,” said Robert Dujarric, director of the Institute of Contemporary Asian Studies, Temple University, Japan. “This isn’t going to make South Korea cave in. If anything, it heightens South Korean nationalism. It makes it harder to de-escalate and harder to have a ‘united front’
against China.”

Eoin Treacy's view -

Japan and South Korea compete in many of the same export markets and their rivalry had previously been contained by the global trade network but the historical enmity between the two countries is never far from the surface. The advent of trade wars, mercantilist competition and shifting loyalties is introducing a degree of uncertainty in the region that hasn’t been seen in decades.



This section continues in the Subscriber's Area. Back to top
February 19 2019

Commentary by Eoin Treacy

Kuroda Says Stronger Yen Could Force BOJ's Hand on Stimulus

This article by Henry Hoenig for Bloomberg may be of interest to subscribers. Here it is in full:

In a rare explicit coupling of policy and the yen, Governor Haruhiko Kuroda said the Bank of Japan would have to consider additional stimulus if the exchange rate affected Japan’s inflation and economy.

He was responding to a lawmaker’s question about the BOJ’s options if the yen rose further. The yen fell afterward, trading at 110.70 versus the dollar at 1:29 p.m. in Tokyo.

Former BOJ officials have warned in recent weeks of more yen strength, saying there would be little the BOJ could do about it.

Speaking to parliament on Tuesday, Kuroda said the BOJ’s options included lowering bond yields and increasing asset purchases. He told lawmakers that currency manipulation isn’t a goal of BOJ policy, but Japan’s trading partners might not be convinced if the BOJ does act to offset a stronger yen.

Eoin Treacy's view -

This is a very good example of the central bank talking the Yen down. It doesn’t have to initiate a large sale of Yen to weaken it but it does sent a clear message to the market that the flash rally posted at the beginning of the year is not something they are going to sit idly by and tolerate. 



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.



This section continues in the Subscriber's Area. Back to top
November 23 2018

Commentary by Eoin Treacy

Japan's Inflation Stalls at 1% as Risks to Price Gains Gather

This article by Yuko Takeo for Bloomberg may be of interest to subscribers. Here is a section: 

Slow but steady improvement in Japan’s core inflation gauge has come to a halt as a host of forces gather that could see price gains begin to slow.

Consumer prices excluding fresh food rose 1 percent in October from a year earlier, as expected by economists. That’s just half way to the Bank of Japan’s 2 percent target with the prospect of falling energy costs and lower charges from mobile-phone carriers pointing to weaker price growth ahead.

Eoin Treacy's view -

The decline in oil prices is a significant benefit for consuming nations like Japan, India and China. In that regard it is disinflationary rather than an outright drag on the economy. Nevertheless, Japan needs inflation so companies can regain pricing power and promote more dynamism in the economy.



This section continues in the Subscriber's Area. Back to top
October 25 2018

Commentary by Eoin Treacy

Japan's Record Shorts Hint Stocks Have Finally Bottomed

This trading note from Bloomberg may be of interest to subscribers. Here it is in full:

Japanese stocks may have finally bottomed after the ratio of short bets on shares trading on the Tokyo Stock Exchange climbed to a record high. Spikes in bearish bets indicate extreme pessimism and can lead to a short squeeze if stocks rebound, driving up prices further. When the ratio reached near current levels in March, it marked the start of a 9 percent rally over the next two months for the Topix index. The gauge has since lost all those gains and is trading near a one-year low amid growing concerns over upcoming corporate earnings and a slowdown in China’s economy.

Eoin Treacy's view -

The Nikkei-225 broke below the trend mean in a dynamic manner this morning in sympathy with the wider corrective phase evident on major stock markets globally.



This section continues in the Subscriber's Area. Back to top
October 25 2018

Commentary by Eoin Treacy

Long-term themes review October 4th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



This section continues in the Subscriber's Area. Back to top
October 10 2018

Commentary by Eoin Treacy

Email of the day on Japan

Greetings from Japan. You have observed that this country seems to be opening up to foreign workers to offset its demographic decline. Indeed, most restaurants and convenience stores employ Asians nowadays. However, as you know, Japan is an insular, monocultural country and there is a great deal of resistance to immigration. Having lived here for over 30 years I'm convinced that the cultural shock of absorbing huge numbers of foreign workers will be too much for Japanese society. I'm therefore encouraged to hear that the government intends to be very selective over which countries' nationals it intends to accept. Those which refuse to take back their nationals if Japan wishes to expel them will not be considered, Iran being one example cited. Hopefully, this indicates that the government has taken the abject lessons of Europe on board and will be stringently selective, including cultural and religious factors in deciding their eligibility. You have also mentioned that immigrants will boost the economy through their spending. I doubt this, as many will be low-skill workers who will be intent on sending as much of their earnings as possible back home rather than on buying furnishings and goods for their small, rented accommodations.

Eoin Treacy's view -

Thank you for this insightful email and I agree it is going to be a massive culture shock for Japan to absorb large numbers of migrants but it is also true that those people have to live. The big question about projections for future spending will rest on the argument for family reunifications. Children are expensive and spur spending. Meanwhile Japan has a declining birth rate and needs young people. The insular nature of Japanese society may attempt to avoid that solution and instead adopt a similar policy to Dubai where it is impossible to retire in the emirate so when the work runs out you have to leave.



This section continues in the Subscriber's Area. Back to top
October 03 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 



This section continues in the Subscriber's Area. Back to top
September 27 2018

Commentary by Eoin Treacy

Trump Is Looking for Quick Fix in Japan Talks, Abe Ally Says

This article by Connor Cislo and Emi Urabe for Bloomberg may be of interest to subscribers. Here is a section:

Abe and Trump agreed to open limited bilateral trade talks. Japan had resisted U.S. efforts at a more comprehensive bilateral trade deal, saying it preferred that the U.S. return to the TPP.

The two leaders agreed to work to increase car production and auto-related jobs in the U.S., and that Japan wouldn’t be pressed to offer better access to its agricultural markets than it did under the original TPP. Trump also agreed not to place tariffs on imports of Japanese cars while the talks are taking place. The talks, limited to trade in goods, are aimed at seeking to "produce early achievements," according to a joint statement released by the White House.

Amari also said Trump’s focus on selling autos in Japan is misplaced, noting that Japan does not levy tariffs on auto imports, unlike the U.S. He said Japanese consumers simply don’t want American cars, making talks on the subject "pointless."

As Trump takes on China’s trade practices, it’s still possible that he brings the U.S. back to the TPP, given that it addresses many of the U.S. concerns -- such intellectual property theft, forced technology transfers and state-owned enterprises, Amari said.

"But that’s just my modest hope," he said. "I’d put the odds at less than 50 percent."

Eoin Treacy's view -

The Japanese market has been outperforming its developed market peers over the last couple of weeks as the Nikkei-225 broke upwards from its range between the trend mean and 23000 that persisted between May and September.



This section continues in the Subscriber's Area. Back to top
September 20 2018

Commentary by Eoin Treacy

Best Week in Two Years Leaves Japan Stock Bulls Feeling Redeemed

This article by Min Jeong Lee and Keiko Ujikane for Bloomberg may be of interest to subscribers. Here is a section:

A deeply-rooted “misperception” that the Japanese economy will give way to deflation and lead to an eventual collapse of local equities has been a drag, keeping investors blind to positive developments, according to Musha. Most recently, belief that Japan will be crushed in the escalating trade conflict between the U.S. and China has propelled bearish views, he said.

Japan’s economy grew at the fastest pace in more than two years during the second quarter, as companies cranked up capital spending to meet global demand and cope with a severe labor shortage. Growth is expected to slow during the second half but remain steady well into 2019, when a sales-tax increase slated for October will pose a challenge to consumers.

The better than expected 11 percent jump in July core machinery orders helped highlight that robust capital expenditure is Japan’s driving growth, according to Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd. In London. This is one factor that stock bears may have been missing and could prove to be a catalyst for a rebound, he said.

Eoin Treacy's view -

There are three points that are worth keeping mind with regard to the Japanese market. The first is the Bank of Japan is still engaged in quantitative easing and is actively buying stocks. The second is the economy is doing well with low unemployment and a high participation rate. The third is valuations are not demanding and compare favourably with both Wall Street and Europe.



This section continues in the Subscriber's Area. Back to top
September 18 2018

Commentary by Eoin Treacy

See Food: Why Robots Are Producing More of What You Eat

This article by Natashe Khan for the Wall Street Journal may be of interest to subscribers. Here is a section:

Food manufacturers have been early adopters of new technologies from canning to bread slicers, and vision automation has been used for many years for tasks such as reading bar codes and sorting packaged products. Leaders now are finding the technology valuable because robot eyes outpace the human eye at certain tasks.

For years, Tyson Foods Inc. used sensors to map chicken fillets so they could be cut to the precise specifications required by restaurant customers that need them to cook uniformly. But exposure to the high pressure, high temperature water there kept causing equipment failures.

Now technical improvements, tougher materials and declining prices mean the company can integrate vision technology in facilities including the new $300 million chicken-processing plant in Humboldt, Tenn., said Doug Foreman, who works in technology development at the Springdale, Ark.-based food company. The technology could help optimize the use of each part of the bird, he added.

Eoin Treacy's view -

Robotics, artificial intelligence and computer vision all need to work seamlessly together in order for computers to fulfil the same tasks as humans. Creating systems that work together in such a manner is a time-consuming process but progress has been underway for decades and the breadth of what is now possible has improved considerably.



This section continues in the Subscriber's Area. Back to top
September 17 2018

Commentary by Eoin Treacy

Shinzo Abe's quiet social revolution

Thanks to a subscriber for this article by Hiroshi Marutani for Nikkei may be of interest to subscribers. Here is a section: 

In his second stint as prime minister, Abe seems to have finally understood the secret to the LDP's longevity: an all-engulfing pragmatism. Reality over ideals. This has been clearest in Abe's decision to expand acceptance of foreign workers. Under Abe's administration, the number of foreign workers has almost doubled to 1.3 million. Laborers from China, Vietnam and the Philippines have poured into Japan to fill gaps in the health care, construction "With the economy performing so well, it is becoming apparent that hiring is tight," Abe told Nikkei. "Worker shortages are starting to hamper a variety of fields."

The ills of a shrinking population were hardly noticeable during the country's long deflationary spiral. But after growth returned in 2013, businesses began to shout their concerns about a smaller workforce.

"Nursing facilities, for instance, have a severe lack of hands," said Abe, whose recognition of the issue has been heavily shaped by Yoshihide Suga, his chief cabinet secretary since 2012.

Suga realized the need for more workers in nursing facilities last fall, when local caregivers raised the issue with him and requested foreign staffers. He gathered officials to look into the problem and was told that there was adequate manpower.

Eoin Treacy's view -

The number of foreigners we have encountered in Japan during two trips in the last 18 months was a surprise. The second surprise were the number of women doing jobs that require hard physical labour such as delivering beer kegs or porting luggage. These are just two anecdotal pieces of evidence that highlight how much Japan’s society has changed over the last few years under Abe.



This section continues in the Subscriber's Area. Back to top
August 29 2018

Commentary by Eoin Treacy

What is behind the Bank of Japan's ETF buying surprise?

This article by Leo Lewis for the financial Times may be of interest to subscribers. Here is a section:

As well as its day-to-day predictability, the programme invited running assessments of how much the BoJ might spend month to month. Since its target for the year was clearly stated, it was possible to calculate how far ahead or behind the implied pace it was. In early July, for example, analysts noted that over the first 124 trading days of the 245-day trading year, the BoJ had bought ETFs that annualised at a pace of ¥7tn — or ¥1tn ahead of target.

Because of that, Travis Lundy, an analyst who publishes research on Smartkarma, said that given the extent to which the BoJ had adjusted its buying patterns over the past seven years, it was premature to arrive at the conclusion about stealth tapering after the results of just a few August sessions.

“While there is a little bit of stretch in what has often been deemed a trigger, for the moment the BoJ is still buying at a ¥5.7tn-yen-a-year pace, which is the stated policy aim,” he said.

Eoin Treacy's view -

The size of the Bank of Japan’s balance sheet continues to expand but the pace of the expansion has moderated over the last year. It is that slowing in the pace of balance sheet expansion which has given rise to the contention the central bank is engaged in a stealth taper.



This section continues in the Subscriber's Area. Back to top
August 14 2018

Commentary by Eoin Treacy

Eoin's personal portfolio August 10th 2018

August 07 2018

Commentary by Eoin Treacy

Bonuses Push Up Pay for Japanese Workers Yet Spending Falls

This article by Connor Cislo for Bloomberg may be of interest to subscribers. Here is a section:

Driven by the tightest labor market in decades, wages in Japan have grown steadily since mid-2017, and even real wages are starting to pick up. That’s welcome news for the Bank Japan, which recently adjusted monetary policy in an effort to make its easing program more sustainable. If households become convinced that pay hikes will keep coming, they’ll be more willing to increase spending, which will drive further price increases and economic growth. The problem is that employers favor pouring pay hikes into bonuses, which can be taken away, rather than permanent increases in wages.

Eoin Treacy's view -

Employers are paying higher bonuses but are so far demurring from committing to higher wages. However, continued tightness in the labour market, rising participation rates and the breakout in wage growth suggests the trajectory of higher wage growth is a medium-term consideration.



This section continues in the Subscriber's Area. Back to top
August 02 2018

Commentary by Eoin Treacy

Corporate Japan's capital spending plans reach 38-year high

Thanks to a subscriber for this article by Jun Watanabe for Nikkei’s Asian Review. Here is a section:

The latest survey shows manufacturers boosting capital expenditures by 27.2%. This is due in large part to investment and research and development outlays for electric vehicles, on top of redesigns. Extending ranges for electric autos requires development of better batteries and other onboard components. On that front, chemical and electric machinery makers are expected to step up their own investments.

For the nonmanufacturing sector, spending is forecast to rise 18.5%. In addition to urban construction projects, contractors are building massive logistics centers to handle a surge in online orders. Construction starts for hotels remain high ahead of the 2020 Tokyo Olympics.

For the first time in its survey, the DBJ asked companies about the impact of labor shortages. About 60% of nonmanufacturers said a lack of workers is hindering business development. Furthermore, they see the situation growing worse three years down the road. The DBJ expects this to drive more labor-saving investments among retailers and wholesalers.

Eoin Treacy's view -

Japan is booming and labour-saving investments are not going to overcome the lack of available workers. There are now almost as many women in the work force as men. Meanwhile, the reality on the ground is that the country has opened the doors to foreign workers and that means more demand for just about everything since new arrivals have to start from scratch.



This section continues in the Subscriber's Area. Back to top
July 24 2018

Commentary by Eoin Treacy

Japanese markets unsettled on reports that the Bank of Japan will discuss policy change

Thanks to Niru Devani for this report and commentary.

Here is an excerpt from the article posted on Bloomberg on reports that the Bank of Japan will discuss policy change at its meeting next week.

A dramatic day for Japan’s debt market saw yields surge on media reports of possible changes to the nation’s ultra-loose monetary policy, spurring the central bank to offer to buy an unlimited amount of bonds.

The yield on 10-year government securities soared as much as six basis points to 0.09 percent, its biggest increase in almost two years, pulling the yen higher and weighing on stocks. While the yield came down after the purchase offer by the Bank of Japan, it then bounced back to just one basis point below the day’s high.

Any change to BOJ’s stimulus would be the first since 2016 when it introduced control of the yield curve in a bid to manage the impact of its bond purchases and negative interest rates. Still, profits for banks and bond traders continue to be depressed, with reports from Reuters, Asahi and Bloomberg suggesting that officials are debating ways to further mitigate the side effects.

Eoin Treacy's view -

Niru Devani’s view

In response to a spike in yields, the Bank of Japan said it would purchase an unlimited amount of 10-year Japanese government bonds if the yield hit 0.110 per cent, above the 0% to 10% range it set in 2016 to support economic growth and raise inflation. It is worth pointing out that it is rare for the Bank of Japan to use such a mechanism to stabilise the bond market and seems to be the latest sign that loose monetary policy globally could be coming to an end. 



This section continues in the Subscriber's Area. Back to top
July 17 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



This section continues in the Subscriber's Area. Back to top
July 17 2018

Commentary by Eoin Treacy

One in ten Tokyoites in their 20s are now foreigners

Thanks to a subscriber for this article by Kanako Watabe for Nikkei Asian Review. Here is a section:

Among 20-somethings living in Japan's capital, one out of 10 are foreign-born, reflecting the rapidly shifting profile of the country's working population.

Throughout Japan, foreigners in their 20s numbered 748,000 at the beginning of the year, or 5.8% of the total, the government reported Wednesday. The figures exclude foreign nationals that are here for short stays, and typically include those with residency credentials staying for over three months.

In all, the country's population of non-Japanese residents grew 7.5% to a record 2,497,000 people. Many of them live in Tokyo, with the largest portion -- around 42,000 -- housed in the city's Shinjuku ward.

At 3 p.m. on weekdays, Shinjuku's government offices are jam-packed with people filling out moving notices and other forms. Over half of those waiting in line are young people of non-Japanese descent, and a mixture of English, Chinese and other languages fills the air. More than 40% of the foreigners are 20 years old.

While Shinjuku's native-born residents in their 20s shrank 7% over five years, the number of foreigners in the ward soared by 48%. One convenience store near JR Shinjuku Station has hired a 31-year-old Chinese woman. "The store wouldn't run if I'm away from my shift," she said.

Eoin Treacy's view -

One of the most widely repeated objections to Japan’s ability to reform and growth is its reluctance to absorb young immigrants who have been engines for demand elsewhere.



This section continues in the Subscriber's Area. Back to top
July 16 2018

Commentary by Eoin Treacy

Long-term themes review June 22nd 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.



This section continues in the Subscriber's Area. Back to top
July 06 2018

Commentary by Eoin Treacy

Japan's Wage Jump Offers Fuel to Ignite Stalled Consumption

This article by Yoshiaki Nohara for Bloomberg may be of interest to subscribers. Here is a section:

The figures come at a critical time for Japan’s mission to generate stable inflation. Price growth has softened in recent months and household consumption continues to show signs of weakness. Separate data released Friday showed household spending slid 3.9 percent in May from a year earlier.

Atsushi Takeda, chief economist at Itochu Corp., says strong gains in wages will be needed for many more months before consumption is likely to show a response.

"There’s no question that wages are improving," he said, commenting on the latest figures and citing the results of annual wage negotiations earlier this year. "But people need a substantial period of wage gains to be convinced that wages will keep rising."

The gain in overall wages was partly attributable to a 15 percent jump in bonus pay that reflects continued strength in Japanese corporate earnings.

Eoin Treacy's view -

Japan has a tight labour market, where more women are being encouraged into the workforce and the number of immigrants is rising as jobs go unfilled. Bonuses are not enough to stoke consumerism because they are by nature a one-off event so persistent wage gains will probably be required to stoke consumer demand.



This section continues in the Subscriber's Area. Back to top
June 21 2018

Commentary by Eoin Treacy

Long-term themes review May 16th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



This section continues in the Subscriber's Area. Back to top
June 15 2018

Commentary by Eoin Treacy

Japan's coming Golden Age of Activism

Thanks to a subscriber for this report from Jeffries which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

Long-term trends change the fundamentals of a market and Japan is one of the most relevant examples of that in the world today. The deflationary environment has prevailed for so long that that I am reminded of the quip from the commodity markets “those who know it best, love it least because they have been disappointed the most”.



This section continues in the Subscriber's Area. Back to top
June 04 2018

Commentary by Eoin Treacy

Email of the day on evidence of immigration in Japan:

I believe this does rather endorse your view. Also, my father in law a farmer in Shikoku has told me about many Chinese farmers on their Island!

Different subject, but I heard recently pearl exports this year are up in the region of 100%, your wife has obviously started a major new trend!

Eoin Treacy's view -

Thank you for this informative email and interesting article. My wife’s pearl business, my children’s love of anime and mange and my optimism about the recovering economy created a trifecta of reasons for our original trip and return visit in April.

The biggest takeaway for me is the number of foreign workers we have encountered. In one of the world’s few remaining mono cultural societies that was a true surprise. Here is a section from the Nikkei Asian review article

The demand for construction workers is intensifying before the 2020 Olympics, and Hoang is one of the 274,000 foreign workers in Japan on a government-backed trainee program that has become a back door for foreign unskilled workers who would otherwise not be allowed in. Started in 1993, the program has boomed in recent years -- and is one reason that the number of foreign workers in Japan has nearly quadrupled over the last decade.

Led by an influx of workers from China, Vietnam and the Philippines, Japan is in the midst of a quiet revolution when it comes to immigrant workers. Though the total number of foreign workers in Japan is small compared to the more than 3 million in the U.K. and Germany, it is catching up rapidly -- a remarkable shift for a nation famous for resistance to immigration.

Without fanfare, Prime Minister Shinzo Abe has steadily loosened Japan's once tightly controlled visa policy, resulting in an almost doubling of the number of foreign workers in Japan to 1.28 million over the last five years. In its latest move, Abe's government is expected to create a new class of five-year work permits for unskilled workers in hopes of attracting more than 500,000 new overseas workers by 2025. The new guidelines, to be finalized in June, will ease language requirements for foreign workers in construction, agriculture, elderly care and other sectors that are suffering the most serious labor shortages. It will also be possible for trainees to extend their stay for up to 10 years.



This section continues in the Subscriber's Area. Back to top
May 15 2018

Commentary by Eoin Treacy

Long-term themes review April 10th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



This section continues in the Subscriber's Area. Back to top
May 10 2018

Commentary by Eoin Treacy

BOJ Board Members Stress Need for Prolonged Monetary Easing

This article by Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section:

One board member said the bank needs to make it clear that there is no change in its commitment to fulfill the objective as soon as possible, according to the summary, which don’t identify who said what. Kuroda said the BOJ will continue easing “very persistently” at a press conference following the policy decision.

BOJ’s updated price forecast for four years through fiscal 2020 was also released on April 27, showing no board members see inflation rising above 2 percent in a stable manner.

“In order to continue with powerful monetary easing, the bank needs to constantly consider enhancing its sustainability while aiming to gain consensus among the public on the necessity of the price stability target,” one board member said.

One member said an early rate hike would result in multiple adverse effects, including falling bond and stock prices, while a stronger yen would cut into corporate profitability.

Eoin Treacy's view -

Real Estate prices are the primary drag on inflation from the latest BoJ report. That is perhaps not so surprising with a shrinking population. However, the other point that needs to be borne in mind is that job openings are rising, labour force participation is high and wages just broke out. Against this background the BoJ is not going to be removing stimulus any time soon and may even increase it.



This section continues in the Subscriber's Area. Back to top
April 26 2018

Commentary by Eoin Treacy

Draghi Insists Outlook Is Solid as ECB Skirts QE Debate Again

This article by Alessandro Speciale for Bloomberg may be of interest to subscribers. Here is a section:

The central bank’s quest to restore sustainable inflation of just under 2 percent has been complicated by data suggesting that the euro area’s strongest growth in a decade may be faltering. As well as waning industrial output and deteriorating business confidence, the threat of a global trade war is hanging over Europe’s export-oriented economy.

“Incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro-area economy,” Draghi said. “The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2 percent over the medium term.”

Eoin Treacy's view -

Mario Draghi’s statement “An ample degree of stimulus remains necessary.” Is what the market was expecting. The ECB and Bank of Japan remain the primary providers of liquidity to the global economy so when they eventually begin a process of quantitative tightening is likely to be an important catalyst for liquidity fueled uptrends.



This section continues in the Subscriber's Area. Back to top
April 24 2018

Commentary by Eoin Treacy

Email of the day on Japanese Banks

Eoin Treacy's view -

Thank you for your kind concern and this educative email. I checked the data on Bloomberg and there is very little variation with what you quoted.

The Dollar has been on a downward trajectory for most of the last two years but is now in receipt of some respite not least because the interest rate differential has moved in its favour and yields are testing the psychological 3% level. Against the Yen it has now unwound its oversold condition relative to the trend mean so this is a level where investors will be asking whether the rebound has the legs to keep going.



This section continues in the Subscriber's Area. Back to top
April 17 2018

Commentary by Eoin Treacy

Email of the day on the underperformance of the Topix 2nd Section Index

I have noticed re the Japanese charts that the Topix second section now seems to be leading on the downside having broken through the 7000 level. Should this be a concern?

Eoin Treacy's view -

The Topix 2nd Section was a topic of conversation at The Chart Seminar over the last few days.

It has been a reliable lead indicator for the market for as long as I can remember and it will need to bounce soon to confirm support in the region of the trend mean.



This section continues in the Subscriber's Area. Back to top
April 06 2018

Commentary by Eoin Treacy

Japan Trip Report

Eoin Treacy's view -

My daughters love visiting Japan. They adore anime and manga, and no they are nor the same thing, I’ve been reminded more than once. They love the cutsie culture coupled with the storytelling and fact that a lot of the topics covered are more mature in nature than they would be conventionally exposed to at home.

In my 10-year old’s class there are two things that every child, regardless of background, intelligence or wit loves; slime and squishes. Slime has turned every girl in the nation into a chemist and our house is full of the products my daughter has concocted from mixing varying quantities of Elmer’s glue and borax and lotion. I’m really hoping that one is a phase, the stuff is gross to my eyes. The other thing they love are Squishies. These are what many of us might think of as stress balls. The most popular are Japanese because they are of higher quality and return to their shape slowly. If you can bare it simply plug Squishies into YouTube.

Squishies, anime and manga, robotics and a range of other genres highlight the fact that Japan is still capable of capturing the imagination of popular culture. Against that insight more than a few people told me that the country is managed for old people. It is a common sight to see nonagenarians being wheeled around by their sexagenarian offspring. Massage and pain treatment for backs, necks and knees are some of the most common store fronts. Something politicians and the general public are only beginning to get grips with in Europe and North America is that older people are reliable voters and are jealous of their pensions and senior perks.



This section continues in the Subscriber's Area. Back to top
April 04 2018

Commentary by Eoin Treacy

The Bank of Japan Steps Up With Record Buys of Local Stocks

This article by Min Jeong Lee and Toshiro Hasegawa for Bloomberg may be of interest to subscribers. Here is a section:

"If it hadn’t been for the BOJ’s ETF buying, the Nikkei 225 would have breached 20,000," said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd in Tokyo. "For investors, March was a month to reduce exposure to Japanese equities."

The BOJ bought 1.9 trillion in ETFs in the first quarter, which is 32 percent of its annual purchase goal. To be sure, Kuroda has said that the target isn’t set in stone at exactly 6 trillion per year, and annual purchases don’t necessarily have to be measured from January to December. On Tuesday, Kuroda said the central bank is discussing how to eventually exit from its massive monetary stimulus but that it’s still too early to reveal details.

Not that long ago, many investors expected the BOJ to join the global trend toward stimulus tapering by reducing ETF buying this year. That came after the Topix and the Nikkei 225 soared to their highest levels in a quarter century. But then the market slumped, and the situation changed.

Foreigners have muddied the picture, dumping Japanese equities as the yen gained to a 16-month high against the dollar. They yanked almost 8 trillion yen from cash equities and futures in the first quarter alone, according to data through March 23. Suddenly, not many people are expecting a BOJ taper anytime soon.

Tatsuya Oguchi, chief executive officer and president of Franklin Templeton Investments in Japan, says the BOJ won’t rush to alter its ETF purchases.

"Obviously, the BOJ has to stop buying at some point," Oguchi said. But "I think we have to wait until the Tokyo Olympics” in 2020, he said. “The BOJ won’t change their policy at least for another two three years."

Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo, agreed. “Of course, they won’t cut back," Ishigane said. Like the others, he doesn’t expect the bank to increase the target, either. "The BOJ would buy more if they could stop the market from falling, but it knows that it can’t."

Eoin Treacy's view -

Bank of Japan buying of stocks represents a powerful tailwind for the market. Both the Bank of Japan and the Swiss National Bank have been actively buying shares, in addition to bonds, in an effort to promote inflation. This policy has the added benefit of the central bank gaining interests in tangible assets with no fixed maturity dates. Dividend growth potential then offers at least a partial inflation hedge to central banks they might not otherwise have had.



This section continues in the Subscriber's Area. Back to top
March 28 2018

Commentary by Eoin Treacy

Hedge Funds Short Dollar-Yen Stare Down Fiscal Year Squeeze

This article by Michael G. Wilson and Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

Just as hedge funds pile into wagers betting on dollar-yen weakness, signs are emerging that the pair is poised for a resurgence in Japan’s new fiscal year.


The greenback’s failure to break below 104.50, seen by major Japanese banks as a key barrier amid a congestion of buy orders, is pointing to a potential bottom for the widely traded cross. That’s bad news for speculators that suddenly turned bearish for the first time in almost a year this month as an escalation in global trade tension and a domestic political scandal spurred demand for Japan’s haven currency.


The culmination of the country’s fiscal year this week -- which has historically capped dollar strength amid repatriation flows -- month-end fund rebalancing and easing trade tensions are creating the conditions for a dollar bounce against the yen, according to traders and strategists. The rebound looks to have already begun, with the pair climbing as high as 106.41 Wednesday as Japanese importers were seen selling the domestic currency.


“With Japan’s new fiscal year starting shortly, I expect a certain degree of yen selling flows to emerge,” said Tohru Sasaki, head of Japan markets research of JPMorgan Chase & Co. Flows related to the start of the fiscal year could push dollar- yen upward toward the 111 to 112 area, he added.

Eoin Treacy's view -

The Dollar has been among the weakest currencies in the world so far this year, amid widespread angst about the implications of fiscally profligate policy on the value of the currency. However, the USA is also raising interest rates and that interest rate differential is beginning to be meaningful, particularly as LIBOR rates for short-term paper advance.



This section continues in the Subscriber's Area. Back to top
March 22 2018

Commentary by Eoin Treacy

Long-term themes review March 7th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.



This section continues in the Subscriber's Area. Back to top
March 12 2018

Commentary by Eoin Treacy

Japan Scandal Gives Fresh Boost to Yen Bulls Eyeing 100 Mark

This article by Masaki Kondo and David Finnerty for Bloomberg may be of interest to subscribers. Here is a section:

Governor Haruhiko Kuroda made it clear last week the current stimulus program will remain in place for a while. There’s concern that any move past 100 could prompt a policy response if it’s deemed to hurt attempts to reflate the economy. However, his remarks on March 2 that the bank will start thinking about a stimulus exit in fiscal 2019 have at least increased market speculation over the timing of a possible normalization.

Kuroda’s mention of an exit was meant to prime markets for an eventual withdrawal, says Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. in Tokyo. “Given the reduction in bond purchases, the BOJ is already laying ground for an exit. It just isn’t saying so.”

 

Eoin Treacy's view -

The Bank of Japan will likely be the last of the major central banks to exit its quantitative easing program. With the ECB due to complete tapering by September that suggests Japan’s program will end sometime in 2019. That is of course under the assumption exogenous factors do not required it to be extended even further.



This section continues in the Subscriber's Area. Back to top
February 20 2018

Commentary by Eoin Treacy

Japan's executives paid less than Asian colleagues

This article from Bloomberg appeared in the Straits Times. Here is a section:

"The workforce is becoming more and more global, so to attract and retain the best people, you need to be prepared to pay competitive salaries," said Marc Burrage, managing director of Hays Japan. Seniority-based pay systems are among the reasons for Japan’s low salaries, he said. "It’s a concerning situation and if it’s not addressed soon, it will start to bite in terms of productivity."

Eoin Treacy's view -

Mrs. Treacy is planning a trip to Japan in April to source Akoya pearls so the girls and I will be tagging along to Kobe and Osaka. I asked a long-time subscriber in Japan what his perception of rising inflationary pressures is. Here is his response: 



This section continues in the Subscriber's Area. Back to top
February 13 2018

Commentary by Eoin Treacy

Yen Bears Seen Getting Brief Relief From Kuroda Reappointment

This article by Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

The yen briefly weakened Friday when local media reported Prime Minister Shinzo Abe is set to nominate Kuroda for a second five-year term, strengthening speculation that has been in the market for weeks. Kuroda’s record easing helped push the yen to almost 126 per dollar in mid-2015, the weakest in more than a decade. The currency was at 108.43 on Tuesday.

The Federal Reserve started to trim its balance sheet last year, while the European Central Bank is also looking to unwind stimulus. Few economists predict the BOJ will deepen its already unprecedented easing after Kuroda failed to achieve a 2 percent inflation target in his first term. Foreign investors think if the BOJ can’t expand stimulus, its next step will be a move toward an exit. Domestic investors only see policy being tweaked.

Eoin Treacy's view -

The Bank of Japan is at a crucial juncture because right now Japan is the only country running both easy monetary and fiscal stimulus. The Eurozone is close because it is tapering its quantitative easing while the fiscal austerity strait jacket has been loosened. Concurrently, the USA is swapping monetary largesse for fiscal largesse and there is already talk of an additional infrastructure bill which is only likely to add greater fiscal stress to the budget. 



This section continues in the Subscriber's Area. Back to top
February 06 2018

Commentary by Eoin Treacy

Interesting charts February 6th 2018

Eoin Treacy's view -

S&P500 Consumer Staples has lost momentum over the last couple of years with larger pull backs that dip into the underlying range and somewhat less impressive rallies subsequently. Last week’s downside weekly key reversal with follow through this week represents another in a series of failed upside breaks. It is back testing the region of the 200-day MA and will need to continue to hold the 550 area if top formation completion is to be avoided. 



This section continues in the Subscriber's Area. Back to top
January 05 2018

Commentary by Eoin Treacy

Email of the day on investing in a Japanese recovery

Re Japan, you discussed previously how one might get exposure to the Japanese financial sector. One obvious candidate would be the NYSE quoted ADRs in Nomura. In the past the Topix Securities Index has moved in line with the Japanese Banks Index. My question is do you think that times have changed so much that a stock like Nomura is no longer a good geared play on the Nikkei?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Japanese banks have been laboring under the low interest rate regime for what must feel like forever but the introduction of simultaneous monetary and fiscal stimulus during a period of synchronized global economic expansion has the potential to kick start inflation not least because of labour shortages. 



This section continues in the Subscriber's Area. Back to top
January 03 2018

Commentary by Eoin Treacy

Trump's Tax Cuts

This article by LohKC on the FTAlphaville blog represents an interesting interpretation of motivations behind focusing on GDP versus GNI and may be of interest to subscribers. Here is a section:

We can see immediately that more production means a larger GDP and that more production requires more workers, ceteris paribus (that is setting aside other considerations that can affect employment such as automation, productivity etc.). Most of the workers in any country would be its nationals. So usually a country’s desire to raise its GDP has a lot to do with the wish to create more employment for its people. But I would argue that Japan’s situation is quite different.

Japan’s labour force is shrinking. It has been shrinking at the rate of 0.4% in the past decade and by all accounts the rate of decline will rise in the coming years. So unsurprisingly Japan’s unemployment rate is very low. Unemployment rate has fallen below 3% recently, which makes Japan’s unemployment rate among the lowest in the world. True, Japan still has a large source of untapped labour; women’s participation in the job market is very low. And that is a pressing issue but it is not really relevant to this discussion. Perhaps I might write about women’s participation in the job market one day but for now, regarding whether moving some manufacturing to the US isn’t such a bad idea, suffice to say that Japanese manufacturers are facing difficulties filling job vacancies in Japan because of Japan’s shrinking labour force and ultra low unemployment rate.

Japan’s challenge today is not about reducing unemployment. Japan’s challenges today are about coping with the social costs of and economic headwind from an aging population and a shrinking labour force. 

So we see that the raison d’être for GDP is no longer that compelling for Japan. Japan should aim to maximise its gross national income (GNI) instead.

Eoin Treacy's view -

Japan is a case study for how other countries with substantial national assets, globally oriented manufacturing centres, aging populations and threatening deflation can cope and prosper.
 



This section continues in the Subscriber's Area. Back to top
December 22 2017

Commentary by Eoin Treacy

Email of the day on Japanese banks and REITs

Just read your piece on Japanese financials

What is the issue with Tokyo listed stocks? There are no restrictions for non-Japanese investors to buy local stocks, at least from the perspective of a European investor.

Why do you mention only ADR and GDR? (btw. German listed GDR have often very poor liquidity)

Btw: Wisdom Tree used to have a hedged ETF on Financials: WisdomTree Japan Hedged Financials Fund (DXJF) but I don’t know if it is still actively traded

Finally: Do Japanese REITs also belong to this category of possible beneficiaries from rising J-yields like banks in your opinion?  The iShares Japan REIT ETF trades under ticker 1476 JP

Eoin Treacy's view -

Thank you for this email which others may find of interest. I’ve been writing about Japanese banks since the summer but certainly with more frequency over the last month and I posted a more detailed review of Japanese Banks and REITs on December 8th



This section continues in the Subscriber's Area. Back to top
December 21 2017

Commentary by Eoin Treacy

BOJ Maintains Stimulus as Inflation Lags Behind Growth

This article by Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section:

Governor Haruhiko Kuroda said at a press briefing that the central bank didn’t need to reconsider its current policy framework. 

His comments last month on the "reversal rate” theory stoked speculation about an earlier policy exit. The theory posits that monetary stimulus could end up hurting commercial banks’ profitability, making them less likely to lend. 

Kuroda said Thursday that financial intermediation hasn’t been impaired in Japan and that talk about the theory doesn’t indicate any need for policy change. The yen weakened following the comments and traded at 113.57 per dollar at 5:12 p.m. in Tokyo.

"Just because I brought up this academic analysis, reversal rate, doesn’t mean at all that we need to review or change the yield curve control we’ve adopted since September last year,”

Eoin Treacy's view -

Japan is one of the only major economies running both easy fiscal and monetary policy right now and that is contributing to asset price inflation if not the kind of inflation the central bank measures. In fact, we have learned from QE programs elsewhere that asset price inflation is what to expect from monetary accommodation on the scale employed by central banks at present. 



This section continues in the Subscriber's Area. Back to top
December 11 2017

Commentary by Eoin Treacy

Nikkei Climbs to 26-Year High as Global Growth Optimism Returns

This article by Min Jeong Lee and Emi Urabe for Bloomberg may be of interest to subscribers. Here it is in full:

Japanese shares rose with the Nikkei 225 Stock Average advancing to its highest since 1992 on a weaker yen, as upbeat jobs data from world’s largest economy reignited optimism over global growth.

Japan’s currency slid to a one-month low against the dollar after Labor Department figures Friday showed the U.S. added more jobs than expected in November and the unemployment rate held at an almost 17-year low. Both the Nikkei 225 and the broader Topix index advanced for a third day, with banks and machinery makers providing the biggest boost. Local equities are bouncing back to their highest levels in a quarter century following a pullback in late November on profit-taking.

“The global economic expansion isn’t over yet,” said Tatsushi Maeno, a senior strategist with Okasan Asset Management in Tokyo . As the yen heads lower “investors will anticipate upward revisions to corporate profits ahead of the earnings season in March.”

Both main stock gauges retreated briefly on Monday as technology companies slid in the wake of the sector’s recent global selloff. A measure of electronics makers finished 0.1 percent higher after slipping by as much as 0.6 percent.
“Performance for semiconductor stocks like Tokyo Electron is sluggish with investors torn over whether it’s alright to take an optimal view on the sector again,” said Hideyuki Suzuki, a general manager at SBI Securities Co.

 

Eoin Treacy's view -

The Nikkei-225 has been ranging above 22,000 since early November and closed at an incremental new high today. Upside follow through tomorrow and a sustained move above 23,000 would reassert medium-term demand dominance. The broad Topix Index has now also moved to a new 25-year closing high and importantly these indices are doing so on a much lower valuation than Wall Street. 



This section continues in the Subscriber's Area. Back to top
December 08 2017

Commentary by Eoin Treacy

Stronger for Longer

Thanks to a subscriber for this report from Morgan Stanley focusing on the outlook for 2018. Here is a section on Japan:

A section from the report is posted in the Subscriber's Area. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Japan has been fighting deflation for so long very few believe it will ever overcome the challenges it faces. However, Japan is now one of the only countries running both easy monetary and fiscal stimulus. The only thing we can definitely credit quantitative easing with in the USA is asset price inflation and that should be equally true of Japan. 



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

On Target November 2017

Thanks to Martin Spring for this edition of his letter. Here is a section Japan:

“The MSCI Japan Index now trades on 15.1x 12-month forward earnings, or an 18 per cent discount to the MSCI USA Index’s 18.4x,” Wood reports. “It is also a major structural positive that earnings growth is increasingly coming from domestic-focused [rather than export-focused] corporates.” That means shares generally are less dependent on favourable moves in the yen-dollar exchange rate. 

The worsening labour shortage should lead sooner or later to accelerating wages, boosting consumption. 
“This dynamic has already been evident for some time in the case of temporary workers. But to the longstanding frustration of both the Abe government and the Bank of Japan, wage rises for permanent employees have remained minimal, primarily because the trade unions have been more concerned about keeping their employees “permanent”, since such permanent full-time staff, on average, still earn 1.8 [times] the hourly wage for part-time workers.”  

Companies have been keeping a tight grip on pay increases – one reason why listed firms are enjoying record profits and sitting on record amounts of cash, even allowing for the effect of increasing share buybacks. 

There is a long-term trend for Japanese companies to be more generous with their dividend payouts to shareholders. Back in 2004 the payout ratio (dividends as a proportion of earnings) for the Topix index was only 17 per cent. Now it’s up to 30 per cent.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Japan’s economy is recovering momentum and the uptick in performance by domestic companies has been readily observable in the performance of the Topix 2nd Section Index. This revolution has been enabled both by the Bank of Japan’s quantitative easing program and that government’s willingness to run simultaneous fiscal stimulus.



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Volatility Spikes as VIX Tops 2017 Average Amid Tax Uncertainty

This article by Sarah Ponczek for Bloomberg may be of interest to subscribers. Here it is in full: 

Volatility roared back into the U.S. equity market as fresh concern about the prospects for tax reform sent the Cboe VIX Index to its biggest surge since August.

“In terms of how we see the world and the impact to our strategy, to the extent this reform causes some uncertainty, that could lead to a pickup in volatility,” said David Jilek, chief investment strategist for Gateway Investment Advisers. “But we don’t have any keen insights as to how the politics is going to play out.”

In a year that’s been characterized by record calm, Thursday’s two-point intraday jump in the VIX was enough to push it above the average level for 2017. The gauge, which uses options-trading data to measure implied volatility of S&P 500 stocks, still sits below the bull-market average of 18.3.

Major U.S. equity benchmarks slid from record levels, with losses widening after the Senate revealed that its tax plan would delay lowering the corporate rate until 2019.

Eoin Treacy's view -

Wall Street has been rallying on speculation the Trump tax cuts would benefit corporations and boost consumer sentiment. News yesterday that the Senate proposal would defer tax cuts until 2019 was not greeted with optimism and introduced doubt about exactly what, if anything, will eventually get passed. 

 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

Breakfast with Dave November 3rd 2017

Thanks to a subscriber for this report by David Rosenberg at Gluskin Sheff which may be of interest. Here is a section:

I would have to say that if there is a market that has broken out of a 25-year secular downtrend, and where the economic and political tailwinds are significant, it is in Japan. I get told all the time that Japan’s population is declining, but we are buying companies, not bodies, and the bottom line is that even with this declining population, earnings momentum is on the rise and profit margins in Japan are on an impressive expansion phase, and not nearly priced in, In fact, Japan is one of the few markets globally that is not trading at premium multiples relative to its history and is an under-owned market both globally and locally. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

Japan is one of the few major economies running both easy monetary and fiscal policy. That is contributing to asset price inflation which has resulted in the market breaking out of 25-year+ base formations. 



This section continues in the Subscriber's Area. Back to top
October 30 2017

Commentary by Eoin Treacy

Japan is the 'most under-owned stock market on the planet,' and David Rosenberg says buy it

Thanks to a subscriber for this article from CNBC which may be of interest. Here is a section:

"The one part of the world which looks very good to me right now, a great turnaround story that's under-owned, is Japan. The Nikkei is breaking out," said Rosenberg said Friday on CNBC's "Trading Nation."

He added: "I think even a child could see that the 30-year secular downtrend has been broken over the course of the past couple of months."

The Nikkei 225, Japan's benchmark stock index, has soared nearly ten percent over the past three months. It's now up 15-percent so far this year. But it's still about 56 percent way from its all-time high hit in 1990.

According to Rosenberg, Japan has one of the few markets that isn't trading expensively to its historical price earnings ratio — noting "almost everybody else in the world is." 
 

Eoin Treacy's view -

Japan has been a disappointment for so long that when it breaks out to new highs it is tempting to think that this will be just another failed upside break. However there is an important point that should not be ignored when making that decision. It is one of the few countries in the world running simultaneously easy monetary and fiscal policy. Considering the magnitude of the Bank of Japan’s debt it needs to generate inflation if it is to ever have any hope of paying them back. That is also why it is buying stocks, as part ownerships in companies they represent income streams outside the taxation power of the government. 



This section continues in the Subscriber's Area. Back to top
October 23 2017

Commentary by Eoin Treacy

World's Most Daring Monetary Experiment Powers on With Abe's Win

This article by Enda Curran and Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section:

"Globally, the BOJ’s continued policy accommodation should help cushion the blow from the Fed’s balance sheet normalization and the ECB’s expected tapering next year," said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. "The BOJ will not be able single-handedly to keep rates low everywhere, but its commitment to continued monetary accommodation should restrain any possible global yield rise."

Indeed, a sharper divergence between its policy outlook and the rest of the developed world may aid the BOJ’s cause should the yen continue to weaken, helping to accelerate inflation by making imports pricier. The yen slumped to its weakest since July on Monday and shares moved higher as markets digested Abe’s landslide.

Abe’s decisive win on Sunday will embolden supporters of Abenomics, the prime minister’s signature economic policies centered around monetary and fiscal policy accompanied by structural reforms. It also increases the likelihood of BOJ Governor Haruhiko Kuroda being reappointed when his term comes up in April, according to Bloomberg Intelligence analyst Yuki Masujima, meaning the central bank’s policy framework won’t change.

Naohiko Baba, chief economist for Goldman Sachs in Japan, noted in a report on Monday that "the largest tangible result" of Abe’s commitment to the very ambitious inflation target has been to keep the yen weak and boost equities. The currency has declined more-than 20 percent since Abe took office in December 2012, while the Nikkei 225 Stock Average has roughly doubled.

 

Eoin Treacy's view -

It is arguable whether Abe has a mandate to change the pacifist constitution. However, the original reason he called the election was to receive approval for redeploying revenue from the increased sales tax for spending rather than paying down debt. Therefore, by holding his majority, he can claim resounding approval for his stimulus program. 



This section continues in the Subscriber's Area. Back to top
October 20 2017

Commentary by Eoin Treacy

Machine Learning in Finance

Thanks to a subscriber for this how-to report from Deutsche Bank covering quantitative strategies and how they are applied to finance. Here is a section from the introduction:

Machine learning is everywhere 
“Machine learning” repeatedly appears in the news, from the game of go to autonomous cars: what can those algorithms do for us in finance? 

Supervised learning and its pitfalls in finance 
In this first report in the series, we focus on supervised learning and note that while machine learning is very relevant to us, there are dangerous pitfalls, sometimes specific to the type of data we deal with. In particular, we examine penalized regression (lasso and elastic net), decision trees, and boosting – we also mention, in passing, support vector machines and random forests. 

Application to the Japanese equity market 
To make things more concrete, we try to use those algorithms to combine the investment factors in our database in order to build a stock ranking system for the Japanese market; this shows the limitations and pitfalls of traditional machine learning practices in finance. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Long Term Capital Management represented something of a genesis for quantitative strategies and their sophistication has been enhanced considerably since. The pace of adoption has accelerated in the last few years as the breadth of data from both conventional and unconventional sources has increased at an exponential rate and companies like Google and Baidu have demonstrated in real terms what is possible with these tools. 



This section continues in the Subscriber's Area. Back to top
October 13 2017

Commentary by Eoin Treacy

Email of the day on recent trades

I bought the Nikkei as it broke out of its range and it has been doing well on the back of an Abe victory which would lead to increased monetary spending and a lower yen, thus boosting the Nikkei.

I have read that very frequently pre-Japanese elections, the market runs up as people look to buy shares in industries that have been targeted by politicians for help, but that on the day of the election the market usually corrects. A buy the rumour, sell the news scenario. I wondered your thoughts on this. I know you are long the Nikkei and wondered if this was a potential long-term or short- term position, or what the charts are saying?

Also bought the US Tech 100 which broke out of its range but has been travelling sideways since it broke out and I wondered if that was not a good sign, since you usually talk about explosions waiting to happen either up or down. Best regards,

 

Eoin Treacy's view -

Thanks you this email and congratulations on grasping opportunities. 
 

 



This section continues in the Subscriber's Area. Back to top
September 19 2017

Commentary by Eoin Treacy

Markets Are Betting That Japan's Abe Would Win a Snap Election

This article by Masaki Kondo for Bloomberg may be of interest to subscribers. Here is a section: 

Markets are suggesting that any snap election called by Japanese Prime Minister Shinzo Abe would take advantage of his opponents’ weakness and see him retain power.

A victory would ensure the continuation of Abenomics, the recipe of mega monetary easing, flexible fiscal policy and selective deregulation that’s helped Japan’s economy to its longest sustained expansion since before the global crisis. Abe, who’s expected to decide on the early ballot after returning from a U.S. trip, is capitalizing on growing public support for his management of the North Korean crisis.

 

Eoin Treacy's view -

We learned from Theresa May’s experience that being presumptuous about the ability of politicians to extend their majority can be a dangerous game. Nevertheless, Abe is a seasoned campaigner and one of Japan’s longest serving Prime Ministers. With a fresh mandate, he could help promote further reform. 



This section continues in the Subscriber's Area. Back to top
August 23 2017

Commentary by Eoin Treacy

China's Robot Revolution May Affect the Global Economy

This article from Bloomberg caught my attention. Here is a section:

“By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

“Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

 

Eoin Treacy's view -

Technological innovation has led to the pace of development speeding up. It will not have escaped the attention of investors that the original Tiger economies were able to evolve economically much faster than the Europe or North America during the Industrial Revolution. More recently China has come from relative obscurity to be the world’s second largest economy. What used to take generations now takes decades and the pace of development is speeding up so that we may witness multiple iterations in our lifetimes. As much youngest daughter delights in telling me, she was born the same year as the iPhone. 



This section continues in the Subscriber's Area. Back to top
August 16 2017

Commentary by Eoin Treacy

Japan: Ignore Autos and Electronics to Profit

Thanks to a subscriber for this article by Emma Wall for Morningstar may be of interest to subscribers. Here is a section:

With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

Suppliers Immune from Domestic Threats
While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

“There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

“No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

 

Eoin Treacy's view -

Japan is an increasingly popular tourist destination for Asian, particularly Chinese, tourists who come with well-defined shopping lists from WeChat personalities that tell them exactly what and what not to purchase. On my family’s visit to Japan in April there were a number of consumer items Mrs. Treacy was very eager to try based on reviews she had seen in Chinese social media. 



This section continues in the Subscriber's Area. Back to top
August 09 2017

Commentary by Eoin Treacy

Ten-years from global financial crisis: a decade in charts

This article by Ritvik Carvalho for Reuters may be of interest to subscribers. Here is a section:

Ten years ago on Wednesday marked the start for many observers of the global financial crisis - a series of rolling credit shocks and bank crashes that led to the deepest world recession for a generation and a decade of slow growth and painful repair.

On Aug. 9, 2007, the European Central Bank flooded its money markets with billions of euros of emergency cash to prevent a seizure in the European banking system after France's BNP Paribas became the latest to shut down investment funds hobbled by a collapse of U.S. mortgage and asset-backed bond markets.

Serial bank collapses in Britain, the United States, Germany and elsewhere were to follow over the following 18 months. These culminated in U.S. investment bank Lehman Brothers being allowed to go bankrupt in September 2008, triggering a world financial panic, deep recession and eventual rescue package by the U.S. government, Federal Reserve and the rest of the G20 economic powers.

Eoin Treacy's view -

The number of articles pointing out this historical milestone has proliferated over the last week. It’s not particularly positive for sentiment because it reminds investors that everything comes to an end and often in a manner deleterious to one’s financial health. 



This section continues in the Subscriber's Area. Back to top
August 03 2017

Commentary by Eoin Treacy

Japan Inc. Might Finally Have to Fatten Paychecks

This article by Daniel Moss for Bloomberg may be of interest to subscribers. Here is a section:

It's all a question of the tipping point: When do labor shortages become so acute that there's a scramble and employers both big and small have to pay up or risk, literally, running out of people? 

Izumi Devalier, head of Japan Economics at Bank of America- Merrill Lynch, thinks we've reached that point. "There have been many false dawns, so making the case this time can be quite difficult," she acknowledges over lunch. But, using an admittedly anecdotal example, she observes that famously high levels of service at Japanese restaurants are starting to slip subtly because of the gathering labor shortage. "People know that if they don't secure talent now, it's going to get harder and harder."

For those that want to stay in business, the need to retain staff will outweigh all others. Yamato Holdings Co. Ltd., the parcel delivery company with the cat-and-kitten logo that seems to be everywhere in Tokyo, is instructive. Faced with a shortage of drivers and efforts by competitors to poach those it did have, the firm raised its base rate for customers in April.

It took almost three decades, but what's important is that it happened. Fierce competition among delivery firms had made Yamato Transport wary of raising prices, but overworked and underpaid staff had better offers. Something had to give. Forty- seven thousand employees were subsequently compensated for unpaid overtime.

One might compare the shock to the system to the 1985 Plaza Accord, when Japan and West Germany agreed to let their currencies strengthen against the dollar. Among other things, Plaza accelerated the overseas expansion of Japanese corporations. Now companies need to make equally wrenching decisions about how best to deal with shrinking labor liquidity.

 

Eoin Treacy's view -

Japan is a petri dish for experiments on how to deal with a declining population without recourse to immigration. So far it has failed in stimulating inflation and while it may be necessary to pay employees more to ensure they are not poached, there is the additional question of where demand growth is to come from when such a large proportion of the population is in the latter stages of life. 



This section continues in the Subscriber's Area. Back to top
July 06 2017

Commentary by Eoin Treacy

Email of the day on Japanese Bank funds

Hello Eoin! Thank you for all your hard work for us! You highlighted the Japanese Banks a few Days ago! Is there a Japanese Banks ETF or a closed end Bank fund, that you know of. Best regards. (an FM since 1988).

Eoin Treacy's view -

Thank you for your long support and this question which may also be of interest to other subscribers. There are two Japanese listed ETFs focusing exclusively on Japanese banks but I’m afraid I do not know of any others listed elsewhere whether ETFs or closed-end funds. 

The two Japanese ETFs are the Daiwa Topix Bank ETF (1615 JP) and the Nomura Topix Banks ETF (1612 JP).  

 



This section continues in the Subscriber's Area. Back to top