Tag: Japan

Bank of Japan raises interest rates for the first time since 2007

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bank of Japan on Tuesday raised its interest rates for the first time since 2007.

It increased its short-term interest rates to 0% to 0.1% from the previous -0.1%, as per the statement at the end fo the policy meeting.

#BREAKING | BoJ ends negative interest rates

Alert: BoJ raises interest rates for the first time since 2007#Japan pic.twitter.com/4zmXrVg34l

— CNBC-TV18 (@CNBCTV18Live) March 19, 2024

The BoJ pulled the curtain on the most aggressive monetary easing program in modern history by ending the world’s last negative interest rate along with its yield curve control mechanism, a widely expected move that weakened the yen.

The bank said financial conditions will remain accommodative, indicating this isn’t the beginning of an aggressive tightening cycle of the sort seen in US and Europe in recent years, a factor that might explain the slide in the yen after the announcement. The vote for the rate hike was 7-2.

The BOJ also scrapped the yield curve control program while pledging to keep buying long-term government bonds as needed. It also ended its purchases of exchange-traded funds.

The yen fell against the dollar from 149.29 just before the announcement to as weak as 149.92 afterwards.

In ending the negative rate, Governor Kazuo Ueda makes history by turning the page on the BOJ’s experimental monetary easing program after years in which Japan’s central bank was a global outlier. The policy gap now becomes even more stark as the BOJ makes its first upward move in close to 17 years just as its peers around the world are mulling cutting their rates after historically aggressive tightening campaigns.

The BOJ said its stable inflation target of 2% has come into sight as a virtuous cycle of wages feeding demand-led inflation is emerging. Rengo, Japan’s biggest umbrella group for labor unions, reported Friday that wage talks resulted in an initial deal for 5.28% increases, the best outcome since 1991. That fueled market speculation that the conditions were finally in place for a rate move after Ueda had repeatedly emphasized the importance of wage trends.

Some 38% of 50 economists surveyed by Bloomberg had expected the March rate liftoff, while another 54% predicted the move would come a month later. The survey was conducted before the strong results from annual wage negotiations that fueled widespread speculation the central bank wouldn’t wait.

As part of its policy shift, the central bank said it would ditch its buying of real estate investment trusts, too. The BOJ adopted the highly unusual measure of buying risk assets like ETFs in 2010, ultimately becoming the biggest single holder of Japanese stocks, before buying operations slowed to only three instances last year. The optics of using the measure became increasingly awkward as Japanese stocks hit a record high this month, begging the question of why the equity market needed support.

Ueda, the first former academic to take the helm at the BOJ, had previously adjusted aspects of the ultra-easy policy settings he inherited when he became governor in April, tweaking the parameters of YCC in both July and October. Few analysts predicted Ueda would be able to unwind within a year so many policies that had become a headache for the central bank.

Ueda’s predecessor Haruhiko Kuroda launched a shock-and-awe stimulus bazooka in April 2013 with the aim of achieving 2% inflation in two years. As that goal stayed out of reach, Kuroda adopted the negative rate and then the YCC program in 2016. His focus thereafter increasingly fell on enhancing the sustainability of these monetary settings with policy tweaks.

The prolonged monetary easing led to an expansion of the BOJ’s balance sheet to the point where it’s now worth 127% of the annual economy, four times bigger than the Federal Reserve’s assets-to-economy ratio. Even so, inflation didn’t really kick in until the supply shocks triggered by Covid-19 and Russia’s war in Ukraine. Japan’s key inflation gauge has stayed at or above the 2% target for 22 months, and that stretch is forecast to continue with national price data due Friday.

Ueda’s post-decision press conference usually begins at 3:30 p.m. in Tokyo. At that event he will elaborate on the thinking behind Tuesday’s policy decisions.

With inputs from Bloomberg

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Toyota agrees to biggest wage hike in 25 years, paves way for Bank Of Japan policy shift

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Toyota Motor agreed to give factory workers their biggest pay increase in 25 years on Wednesday (March 13), heightening expectations that bumper pay raises will give the central bank leeway to make a key policy shift next week.

The world’s biggest carmaker and traditionally a bellwether of the annual talks, said it agreed to the demands of monthly pay increases of as much as 28,440 yen ($193) and record bonus payments. Keeping with past practice, the company did not provide a percentage figure for the salary rise.

Toyota, Nippon Steel and Nissan Motor were among some of Japan Inc’s biggest names that agreed to fully meet union demands for pay increases at annual wage negotiations that wrap on Wednesday.

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The talks, long a defining feature of the usually collaborative relationship between Japanese management and labour, are being closely watched this year as the pay increases are expected to help clear the way for the central bank to end its years-long policy of negative interest rates as early as next week.

Japan’s top government spokesperson and chief cabinet secretary Yoshimasa Hayashi told reporters on Wednesday it was important that the strong wage hike momentum spreads to small and mid-sized firms.

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Bank of Japan considering March hike with outcome too close to call, sources say

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bank of Japan officials are edging closer to raising interest rates and will decide whether to move this month at next week’s policy meeting, with the outcome currently too close to call, according to people familiar with the matter.

A final decision will be made after officials see the initial tally from spring wage talks due Friday, according to the people. A strong result could create the final push for a rate increase in March even as some retain the cautious view that the bank should wait until April to see more data, the people said.

Officials are preparing for both a hike or a hold decision at the March 18-19, according to the people. Regardless of whether the first rate hike since 2007 comes in March or April, the assessment of officials is that the bank is close to liftoff, according to the people.

Some officials believe that with the decision expected to be close, it may come down to Governor Kazuo Ueda to decide in the end with a consensus likely to build around his view, the people said.

In the case of standing pat, officials are mulling if they need to signal that a rate hike is in the pipeline to maintain expectations and limit possible market moves, the people said.

While market speculation has soared for a rate hike this month after a slew of economic data and media reports, April remains the most popular timing for the move among economists surveyed by Bloomberg.

Among the recent positive figures, Rengo, Japan’s largest umbrella group for unions, said its affiliated members demanded an average wage increase of 5.85% this year versus 4.49% a year ago, when the process resulted in a preliminary 3.8% bump.

That was the biggest increase in decades, and if this year’s tally due March 15 comes in well above that figure, the central bank may estimate the strength of wage growth among small businesses even though the report largely reflects results only from large firms, the people said.

At the same time, some officials take the view that the initial Rengo results alone won’t be enough to confirm overall wage trends, and that the bank needs to assess ample data and information available toward the April 25-26 gathering, the people said.

If the BOJ moves this month, the bank could be perceived as hawkish and create unnecessary speculation over additional rate increases, some of the people said.

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Japan coalition member says election likely in Fall after LDP’s vote

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan is likely to hold a general election in the fall after the ruling Liberal Democratic Party concludes its leadership vote in September, according to a top official in a coalition party.

Voters often pay more attention to the ruling LDP during its leadership election, and support tends to be high immediately after the event, said Keiichi Ishii, secretary general of the LDP’s junior coalition partner Komeito. He made the comments in an interview recorded last week and broadcast Sunday on a TV Tokyo outlet.

While Prime Minister Fumio Kishida has tried to cool speculation about a general election, his LDP has been rocked by a slush fund scandal that has eroded support for his government and spurred talk that his days as premier may be numbered. Should the slide in popularity continue, the LDP could seek to replace him in conjunction with its leadership vote.

The share of voters saying they don’t support the government reached its highest since 1947 in a Mainichi newspaper poll released in February. Many respondents to a series of surveys saying they are dissatisfied with Kishida’s attempts to tackle the problem of undeclared income by politicians. A separate scandal over LDP links to a fringe religion has also weighed on support.

No general election need be held until 2025 and opposition parties have failed to capitalize on Kishida’s woes, with their support rates mostly limited to single figures. This means the LDP and Komeito are almost certain to retain power when the vote is held.

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Misbehaving tourists force authorities in Japan to shut alleys of renowned geisha district

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Kyoto, revered as Japan’s ancient capital and a cherished tourist destination, grapples with the impact of overzealous visitors, prompting authorities to close off private-property alleys in the renowned geisha district of Gion due to rising complaints.

The bustling streets of Gion, characterised by narrow and quaint pathways, have been overrun with tourists, often guided by tour operators, a local district official told Associated Press.

In response to mounting concerns, the official announced plans to erect signs in April, explicitly barring tourists from accessing private streets. The signage, featuring warnings in both Japanese and English, emphasizes the prohibition on pedestrian passage, with a 1,000-yen penalty ($70) to those who violate the rule.

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The prohibition has been imposed in a limited area within Gion, leaving public streets accessible to tourists, ensuring that the district and the broader expanse of Kyoto continues to attract visitors from around the globe.

Meanwhile, as the race to attract most tourists continues in 2024, Airbnb released a list of the countries that lead in travel searches at the start of the year. What’s surprising is that in Asia, Japan emerged as the top destination, while Thailand and Vietnam are not in the top 11 countries searched on the online marketplace for short- and long-term homestays and experiences.

Also read: Japan is most-searched travel destination at start of 2024 in Asia

Nonetheless, the discontent in Gion highlights the trend of over-tourism even as Japan’s reliance on revenue from tourists for economic growth continues to rise.

Gion’s labyrinthine alleyways host traditional teahouses where geisha and their maiko apprentices showcase dance and music in ornate attire.

Renowned for its temples and gardens, Gion stands out as one of Kyoto’s most enchanting and historically significant locales that draws tourists who want to experience Japan’s cultural richness.

Complaints regarding misbehaving tourists have simmered for years, though the onset of the COVID-19 pandemic briefly alleviated tensions by curbing tourism. However, with the resurgence of visitors, discontent has resurfaced.

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Japan’s Nikkei 225 breaches key 40,000 level for first time

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan’s Nikkei 225 Stock Average climbed above the psychological level of 40,000 for the first time, opening the door to further gains in its historic rally.
The blue-chip gauge rose as much as 0.9% to 40,258.41 on Monday, a fresh intraday record. Tech shares including chipmaking gear producer Tokyo Electron Ltd., which have helped drive gains over the past year, were among best performers.

The broader Topix index also advanced but remains about 6% below the record it set more than three decades ago before Japan’s asset-price bubble burst. Both the Nikkei and the Topix found support from US consumption data, which added to expectations that the Federal Reserve may be able to cut interest rates as early as June — a boon to global sentiment.

“When markets reach a record, they tend to be stuck in range,” said Daiju Aoki, regional chief investment officer at UBS SuMi Trust Wealth Management Co. in Tokyo. “The Nikkei reaching 40,000 shows that many investors, especially from overseas, are still bullish on Japanese stocks.”

The Nikkei reclaimed its 1989 peak last month as investors from around the world piled into Japan’s biggest companies on improving shareholder returns, the weaker yen and booming corporate profits.

Warren Buffett’s endorsement of Japanese trading houses last year boosted confidence in the nation’s market, and concerns over a slowdown in China prompted many funds to switch into Japan.

Moves in the the Nikkei had been subdued after it reached the milestone on Feb. 22, as investors took profits and some analysts voiced surprise at the speed of the rally. Yet downside was limited as investors came in to buy on dips.

Foreign investors remain bullish on Japanese stocks. BlackRock Inc., the world’s biggest asset manager, and Amundi Asset Management, Europe’s largest money manager, expect earnings growth and changes in corporate governance will keep the strength going.

Companies are being encouraged by the Tokyo Stock Exchange to publish reports on their plans to boost equity valuations. Some have announced share buybacks and dividend hikes. Management buyouts are on the rise and activist investors are also stepping up their campaigns.

About a third of Nikkei companies, excluding the financial sector, have a net cash position, meaning they have more cash than debt, which bolsters the cause of activist investors and the TSE. That’s around double the comparable figure for the S&P 500.

“The Nikkei 225’s 40,000 is certainly a key psychological level which could offer some resistance for the index and bring volatility,” said Charu Chanana, strategist at Saxo Capital Markets based in Singapore. “But when structural factors remain in favor, and yen weakness continues, it is likely to be more a bullish signal rather than fueling any concerns of Japanese stocks being overbought.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Jonathan Garner explains why Morgan Stanley prefers India despite the steep valuations

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is in a virtuous cycle of strong nominal GDP growth, strong capital inflows, healthy corporate profits, and a more stable environment for investors than ever seen historically, says Jonathan Garner, Chief Asia and Emerging Market Equity Strategist at Morgan Stanley. “So it is no surprise to us that India is in a persistent secular bull market.”

Comparing India with Japan, which is also among Morgan Stanley’s top picks, Garner said, India is clearly a costlier market with a return on equity (ROE) of about 16% and a price-to-book ratio (P/B) of four times, against Japan’s 10% ROE and a P/B of 1.5.

But despite its high valuations, second only to the United States globally, Garner sees India’s market growth more evenly spread across different company sizes, unlike the concentrated profitability in the US. He believes this broad-based growth underpins the confidence in India’s ability to sustain significant earnings growth, even at a premium valuation.

“The question for India is how much compounding have we got to go because it is worth paying a growth multiple for a growth stock or a growth market if they’re capable of sustaining earnings growth. And at the moment, we have confidence that 20% compounded EPS (earning per share) growth is going to be sustainable for India over a three to five year horizon. So it’s a very interesting story,” he said.

While India has not yet seen ‘true global appeal’, Garner pointed out that India’s share in the emerging market (EM) index or the Asia ex-Japan index is rising steadily.

Explaining why India has so far not seen inflows similar to those seen in Japan, he said, Japan includes globally recognised stocks that have been familiar to investors for years. Also, the Japanese market in index terms is roughly 3.5-4 times the size of India in free float market cap and it’s a developed market (DM). So, it can attract a much broader range of interest. “It’s (India is) still an EM specialist or Asia ex-Japan specialist market from a foreigner perspective,” said Garner.

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Garner also shared his view on India’s financial sector. “The key point is that the financial sector in India is going to benefit from rising economic activity, rising demand for financial products of all forms and growth in household and corporate leverage over time.”

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

1000-year-old naked man festival held for last time in Japan’s Iwate prefecture

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The naked-man Somin-sai festival, steeped in a history spanning over a millennium, concluded its final iteration at a Buddhist temple in the northeastern prefecture of Iwate in Japan. Kokuseki-ji Temple in Oshu city bid farewell to the cherished tradition, citing challenges in sustaining the event due to declining participants, which indicates the aging local population.

The Naked Man festival, typically unfolded overnight during the Lunar New Year, serving as a fervent prayer for bountiful harvests and well-being, with participants, clad solely in loincloths, vying for a hemp bag containing talismans.

The festival garnered attention in 2008 when JR East declined to feature promotional posters, expressing concerns over potential discomfort from depictions of near-nudity. Despite a four-year hiatus due to the COVID-19 pandemic, this year marked the resumption of the bag competition, albeit with shortened festivities from 6 pm to 11 pm, departing from its traditional all-night duration.

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The final occurrence of Japan’s long-standing and unconventional Somin-sai festival, dating back 1,000 years and featuring near-naked men vying for the hemp bag of charms, took place on February 17. Each year, thousands of men clad in loincloths braved wintry weather conditions of Tohoku to participate in the renowned event.

Kokuseki-ji Temple announced the decision to discontinue the festival due to aging participants and a shortage of successors as being major challenges in carrying on with the tradition.

Participants, dressed solely in “fundoshi” loincloths, commenced the festival by carrying square lanterns and purifying themselves in the Yamauchigawa river before circling the temple’s Yakushido hall to pray for blessings. Subsequently, they engaged in a spirited scramble over a hemp sack, believed to safeguard against disaster for whoever claims a talisman. In 2008, the festival garnered attention when the Oshu city government’s attempt to promote it through tourism posters faced rejection by East Japan Railway Co, citing potential discomfort from near-nudity in the posters.

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The historic Somin-sai festival, concluded for the final time at a Buddhist temple in Iwate Prefecture, marking the end of an era. Kokuseki-ji Temple in Oshu city bid farewell to Somin-sai due to a dwindling number of participants.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Japan’s rapid stock rally boosts BOJ’s ETF values to new record

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan’s rapid stock market rally has boosted the value of the Bank of Japan’s holdings of exchange-traded funds to a level that’s comparable to annual national tax receipts, according to an analyst’s estimate.

The BOJ’s ETF holdings surged to a new record of about ¥70 trillion ($466 billion) as of the end of trading Thursday, with about ¥32 trillion of unrealized gains on top of a total book value of ¥37.2 trillion, according to Shingo Ide, chief equity strategist at NLI Research Institute. That came as the Nikkei 225 Stock Average closed at a fresh 34-year high.

The BOJ, the largest single holder of Japanese stocks, is the biggest winner in the market — at least on paper. That streak may continue as some analysts expect the Nikkei 225 to build on its gains this year. The value of the assets, equivalent to Japan’s annual tax revenues, is another headache for Governor Kazuo Ueda as he contemplates the complexity of exiting from the bank’s ultra-easy policy.

“This is too huge to sell to markets, or to decide what to do with it by the BOJ alone,” Ide said. “The benefits should be given back to the Japanese people. The decision making will require participation from many others including the prime minister’s office, finance ministry and FSA.”

The BOJ hasn’t bought any ETFs this year after only doing so three times in 2023 in an early sign of its slow retreat from highly unconventional policy measures.

BOJ Deputy Governor Shinichi Uchida said last week it’s natural to discontinue such purchases once the inflation target comes into sight. A majority of economists expect the BOJ to end its negative rate regime by April.

The central bank began to buy the stock funds in 2010 under former BOJ Governor Masaaki Shirakawa to lower the risk premium in financial markets. The bank bought them aggressively at the height of the market panic that spread in the wake of the pandemic.

Ide estimates that one-third of the bank’s ETF holdings is linked to the Nikkei 225 while the rest is connected to the Topix index.

The BOJ currently pledges to buy ETFs as needed with a ceiling of ¥12 trillion per year. Speaking earlier this month, Ueda said the bank has time to consider what to do with its ETF holdings after deciding whether to keep buying them.

“I feel the BOJ has some regrets over buying this volume of ETFs,” Ide said. “But it has to clean up what it has done.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow