Currently, the bank of Japan is running out of bonds from the government to buy. The Central Bank would be counterparts are also not willing to sell the debt which monetary policy makers have made a pledge to buy. The 30-year bond that was most recently used failed to record a single trade during a session last week since current owners opted to hoard all their holdings. The Japanese Central Bank has come up with a target of $960 billion in purchases of government bonds every year in a continuous attempt to curb deflation. This amount is about three times the issuance rate and sums up to about 1% of GDP, according to Orix Trading Executive Vice President of Portfolio Management, Robert Barkley.
However, safe assets such as government debt are not as attractive to central banks looking to coerce investors into other riskier assets thus push down the cost of borrowing. These assets are also in high demand by financial institutions since they can be used as collateral. This comes from the reasoning that whenever there is a dearth of safe assets, there is also the incentive and a tendency to manufacture them. This is the major headache that is faced by the Bank of Japan as they look for more government bonds to keep it afloat for the next two years. With an on-going fight to take care of a rapidly rising rate of inflation in economically unstable times.
Results in the past haven't been exactly pretty. There have been challenges and growing issues that have caused the financial institution to come up with new ways of asset management and investing in the right assets. Now as the Japanese bank starts to face the technical constraints of purchasing assets, Barkley proposes a radical solution: consolidate existing holdings of the Bank of Japan into a perpetual bond. This is a bond that has no maturity and has no principal repayment.
"There is an increasing realization that limits exist to how much more of these bonds can be acquired", Robert Barkley was quoted as saying. "The BOJ is getting to a shortage of bonds as commercial banks, insurance and pension funds which have run down in terms of holdings."
Barkley cited a working paper from the IMF which concluded that the needs of financial institutions such that the Bank of Japan might get forced to start tapering its acquisition of sovereign debt in 2017 or 2018 to further affirm his case.
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Friday, April 22, 2016
Friday, February 19, 2016
In the last three months of 2015, the economy of Japan slumped majorly.
It's been three years since Shinzo Abe, the Prime Minister of Japan, took oath. His 'Abenomics' plan was unleashed with the intention of freeing Japan from the claws of deflation. However, the nation has remained stuck in cycles of expansion and contraction since last three years.
At the end of the year, the Gross Domestic Product had shrunk by 1.4 percent. During the third quarter, the Gross Domestic Product had exhibited a 1.3% increase. Bloomberg News had surveyed a few economists earlier this year. The economists were of the opinion that Japan will exhibit a decline of 0.8% However, the final number, which is 1.4%, is far ahead of what the economists had predicted.
One of the prime reasons behind this slump has been reduced private consumption. A decrease in private consumption has directly hit Abenomics, Shinzo Abe's ambitious economic plan for Japan.
The Economic contraction affecting the country has also affected the Yen. Japanese currency registered a hike of 5.6% against the Dollar. This is not a good sign for exporters.
The Bank of Japan had recently released a money stimulus. However, given the increase in the value of Yen, the money stimulus has been able to do little for the exporters especially.
According to Robert Barkley, Executive Vice President of Portfolio Management at Orix Trading, "The household consumption has weakened in the last couple of months. It was believed that seasonal factors will induce growth. However, people aren't willing to loosen their purse strings." He further explains, "If Yen continues to grow, it will affect capital spending and exports negatively. As it is, private consumption is exhibiting no signs of a recovery. In such a situation, Japan's economy may have a tough time in making a rebound."
Stock prices bring relief
The Yen registered a decline recently. It came down to 113.87 per Dollar. At the same time, the Topix Stock Index increased by 8 percent. On Friday, the share market also showed growth. This was a sign of relief for the Central Bank which was coming under pressure to further push its monetary stimulus.
Japan's GDP data has left the investors confounded. During the third quarter, Japan's gross domestic product dropped down. It was believed that Japan was tricking back into recession. However, the GDP, again, showed growth during the fourth quarter.
Japanese economy has been struggling since last three years. In December, the Japanese economy registered a slump in household spending, exports, and industrial productions. The Bank of Japan, under the leadership of Haruhiko Kuroda, has taken various measures to ease the economy out of recession. The Bank has released monetary stimulus and is pushing it further. At the same time, government is making efforts to increase wages, consumer spending and investment.
However, the change in the global market has been affecting Japan. The Chinese economy has been facing contractions as well The Bank of Japan released a stimulus earlier this year to fight with deflation. The Bank also introduced negatives rates.
Barkley pointed, “The wages in Japan haven't increased much in the last three years. As a matter of fact, the total increase in wages merely touches 1% in any year since 1997. In the last four years, the actual increase in wages has actually gone down."
Barkley is of the opinion that the Bank of Japan is likely to release more monetary stimulus. The announcement on this may come in March when the next meet is likely to take place.
Mondays report shows that
There is some good news for Japan. On Monday, it was declared that the overall business spending had increased by 1.4% in the fourth quarter of the year Likewise, the net exports also increased to add 0.1% to the GDP. Unfortunately, private consumption and private inventories did not follow with this trend. During the fourth quarter, private consumption dropped down by 0.8%. Similarly, private inventories went down by 0.1 percentage point during the fourth quarter.
China is Japan's leading trade partners. Negative changes in the economy of China are directly affecting the economy of Japan. Companies in both China and Japan are facing the brunt of this. Since the currency of both the countries are rising, major companies are already expecting a fall in their net profits.
Panasonic Corp, the Japanese multinational giant, predicted that its net profit are most likely to register a loss at the end of the year, i.e. March because the sale of air conditioners and other electronic devices has gone down in China. Likewise, Hitachi also reduced its net profit forecast. According to the people at Hitachi, China's reduced demand for construction machinery as well as reduced demands from oil-producing countries has hit Hitachi's business prospects negatively.
Many economists have predicted that Japan will fall into recession in the next year. However, according to another survey conducted between January 29 and February 3, if this recession happens, it will be the worst kind of recession that Japan will have seen since 2012.
At the end of the year, the Gross Domestic Product had shrunk by 1.4 percent. During the third quarter, the Gross Domestic Product had exhibited a 1.3% increase. Bloomberg News had surveyed a few economists earlier this year. The economists were of the opinion that Japan will exhibit a decline of 0.8% However, the final number, which is 1.4%, is far ahead of what the economists had predicted.
One of the prime reasons behind this slump has been reduced private consumption. A decrease in private consumption has directly hit Abenomics, Shinzo Abe's ambitious economic plan for Japan.
The Economic contraction affecting the country has also affected the Yen. Japanese currency registered a hike of 5.6% against the Dollar. This is not a good sign for exporters.
The Bank of Japan had recently released a money stimulus. However, given the increase in the value of Yen, the money stimulus has been able to do little for the exporters especially.
According to Robert Barkley, Executive Vice President of Portfolio Management at Orix Trading, "The household consumption has weakened in the last couple of months. It was believed that seasonal factors will induce growth. However, people aren't willing to loosen their purse strings." He further explains, "If Yen continues to grow, it will affect capital spending and exports negatively. As it is, private consumption is exhibiting no signs of a recovery. In such a situation, Japan's economy may have a tough time in making a rebound."
Stock prices bring relief
The Yen registered a decline recently. It came down to 113.87 per Dollar. At the same time, the Topix Stock Index increased by 8 percent. On Friday, the share market also showed growth. This was a sign of relief for the Central Bank which was coming under pressure to further push its monetary stimulus.
Japan's GDP data has left the investors confounded. During the third quarter, Japan's gross domestic product dropped down. It was believed that Japan was tricking back into recession. However, the GDP, again, showed growth during the fourth quarter.
Japanese economy has been struggling since last three years. In December, the Japanese economy registered a slump in household spending, exports, and industrial productions. The Bank of Japan, under the leadership of Haruhiko Kuroda, has taken various measures to ease the economy out of recession. The Bank has released monetary stimulus and is pushing it further. At the same time, government is making efforts to increase wages, consumer spending and investment.
However, the change in the global market has been affecting Japan. The Chinese economy has been facing contractions as well The Bank of Japan released a stimulus earlier this year to fight with deflation. The Bank also introduced negatives rates.
Barkley pointed, “The wages in Japan haven't increased much in the last three years. As a matter of fact, the total increase in wages merely touches 1% in any year since 1997. In the last four years, the actual increase in wages has actually gone down."
Barkley is of the opinion that the Bank of Japan is likely to release more monetary stimulus. The announcement on this may come in March when the next meet is likely to take place.
Mondays report shows that
There is some good news for Japan. On Monday, it was declared that the overall business spending had increased by 1.4% in the fourth quarter of the year Likewise, the net exports also increased to add 0.1% to the GDP. Unfortunately, private consumption and private inventories did not follow with this trend. During the fourth quarter, private consumption dropped down by 0.8%. Similarly, private inventories went down by 0.1 percentage point during the fourth quarter.
China is Japan's leading trade partners. Negative changes in the economy of China are directly affecting the economy of Japan. Companies in both China and Japan are facing the brunt of this. Since the currency of both the countries are rising, major companies are already expecting a fall in their net profits.
Panasonic Corp, the Japanese multinational giant, predicted that its net profit are most likely to register a loss at the end of the year, i.e. March because the sale of air conditioners and other electronic devices has gone down in China. Likewise, Hitachi also reduced its net profit forecast. According to the people at Hitachi, China's reduced demand for construction machinery as well as reduced demands from oil-producing countries has hit Hitachi's business prospects negatively.
Many economists have predicted that Japan will fall into recession in the next year. However, according to another survey conducted between January 29 and February 3, if this recession happens, it will be the worst kind of recession that Japan will have seen since 2012.
Friday, October 18, 2013
Japans' 10.3 Trillion Yen Fiscal Stimulus - Extra Spending in a Bid to Enhance Economic Growth
In a bid to end deflation and enhance economic growth, the Japanese government is planning a recovery mission that is speculated to cost over 10.3 trillion Yen, the equivalent of $116 billion. This initiative marks the Japanese Prime Minister Shinzo Abe's first major policy initiative aimed at restoring economic stability of Japan.
The government has structured the initiative in a way that will see the larger portion going to the sector for disaster management and reconstruction, which accounts for 3.8 trillion yen. The other part of this budget will be promoting the private sector. The private sector investment will be granted 3.1 trillion Yen, out of the total 10.3 trillion Yen. The budget is aiming at increasing the Gross domestic product (GDP) by over 2% and boosting the job sector through the creation of 600000 jobs.
What are the possible effects of this economic stimulus?
Contrary to China's inflation pick-up, Japan, one of Asia's biggest economies is recording a negative growth rate. The newly elected Prime Minister must reorganize the strategies in a way that will fully convince the citizens of Japan about the economic stability of their nation. Mr Abe has to lead the way and organize the country's priorities to rescue the country from its third economic recession that has persisted for over five years. He has planned for this economic stimulus to restore the stability of the Japanese economy. The government's focus on fiscal reform may fail as a result of the planned economic stimulus program. Additionally, this stimulus will increase the public debt by about twice the country's GDP which could be disastrous and prompt a surge in bond yields.
Implications for bond yields
Japans shorter-term bonds have recovered well, but the longer term bonds which are naturally very sensitive to inflation have recorded a decline resulting in a significant widening of the yield spread compared to the 30 year bond, this is the greatest yield spread recorded since March 2010. Also, the 10-year benchmark note has recorded a rise, lowering the yield by one basis point to 0.81 percentage points, becoming the lowest close since Dec 28. According to Abe, the stimulus contains solemn engagements to revive the Japanese economy. The Japanese central government has been obligated to accept and adopt the 2% inflation target proposed by the Prime Minister, doubling its current goal of 1%, but has not set any deadline for implementing the target or achieving it.
This stimulus will be a significant boost to the economy of Japan
According to Mr Robert Barkley, Executive Vice President of Portfolio Management with Tokyo based Orix Trading, the economic stimulus will be create a surge in Japans economy.
According to Mr Barkley’s analysis, he predicts that economic growth will result from this incentive, stating that the government's authority over the Central Bank will ensure that this initiative runs smoothly and successfully with the overall goal of improving economic growth in the least time possible.
Who will cater for this huge budget?
According to Mr Barkley, the challenges facing the newly elected Prime Minister are a significant current account deficit. The government has organized an extra 13.1 trillion Yen budget, with at least some of the funding expected to come from the sale of 5 trillion Yen bonds. Other bond issuances for this fiscal year amount to 8 trillion Yen, including a previous plan to sell 2.6 trillion Yen bridge bonds aimed at covering pensions.
In an earlier report by Mr Barkley, he says that the extra budget will help Japan realize an annualized growth in GDP of approximately 3.5% during the second quarter of this year and his company has raised it's GDP forecast from 1 to 1.8% attributing this to the impacts of the stimulus program, improved gains from exports and the recovery in the Yen.
Source: Mr Robert Barkley, Executive Vice President of Portfolio Management with Tokyo based Orix Capital Trading
Contact: https://orixtrading.com
The government has structured the initiative in a way that will see the larger portion going to the sector for disaster management and reconstruction, which accounts for 3.8 trillion yen. The other part of this budget will be promoting the private sector. The private sector investment will be granted 3.1 trillion Yen, out of the total 10.3 trillion Yen. The budget is aiming at increasing the Gross domestic product (GDP) by over 2% and boosting the job sector through the creation of 600000 jobs.
What are the possible effects of this economic stimulus?
Contrary to China's inflation pick-up, Japan, one of Asia's biggest economies is recording a negative growth rate. The newly elected Prime Minister must reorganize the strategies in a way that will fully convince the citizens of Japan about the economic stability of their nation. Mr Abe has to lead the way and organize the country's priorities to rescue the country from its third economic recession that has persisted for over five years. He has planned for this economic stimulus to restore the stability of the Japanese economy. The government's focus on fiscal reform may fail as a result of the planned economic stimulus program. Additionally, this stimulus will increase the public debt by about twice the country's GDP which could be disastrous and prompt a surge in bond yields.
Implications for bond yields
Japans shorter-term bonds have recovered well, but the longer term bonds which are naturally very sensitive to inflation have recorded a decline resulting in a significant widening of the yield spread compared to the 30 year bond, this is the greatest yield spread recorded since March 2010. Also, the 10-year benchmark note has recorded a rise, lowering the yield by one basis point to 0.81 percentage points, becoming the lowest close since Dec 28. According to Abe, the stimulus contains solemn engagements to revive the Japanese economy. The Japanese central government has been obligated to accept and adopt the 2% inflation target proposed by the Prime Minister, doubling its current goal of 1%, but has not set any deadline for implementing the target or achieving it.
This stimulus will be a significant boost to the economy of Japan
According to Mr Robert Barkley, Executive Vice President of Portfolio Management with Tokyo based Orix Trading, the economic stimulus will be create a surge in Japans economy.
According to Mr Barkley’s analysis, he predicts that economic growth will result from this incentive, stating that the government's authority over the Central Bank will ensure that this initiative runs smoothly and successfully with the overall goal of improving economic growth in the least time possible.
Who will cater for this huge budget?
According to Mr Barkley, the challenges facing the newly elected Prime Minister are a significant current account deficit. The government has organized an extra 13.1 trillion Yen budget, with at least some of the funding expected to come from the sale of 5 trillion Yen bonds. Other bond issuances for this fiscal year amount to 8 trillion Yen, including a previous plan to sell 2.6 trillion Yen bridge bonds aimed at covering pensions.
In an earlier report by Mr Barkley, he says that the extra budget will help Japan realize an annualized growth in GDP of approximately 3.5% during the second quarter of this year and his company has raised it's GDP forecast from 1 to 1.8% attributing this to the impacts of the stimulus program, improved gains from exports and the recovery in the Yen.
Source: Mr Robert Barkley, Executive Vice President of Portfolio Management with Tokyo based Orix Capital Trading
Contact: https://orixtrading.com
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