Posts Tagged ‘Japan’
Japan’s Nikkei 225 Overtakes Dow For First Time In 3 Years
Sunday, 19 May 2013 23:25
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Following an 80% rise off October 2012 lows, Japan’s Nikkei 225 nominal price just exceeded that of the Dow Jones Industrial Average for the first time since May 6th 2010. Though the Dow is around 8% above its 2007 all-time highs, the Nikkei remains 16% below its 2007 highs (and over 60% below its 1989 all-time highs). While the Dow is pushing its P/E towards 15x, the Nikkei just passed 28x – quite a ‘valuation’ difference. JGB futures – though not halted yet – are plunging notably (with JGB yields up 3-4bps). The last time the Nikkei was here a USD bought 95 JPY, now it buys 103… (Read more…) and 10Y Japanese government bonds yielded 1.29% against today’s 86bps (compared to 10Y Treasuries 3.5% then and 1.96% now) …

 

 

and JGB Futures are plunging…

 

Charts: Bloomberg

    



 
Central Banks to Dominate the Forces of Movement in the Week Ahead
Sunday, 19 May 2013 20:00
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The most important force that has lifted the US dollar across the board is the sense, encouraged by official comments, of the potential divergence in the trajectory of monetary policy between the US and most of the other major high income countries. 

In particular, the pendulum of market psychology has swung back toward speculation of tapering off of QE-related asset purchases by the Federal Reserve.  At the same time, ECB officials continue to indicate they are carefully considering a negative deposit rate. (Read more…) Many still expect the Bank of England to resume its gilt purchases program and new initiatives on its forward guidance in Q3 after Carney takes the helm. 

Meanwhile, Carney and the Bank of Canada continue to push further out when they anticipate full capacity will be reached and when it will remove some accommodation by increasing interest rates. The recent string of economic data, including prices, has been generally softer than expected and the forward guidance the central bank has offered is becoming less credible. Additional easing by the Reserve Bank of Australia, though the recent sharp drop in the Australian dollar appears to tempering expectations of a rate cut as early as next month.

Japan’s quantitative and qualitative easing is not even two months old. It is far too early to suggest a reassessment, though Q4 12 GDP was revised up and Q1 13 GDP came in stronger than expected and may be revised after Japan releases the latest capex figures in early June. Capital investment was an unexpected drag on Q1 GDP and may be adjusted higher.

Although there are several important pieces of economic data in the days ahead, including UK inflation and retail sales reports, euro area flash PMI readings, German IFO, Japan’s latest trade figures, US durable goods orders, the focus is on the central banks.

The Fed’s Dudley and Bollard speak on Tuesday, but the real interest is on Bernanke’s testimony on the economic outlook on Wednesday. Comments by regional Fed presidents who do not vote this year on the FOMC has helped fan speculation of tapering off of Fed purchases in Q3.   Bernanke is likely to reiterate that the Fed is vigilantly watching the impact of QE on the financial markets and risk-taking generally.  However suspect it is too early for Bernanke to signal a shift in the pace of QE. Not only has the full impact of the fiscal tightening this year not yet been fully transmitted, but also the decline in core inflation readings suggests no strong urgency to alter the pace of the asset purchases.

There are at least eight ECB officials that speak in the coming days, including Draghi and Weidmann on Thursday. The official line is that the ECB is technically prepared to adopt a negative deposit rate, and there were rumors last week that it had contacted at least one bank to discuss.

Most analyses seem to focus on the potential unintended consequences. More problematic, we suspect are the unforeseeable consequences to financial disintermediaries of policies that frankly have not been tried by other major central banks. In addition, shrinking margins and attempts to secure deposits may become more challenging, for example, and could lead to new borrowing from the ECB or ELA (emergency lending assistance).  

Moreover, the intended benefits—to bolster lending, especially to small and medium size businesses– may be elusive in the face of soft demand and recessionary conditions in much of the euro area, including several core countries.  We expected that when the cost/benefits have been analyzed, the ECB will decide to refrain from pushing the deposit rate below zero.  

The BOJ is the only major central bank meeting this week. Its two day meeting concludes Tuesday. For the most part BOJ Governor Kuroda must be fairly pleased. The growth is sufficient that the BOJ is likely to revise up its assessment of the economy. Inflation expectations, as revealed in the break-even rates of its inflation linked bonds have increased. The yen has weakened and the Nikkei has rallied. International resistance has been quite modest despite the traditional and social media playing up the “currency war” metaphor.

The main problem has been the Japanese government bond market. The increase in yields seems considerably earlier and more dramatic than officials anticipated. The marked increase in volatility is poses a significant threat to some market segments whose investment strategies that are particularly sensitive to shifts in value-at-risk models.  

Just like the low vol environment encouraged investors such as banks and leveraged accounts to trade large size, the increase in volatility is forcing them to reduce exposures. This aggravates the lack of liquidity and tends to reinforce the increase in volatility. The BOJ has already tried to alter is asset purchases, making smaller and more frequent transactions. 

Officials may steps up their verbal assurances and large scale injections of short-term liquidity did help stabilize the JGB market at the end of last week.  Economic Minister Amari’s comment that the yen’s weakness has been corrected and additional weakness may be counter-productive, suggests heightened concern about the bond market.  

Minutes from the recent Reserve Bank of Australia’s meeting that resulted in a 25 bp rate cut will be released. We look for the minutes to reiterate the statement issued after the rate cut. Previously, the RBA had identified scope to ease and they used part of that scope. This still leaves the door open to additional rate cuts. Concerns about the impact of the strength of the Australian dollar may seem a bit dated given the recent slide in the Australian dollar, though by most measures, it remains significantly over-valued.

The BOE publishes minutes from the recent MPC meeting on Wednesday. The minutes will likely echo the sentiments of the latest quarterly inflation report in which the BOE shaved its inflation forecast and lifted its growth forecast. In April, three MPC members, including the governor, voted to resume gilt purchases. They have failed to persuade a majority. With stronger economic data and the proximity of Carney’s ascension, it will be interesting to see if there were defections from the minority.

At the BOJ, Kuroda was able to secure a majority in favor of new and more aggressive quantitative easing, even though some similar measures had been previously rejected by the same board.  The Bank of England is horse of a different color. The thinking seems to be more independent. Critics have harangued about Governor King’s management style, but he is a rare species of central bank heads that has allow himself to be outvoted on several occasions. Carney may find it more difficult than Kuroda in bending the central bank’s monetary policy to his will.

    



 
Crushed By Soaring Energy Costs, Japan Prepares To Reactivate Its Nuclear Power Plants
Sunday, 19 May 2013 18:51
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In what was painfully obvious to everyone with half a brain months ago (see here) Japan’s desperate gambit at reflating would backfire massively by sending energy prices soaring in a world in which Japan no longer has access to internally producer, nuclear power plants and is forced to import all of its energy from abroad. For a glimpse of the horrors awaiting Japan’s utilities and those consumers lucky enough to have electricity in their homes, here is a chart of Japanese LNG costs expressed in Yen: hardly the stuff sustainable, discretionary income-led recoveries are made of. And this was three months ago: now it’s much, much worse.

Because as we also showed using the chart below, unless Japan actually restarts its nuclear power plants, it is doomed to a future in which all the import-led price inflation (Read more…) to such trivial, non-core items as energy and, of course, food. But who cares about those…

Well, apparently after six months of dithering, Japan does.

First it was Japan’s economy minister chiming in with his views on the fair value of the USDJPY (apparently, now it is too high), who also made it clear that Japan has no choice but to restart the same nuclear power plants that two years resulted in the biggest nuclear catastrophe since Chernobyl.

And now, proving that Japan has learned absolutely nothing from its recent past, it is now preparing to risk yet another Fukushima, just to make sure that Goldman’s partners have a fresh year of record bonuses, driven by the BOJ’s monetary insanity. Yomiuri Shumbun reports, that just two years after a wholesale shutdown of Japan’s nuclear power plants demanded by the people, Japan is once again going to reactivate its nuclear power plants, much to the chagrin of the already massively irradiated local population.

Tokyo Electric Power Co. has decided to apply to the nuclear regulating body to restart two reactors at its nuclear power plant in Niigata Prefecture by the end of July, after revised safety standards are implemented earlier that month, it has been learned.

 

Reactivation of the two reactors at the Kashiwazaki-Kariwa nuclear power plant could help stabilize the power supply situation for eastern Japan, including the Kanto region, which is part of TEPCO’s service areas; and the Tohoku region, Tohoku Electric Power Co.’s service area for which TEPCO provides electricity. In doing so, the company could prevent electricity fees from rising further.

 

Reactivation of the reactors could also help TEPCO’s management reconstruction drive, as the utility faces additional fuel costs for thermal power generation to make up for power shortfalls due to the suspension of nuclear power reactors.

 

The application to the Nuclear Regulation Authority will be made for the Nos. 1 and 7 reactors at the Kashiwazaki-Kariwa plant in Niigata Prefecture. The move is expected to coincide with similar applications to be filed by four other operators for reactors at their five plants, according to officials.

So which nukes are set to go live?

The reactors could be reactivated after passing the NRA’s safety inspections and obtaining consent from local governments. The reactors that the four utilities are applying to restart are at:

  • Hokkaido Electric Power Co.’s Tomari nuclear power plant in Tomari, Hokkaido.
  • Kansai Electric Power Co.’s Takahama nuclear power plant in Takahama, Fukui Prefecture.
  • Shikoku Electric Power Co.’s Ikata nuclear power plant in Ikata, Ehime Prefecture.
  • Kyushu Electric Power Co.’s Sendai nuclear power plant in Satsuma-Sendai, Kagoshima Prefecture, and Genkai nuclear power plant in Genkai, Saga Prefecture.

The Kashiwazaki-Kariwa plant has boiling water reactors–the same type as those at the Fukushima No. 1 nuclear power plant, which suffered meltdowns following the March 2011 earthquake and tsunami.

But don’t worry: this time there are “filters” in place to catch all that evil gamma radiation if and when the Fukushima disaster should repeat itself:

TEPCO has decided to apply for reactivation of the Nos. 1 and 7 reactors, as work to install filtered vents is expected to be completed by the end of July, according to officials.

 

The filters help minimize the amount of radioactive materials released into the air in the event of a serious accident. Under the revised safety standards, such vents will be required for nuclear reactors.

There is some hope the people will refuse to be willing Guinea pigs in what is rapidly becoming the most insane, ridiculous experiment, where disproving statist Keynesian voodoo may and will literally cost people their lives…

Hirohiko Izumida, governor of Niigata Prefecture, which has signed a safety agreement with TEPCO, remains cautious over the reactivation the Kashiwazaki-Kariwa plant reactors.

 

“We won’t discuss resuming operations [of the reactors] until results of the review into the crisis at the Fukushima No. 1 plant are presented,” he has said.

 

TEPCO’s study has revealed that faults beneath the buildings for the Nos. 1 to 3 reactors and the Nos. 5 to 7 reactors show signs of having shifted 200,000 to 330,000 years ago. TEPCO has said they are not regarded as active faults under the current safety guidelines, but could be under the revised guidelines. As a result, the utility may be told to reinvestigate the matter.

… Although we doubt it: it is only a matter of time before some Japanese central planner takes the mic, and reads the Goldman script, promising all disastrous future earthquakes and tsunamis have been henceforth banned and made illegal, and the BOJ will guarantee nothing bad can ever happen to the earthquake prone nation, located along one of the most active seismic faultlines in the world.