Over the weekend an event we had been expecting in Japan arrived although as you can see many were rather wrong-footed.
apan just shocked the world. Sanae Takaichi is now Prime Minister, Japan’s first-ever female leader and she’s coming in swinging with huge stimulus plans. Markets are ripping and investors everywhere are bracing for what comes next. (StockMarket.News )
We were on the case on the 8th of September.
Along the way we can note the possibility of Japan getting its first female Prime Minister. That is significant for a society that has elements of male domination. But it is not that simple as remember if is “Mrs Watanabe” who runs the money.
As ever things are not as simple as knee-jerk analysis suggests and as time progressed Takaichi-san became an ever stronger candidate. That brings us to the economic consequences that I pointed out back then.
Takaichi is an “apostle of Abenomics”, according to Eurasia Group, a reference to the economic policies of Abe, which espoused large-scale monetary policy easing, fiscal spending and structural reforms.
“Investors will closely watch Takaichi’s electoral prospects because of her previous pointed criticism of the Bank of Japan’s plans to raise interest rates, and her support for larger fiscal stimulus,” the note added.
So if we skip the politics we find that we are expecting a type of Abenomics 2.0 and we start to wonder if having started on this road that it was inevitable that we would get a Terminator style “I’ll be back”? Ot as Robert Palmer put it.
Whoa, you like to think that you’reImmune to the stuff, oh, yeahIt’s closer to the truth to say you can’t get enoughYou know you’re gonna have to face itYou’re addicted to love.
Or to go back to StockMarket,News.
Takaichi’s plan: spend big. Billions for rural development, infrastructure upgrades, and national defense. Tech and industrial giants expect a windfall from semiconductors to shipbuilding.
So yet another fiscal stimulus in a long list of them. If it feels relentless you are right and it comes with more than a few consequences. We can start with my theme that we have political classes who always return to Plan A of fiscal stimulus as we wonder of there is ever a Plan B?
Number Crunching the fiscal statistics
As we stand the Ministry of Finance tells us the 2025 Budget is balanced. But of the revenues some 24.9% of that is government bond issuance. I classically Japanese style there is a category for Special Deficit Financing Bonds at 19% of revenue and some 5.9% of revenues is provided by the sale of Construction Bonds.
That leads to this and it feels like only yesterday it passed 1,000 trillion.
Theoutstandingamount of Japan’sgovernment general bondshasbeen increasedyearafter year.It isprojectedtoreach1,129trillionyenat theendofFY2025.
Japanese Government Bonds
Those who follow my work will know that a couple of ear ago I pointed out that I thought that the ten-year yield would settle between 1.5% and 2%. This morning it rose to a seventeen year high of 1.69%. If I divert from blowing my own trumpet the fiscal issue for Japan is that in addition to its other fiscal problems debt costs are on the march.
Plus it is hard to describe to newer readers how until recently this was considered unthinkable in Japan.
JAPAN 40–YEAR BOND YIELD RISES 14 BASIS POINTS TO 3.52% ( Zerohedge)
A whole raft of bond investment looks simply awful as we see one group who have been feeling real financial pain.
The Japanese Yen
Expected Abenomics only means one thing for the Japanese Yen.
Market is reacting to Japanese election over the weekend Yen weakened by 1.4% against USD. ( David Lee)
Actually it is more than that now with it nearly some 3 big figures higher at 15030 In the excitement many seem to have forgotten that we are in a zone where the Bank of Japan has intervened before. I am not expecting any immediate move but it may be best if the foreign exchange dealers there make sure they get plenty of rest.
This also means that the UK Pound £ is at 201.8 and a move through 200 always feels significant after us falling back to around 125. Also I note this.
EURJPY into 175.38…..a new ATH in this cross rate… as they say, real men and women trade EURJPY ( Chris Weston)
A factor here is that the Euro is a relatively new construct. But it has been strong. It would also appear that a new Japanese Prime Minister trumps another French prime minister biting the dust as we see the French continuing their touch of The Vapors.
I’m turning JapaneseI think I’m turning JapaneseI really think soTurning JapaneseI think I’m turning JapaneseI really think so.
The Stock Market
Those who are used to the stock market in an exporting country heading in the inverse direction to the currency will have a wry smile at this.
Japan stocks surged to record highs …….The benchmark Nikkei 225 index rose by 4.1 per cent to 47,650 points on Monday in Tokyo The broader Topix share index gained 2.3 per cent to a fresh record high.
As you can see it gapped up and well played if you are long as this reply on my social media feed adds up.
The investment trusts I own that invest in Japan only up 2.5-3% this morning, but they’ve been a good investment for the last couple of years. Along with another leap in gold. ( David McConnell)
Also as he has mentioned it Japanese gold investors are no doubt getting out their best sake glasses and bottles.
The Tokyo Whale
To say the least there is a lot going on at the Bank of Japan! Thinking about currency intervention. Considering itself as a financial genius for buying aroun 7% of the Japanese stock market. Trying not to think about the enormous losses on its 572 trillion Yen holdings in Japanese Government Bonds. The plan for the latter is denial as O pointed out on October 2nd 2023.
For example, the FRB, like the Bank of Japan, uses the amortized cost method and discloses
unrealized gains/losses as reference information. As of March 31, 2023, the FRB held substantial unrealized losses on its bond holdings, amounting to 0.9 trillion dollars.
However, this does not directly affect its actual profits/losses, as in the case of the Bank of
Japan. ( Governor Ueda)
Which has become denial with ever more zeroes added.
Oh and regular readers will be aware of my view that the Bank of Japan was never very keen on raising interest-rates which is why they have only reached 0.5%. More rises got even less likely today.
Comment
Let me keep it simple and look ahead. A lower currency and more fiscal stimulus means that the Japanese can expect both inflation and the cost of living crisis to persist. So whilst we have this year seen an end to one feature of The Lost Decade era which is the way that the Nikkei 225 has rallied well above the 1989 high.
Another feature of The Lost Decade which is struggling and often lower real wages looks set to continue though. I do realise that newer readers may be surprised at this as the MSM has continually told us that Abenomics was on the verge of producing real wage rises. Only one problem with that ( the actual numbers).