Tag Archives: Japan

IMF Sees Japan Inc.’s Cash Hoard as Excessive and Wages Too Low

Bloomberg, Sep 28, 2016

The rich and powerful versus the weak and underpaid.

That’s how the International Monetary Fund sees Japan’s relationship between employers and workers. Unless more is done to address the problems in the country’s labor market, Japan as a whole will be the loser, according to the IMF’s mission chief for the country, Luc Everaert.

“We are concerned the reduction in the wage bargaining power of labor has gone too far,” Everaert said in an interview in Tokyo. “We have introduced too much flexibility in the Japanese labor market in favor of employers.”

Everaert, 55, was speaking after data from the Bank of Japan on Monday showed corporate cash and deposits rose to a record 242 trillion yen ($2.4 trillion) last quarter, underscoring employers’ reluctance to heed calls for stronger wage growth and capital investment. Stagnation in salaries is undermining consumer spending in Japan and efforts to spur inflation and sustained economic expansion.

It is not the first time Everaert has waded into the wages debate since becoming the IMF’s mission chief for Japan in September last year. He has advocated using moral suasion to name and shame highly profitable companies that won’t raise salaries much, and suggested using tax incentives to promote pay hikes.

Japan’s company-based labor unions have focused on trying to maintain lifetime employment for full-time workers at the expense of pushing for more pay, and have provided little or no representation for the rising number of people on part-time, contract and temporary positions. This second category of employees, collectively known as non-regular workers, now account for about 40 percent of the labor market.

Everaert views Japan as having gone from one extreme — a rigid lifetime model that handicaps companies’ ability to adapt to economic changes — to another that provides so little job security and benefits to non-regular workers, which ultimately harms the economy because it crimps consumer spending.

“The lifetime model has served the Japanese economy well from a historical perspective in the 60s and 70s,” he said. “I think the system has outlived its usefulness.”

Labor Mobility

Japan needs employment contracts somewhere in between these extremes, which would allow companies to restructure their workforces, while providing reasonable severance conditions and benefits to workers, including portable pension plans, he said. Everaert noted that boosting the mobility of full-time, regular employees would be good for wage dynamics and the efficient allocation of labor.

He does give the government credit for efforts to raise the minimum wage and pay for nursing care workers.

Everaert said the government should do away with a spousal tax deduction that reduces the incentive of many married women to work full-time.

Without labor-market reforms, the central bank’s monetary easing and the fiscal stimulus from Prime Minister Shinzo Abe’s government will fall short of changing the course of the Japanese economy, Everaert said.

“It’s crucial if Abenomics want to achieve their targets within the time-frame that they set for themselves,” he said. Without boosting wage growth and getting the right amount of flexibility into the labor market, Japan won’t see growth rates much higher than those of today, he said.

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Japan Set to Give Details of $273 Billion Stimulus Package

Bloomberg, Aug 1, 2016

10-yr_japan_bond

* Abe seeks to prop up economy after BOJ keeps action minimal
* Economy minister to keep job in cabinet reshuffle: NHK

Japan’s government is set to announce details Tuesday of a 28 trillion yen ($273 billion) stimulus package, as it seeks to bolster an economy threatened by a strengthening yen and weak consumer spending.

Prime Minister Shinzo Abe flagged the size of the package in a speech last week, saying more investment was needed to expand the world’s third-largest economy. He said funds would be used to provide better port facilities for cruise ships and accelerate the construction of a high-speed maglev train line.

Actual spending will only make up about 7 trillion yen, according to a person familiar with the matter, with the rest consisting of loans and other financing, probably spread over several years. The package is the latest in a long series that have had limited impact on the economy, while Abe’s promise to make structural reforms — tackling areas like immigration and employment regulation — has fallen short of expectations.

The cabinet’s expected approval of the package comes as exporters grapple with the yen’s rise, Britain’s vote to leave the European Union and a slowdown in emerging economies. At the same time, concern is growing that the Bank of Japan is running out of options for further easing, after it made only minor policy adjustments at a meeting last week.

“The fiscal spending will probably include public works spending, so we can expect something of an economic boost,” said Masaki Kuwahara, an economist at Nomura Securities Co. in Tokyo. But such growth may not be sustainable. “What Japan needs to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation’s potential growth rate.”

Abe is seeking to expand the economy by 20 percent by 2020. To do so, he’s pledged measures to bolster household incomes, increase the birth rate and provide more care facilities for children and the elderly.

After announcing in June he would put off an increase in the sales tax, he promised last week to tap reserves in the unemployment insurance fund to lower premiums and increase payouts.

Cash Handouts

Natsuo Yamaguchi, leader of Abe’s junior coalition partner Komeito, told reporters on Tuesday after a meeting with Abe that the budget measures in the package would amount to 13.5 trillion yen and the stimulus would boost gross domestic product by about 1.3 percent.

NHK reported last week the package — the second to be compiled in the current fiscal year — would include cash handouts of 15,000 yen for those on low incomes, with 10.7 trillion yen set aside for infrastructure spending and 10.9 trillion yen to help smaller companies weather the impact of Brexit.

Exporters have suffered as the yen soared over the past six months from more than 120 yen to the dollar to about 103. Panasonic Corp. last week partly blamed the strong yen for a fall in quarterly profit. Household spending has dropped in 10 of the past 12 months.

The package comes the day before a minor cabinet reshuffle in which most senior ministers are expected to keep their posts. Economy Minister Nobuteru Ishihara will stay on, NHK reported, after speculation he might be replaced following the defeat of Abe’s candidate in the weekend election for Tokyo governor. Finance Minister Taro Aso and Chief Cabinet Secretary Yoshihide Suga will keep their jobs, according to local media.

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Bank of Japan quietly buying up huge stakes in nation’s blue-chip companies

The Straits Times, Apr 25, 2016

Businessmen walk past the Bank of Japan (BOJ) building in Tokyo.

They may not realize it yet, but Japan Inc.'s executives are increasingly working for a shareholder unlike any other: the nation's money-printing central bank.

While the Bank of Japan's name is nowhere to be found in regulatory filings on major stock investors, the monetary authority's exchange-traded fund purchases have made it a top 10 shareholder in about 90 per cent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data.

It's now a major owner of more Japanese blue-chips than both BlackRock, the world's largest money manager, and Vanguard Group, which oversees more than US$3 trillion (S$4.06 trillion).

To critics already wary of the central bank's outsized impact on the Japanese bond market, the BOJ's growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance.

Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.3 per cent this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying - a move that could come as soon as Thursday.

"For those who want shares to go up at any cost, it's absolutely fantastic that the BOJ is buying so much," said Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo. "But this is clearly distorting the sanity of the stock market."

Under the BOJ's current stimulus plan, the central bank buys about 3 trillion yen (S$36.53 billion) of ETFs every year. While policy makers don't disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The BOJ declined to comment on Bloomberg's findings.

The estimates reveal a presence in Japan's top firms that's rivaled by few others, with the BOJ ranking as a top 10 holder in more than 200 of the Nikkei gauge's 225 companies. The central bank effectively controls about 9 per cent of Fast Retailing Co, the operator of Uniqlo stores, and nearly 5 per cent of soy sauce maker Kikkoman Corp. It has an estimated shareholder rank of No. 3 in both Yamaha Corp, one of the world's largest makers of musical instruments, and Daiwa House Industry Co, Japan's biggest homebuilder.

If the BOJ accelerates its ETF purchases this week to an annual rate of 7 trillion yen - the pace predicted by Goldman Sachs - the central bank could become the No 1 shareholder in about 40 of the Nikkei 225's companies by the end of 2017, according to Bloomberg calculations that assume other major stakeholders keep their positions unchanged. It could hold the top ranking in about 90 firms using HSBC Holdings' estimate of 13 trillion yen.

While the BOJ's ETF buying has come under fire from opposition lawmakers, Governor Haruhiko Kuroda has repeatedly defended the programme, saying as recently as last week the purchases aren't big relative to the size of Japan's stock market.

At an estimated 8.6 trillion yen as of March, the BOJ's holdings amount to about 1.6 per cent of the total capitalization of all companies listed in Japan. That compares with about 5 per cent held by the nation's Government Pension Investment Fund. The central bank's use of large-cap ETFs means its positions are concentrated, with less impact on the thousands of Japanese companies outside benchmark indexes.

State intervention in stock markets has worked out well for some countries. The US government spent US$245 billion to prop up banks during the global financial crisis in 2008, earning a profit of about US$30 billion on their investments as the industry recovered. At the height of the Asian Financial Crisis in August 1998, Hong Kong bought HK$118 billion (S$20.59 billion) of local shares to defend its currency peg, helping to fuel a rally that allowed it to dispose of the entire stake within five years.

In Japan, there's little sign that BOJ share purchases have inflated Japanese valuations to dangerous levels. The Nikkei 225 trades at 16 times estimated earnings for the next 12 months, in line with the MSCI World Index. Over the past five years, the Japanese gauge has fetched an average premium of 14 percent.

Still, the longer the BOJ's buying persists, the bigger the risk that market prices will detach from fundamentals. Assuming Goldman Sachs's prediction for more stimulus proves correct, the BOJ could end up owning a quarter of Mitsumi Electric Co, a supplier to Apple Inc, and 21 per cent of Fast Retailing by the end of 2017, estimates compiled by Bloomberg show.

With such large stakes sitting in index-tracking ETFs that lack a mandate to scrutinize company performance, the BOJ's intervention could also hamper attempts to improve Japan's corporate governance, according to Nicholas Benes, representative director of the Board Director Training Institute of Japan.

"The reality of index ETFs is that their commissions are very low and they cannot spend much on engagement or analysis for proxy voting," Benes said.

The central bank said in December that it plans to buy additional ETFs that weigh holdings based on metrics that include research spending and employee wage growth, but the BOJ hasn't started those purchases yet because the funds don't exist.

While bulls have cheered the BOJ's efforts to lift share prices, the central bank is bound to reverse its intervention at some point, a potential source of instability that Sumitomo Mitsui Trust Bank Ltd says is increasingly on the minds of long-term investors.

"Of course, you can argue that we're in abnormal times so we have abnormal measures," said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui. "The biggest question in the future will be: What happens when the BOJ exits?"

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Japan Is Fast Approaching the Quantitative Limits of Quantitative Easing

Bloomberg, Apr 7, 2016

The Bank of Japan is running out of government bonds to buy.

The central bank’s would-be counterparties have become increasingly unwilling to sell the debt that monetary policymakers have pledged to buy, and the most recently issued 30-year Japanese bond didn’t record a single trade during a session last week as existing owners opted to hoard their holdings.

The central bank in the land of the rising prices sun has set a target of 80 trillion yen ($733 billion) in government bond purchases per year in its continued attempts to slay deflation, an amount that’s more than double the pace of new bond issuance planned by the Ministry of Finance and about 16 percent of gross domestic product.

Source: Bloomberg

But safe assets like government debt aren’t just attractive to central banks looking to force investors into riskier asset classes and push down the cost of borrowing or to pensioners looking for a reliable source of income—they’re also in high demand by financial institutions for use as collateral.

That’s because where there is a dearth of safe assets, there is also an incentive and tendency for them to be manufactured; that is, improperly labeled as such. Past results certainly haven’t been pretty.

As the Bank of Japan begins to rub up against the technical constraints of its asset purchase program, Jefferies Group LLC Chief Global Equity Strategist Sean Darby proposes a radical solution: consolidate some of the Bank of Japan’s existing holdings of debt into a perpetual bond—that is, one with no maturity and therefore no principal repayment—with a coupon of zero.

“There is a growing realization that there are effective limits to how much more Japanese government bonds can be acquired,” he writes. “The BoJ is approaching a shortage of Japanese government bonds for the central bank to buy, as commercial banks, pension and insurance funds have run down their holdings.”

Darby cited a working paper from the International Monetary Fund which concluded the collateral needs of financial institutions were such that the Bank of Japan might be forced to begin tapering its purchases of sovereign debt in 2017 or 2018, to bolster his case.

The thinking here is that as the Bank of Japan reaches the quantitative limits of quantitative easing, the issuance of such a perpetual bond that costs nothing to service would be a way to offer the government a blank cheque to proceed with fiscal stimulus such as boosting spending or cutting taxes.

The strategist believes the Bank of Japan will drop hints about its intention to pursue such a plan at its April meeting.

The Bank of Japan’s decision to shock investors and adopt a negative rate regime in January—one week after Governor Haruhiko Kuroda said such a move wasn’t needed at the time—was spurred by a desire to push yields at the longer end of the curve as low as possible in preparation for the consolidation of existing debt into a zero coupon bond, according to Darby.

“The authorities are attempting to push bond yields down below existing nominal GDP, so that the existing debt can be converted or ‘consolidated’ into a perpetual zero coupon bond presumably before any ‘tapering announcement,'” he writes.

Whether this extreme step will ever be taken—in particular on the timetable the strategist suggests (i.e. ahead of the elections scheduled for this summer)—is highly questionable.

But Darby’s suggestion does underscore that with Japan unable to declare ‘mission accomplished’ on its quest for reflation and a shortage of bonds looming, it’s time to consider Plan (perpetual) B.

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Japan considers giving away money to boost consumption

RT, Mar 25, 2016

© Kim Kyung-Hoon

Following the examples Finland, Canada and the Netherlands, the Japanese government is considering issuing money ‘vouchers’ to poor young people.

Tokyo plans to include gift certificates for low-income youngsters in the fiscal supplementary budget this year. The measure aims to halt a significant decline in consumption among the young.

The vouchers are considered to be more effective than cash handouts that could be deposited. People might use the coupons for their daily needs.

Consumption among young people is key to economic growth, according to the Japanese government. Recent surveys have shown that under 34-year old Japanese have cut spending by 11.7 percent year on year.

Japan is not the only country considering implementing the system known as ‘basic income’. Last November the Finnish social insurance institution proposed to allot a tax-free income of €800 per month. In various cities throughout the Netherlands people will receive an extra €1,100.

In February, authorities in Canada’s Ontario Province voiced plans to launch a pilot program of basic income later this year. Switzerland is due to hold a referendum on the issue this year.

Basic income was initially proposed in the 1960s and briefly tried out in the US and Canada. The idea has gained popularity in recent years as it could level income and wealth inequality.

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