Radiation Risks In Japan for 2014
“Nothing pains some people more than having to think.” Martin Luther King, Jr.
From past crises, we know that the Indonesian banks need USD more than the rupiah. Is the BoJ trying to sell JGBs to Indonesian banks ? A country whose interest rates are typically higher than 0.076% for 1 year ? That is the 1Y JGB rate.
It is quite clear that USD is perhaps in short supply in Indonesia today with not just the USDIDR but the USDJPY both at 5 year highs.
USDIDR 5Y chart.
USDJPY 5Y chart.
It is bordering on bizarre or rather maybe I am not thinking hard enough, as the quote above goes. The BoJ is buying JGBs and encouraging their pension funds to invest in foreign funds whilst marketing JGBs to Indonesian banks ?
“TOKYO–Japan’s $1.2 trillion public pension fund should consider pairing up with an overseas fund to diversify its portfolio, and should pursue infrastructure investments, a government-appointed panel said Friday.” http://www.euroinvestor.com/news/2013/12/13/japan-government-panel-gpif-could-joint-invest-with-foreign-fund/12623638
JGBs have not found any favour with Japanese banks dumping their holdings feverishly this year, amounting to some 24% of their holdings between Mar-Aug. They cannot be blamed because as at the end of 2012, Japanese banks were holding 75% of all outstanding JGBs. (perhaps thanks to the girl band power ? with girl bands promoting bonds http://www.telegraph.co.uk/finance/economics/9290071/Japan-hires-top-girlband-AKB48-to-sell-government-bonds.html)
Despite BoJ buying 7 trillion JPY a month, bond yields have shot up instead of down. Nikkei is up 48% on the year but mostly on the fact that JPY has depreciated, stripping that out, the Nikkei is only just 24.5% up and comparable with the S&P 500’s gain and the Dax following closely at 23.3%.
They are looking for capex and wage rises now to take Abenomics to the second phase, before it starts losing steam as economic numbers continue to be lacklustre, logging another current account deficit (which could be blamed on the US shutdown ? http://www.bloomberg.com/news/2013-12-09/japan-s-economy-slows-more-than-estimated-in-third-quarter.html). The Citi Economic Surprise Index is still hovering in the negative zone and GDP has been disappointing to say the least. http://www.bloomberg.com/news/2013-12-09/japan-s-economy-slows-more-than-estimated-in-third-quarter.html
Citi Economic Surprise Index for JPY (a negative number indicates that economic data has been worse than expected)
Capex and wage rises DO NOT HAPPEN OVERNIGHT unless you are a charity or a central bank. And meanwhile Abe gets nervous because he really needs to keep the confidence going and show some results in the meantime because you really cannot disappoint the audience of the 5 year record shorts in the JPY. Now he is aiming for Womenomics. http://blogs.wsj.com/economics/2013/12/11/womenomics-may-not-be-enough-to-tackle-japans-population-crisis/?mod=WSJBlog&utm_source=twitterfeed&utm_medium=twitter
CFTC CME JPY Net Combined Positions
An IMF paper on the outlook for Japanese interest rates and banks suggests mildly that “under incomplete policies, gross government debt could exceed household financial assets —an indicator of domestic market’s capacity in financing JGBs —over a decade, requiring higher reliance on foreign investors, and possibly also raising sovereign yields.” http://www.imf.org/external/pubs/ft/wp/2013/wp13213.pdf
An article in Zerohedge puts it bluntly that “once interest rates start rising, Japan has between 4 and 6 years before it hits a default threshold.”. This is if their debt service burden rises to more than 35%, which a common percentage noted for defaults. http://www.zerohedge.com/news/2013-12-12/defying-gravity-counting-down-japans-d-day-two-charts
Meanwhile, Japanese are living to ripe old ages with 1 out of 4 above 65 years old. http://japandailypress.com/1-in-4-in-japan-now-over-65-reveals-government-demographic-survey-1635979/
260,000 aged Japanese are on feeding tubes. http://www.businessweek.com/news/2013-12-08/doctor-helps-grandma-die-to-avoid-japanese-feeding-tube-culture
Japanese wages are starting to slide as inflation returns but we are all not to be worried because we have BoJ on the 20th, a day after the FOMC.
We have radiation levels that will kill a person in 20 minutes in the Fukushima compound just a few days ago but fortunately, Japan has just signed off a secrecy bill that will probably keep it a secret. http://www.zerohedge.com/news/2013-12-07/highest-radiation-level-ever-lethal-20-minutes-recorded-outside-fukushima-reactor
Somehow, I just do not think too well about the hype going into 2014 for Japan. Perhaps my brains haven’t been fried enough to be trading against the irradiated Japanese housewives and day traders, to expect much more shock and awe than can be realistically delivered ?