Month End : Losing Patience With Abe and Hello Kitty

Read this.

“Japan’s debt burden is extraordinary. Total debt to GDP tops 500%. Government expenditure is 20x government revenues. Interest on government debt is 25% of government revenue.” http://www.forbes.com/sites/jamesgruber/2014/04/27/japan-deflation-to-end/

It is not that bad because it means that interest on government debt is just an 80th of government expenditure, considering that the Japanese stimulus package, when put into perspective vs size of their economy, is about 3 times the US QE programme.

Yet it started with such fierce hype back last year when Abenomics was launched because humans are creatures of optimism and … greed, of course. When we all knew it was not to work realistically because there is no way we can reverse an aging population, but we continue to grasp for the rose as we pushed the Nikkei to a 6 year high in January. https://tradehaven.net/market/fx/radiation-risks-in-japan-for-2014/

“But he who dares not grasp the thorn
Should never crave the rose.” Anne Bronte

The optimism in the US economy has paid off, like the punts on Greece, Cyprus, Spain and gang.

BOJ is holding a record amount of JGBs, a fifth of the total on last count. Markets played along the very last day of 2013 and then the Nikkei and USDJPY took a tumble together.

JGB HOLDINGS

And where are JGB yields now ? 1.036% for 10Y, just 0.08% off their record low back in April last year.

JGBS

QE did take a while to work but chasing inflation was not the Fed’s goal and the market is not letting Abe get away with it. Not as Japan keeps posting record trade deficits. http://www.ft.com/intl/cms/s/0/dfc69fd8-c90a-11e3-8976-00144feabdc0.html#axzz30AyCtxDn

Abe completed an overhaul of their GPIF (Government Pension Investment Fund) last week, appointing new committee members who are expected to take an aggressive investment stance to boost their economy. http://japandailypress.com/japan-overhauls-pension-fund-abe-looking-for-more-aggressive-investments-2247622/

This is after 2 IPO flops in 1 month, with government sponsored Japan Display falling 25% off its IPO price. http://www.businessweek.com/news/2014-04-27/japan-display-falls-to-lowest-since-ipo-after-forecast-miss-1

I can smell the desperation from here, pretty much similar to the Hello Kitty Craze about to grip Singapore this week as the WSJ reports, Singapore braces for a Hello Kitty riot at McDonald’s. http://online.wsj.com/news/articles/SB10001424052702303834304579523793654859518?mod=e2tw

“similar deal was unveiled in 2000….At the time, tens of thousands of people swarmed restaurant outlets to get their hands on the mouthless mascot kitten …Schoolchildren skipped class and parents ditched work to get in line. Profiteers scooped up supplies and promptly resold them for a quick buck.
Fist fights broke out while frustrated patrons threatened store managers, damaged restaurant property and compelled the fast-food outlets to hire private security firms to police crowds. At one outlet, at least seven people were injured after a glass door they were leaning on shattered.”

There is even an academic study of it. http://www.cuhk.edu.hk/jas/staff/benng/publications/Hello%20Kitty%20%28Asian%20Profile%29.pdf

I can’t see Abe grabbing Hello Kittys’ but I can see a last stand building up even if there is only so much they can do.

Let’s give him some credit, I say.

1. Tonight we start a 2 day FOMC meeting with verdict known on 1 May.

2. Let’s look at the seasonality chart of the Nikkei.

nikkei seasonality chart

Note that it has been in the red for every single May in the past 4 years.

Another way to look at would be that the Nikkei has not sustained more than 4 consecutive monthly declines, as opposed to the 9 consecutive monthly gains we saw between Aug 12 – Apr 13.

The Nikkei weekly chart showing a doji as with the daily chart.

Nikkei Weekly Chart
NIKKEI WEEKLY

Nikkei Daily Chart
NIKKEI DAILY
And beloved USDJPY going into the Ichimoku !

USDJPY ICHIMOKU

I say we wait for the FOMC, then go for USDJPY at 103.50 and Nikkei at 15,000 and forget the Hello Kitty.