Japan’s Errant Helicopter Heave
Japanese investment trusts continued net emerging market fund outflows as domestic bond yields turned positive and the Nikkei index was up 5 percent through December on over 5 trillion yen in central bank annual ETF buying for 60 percent of the market. New UN statistics boosted the economy’s size on estimated 1 percent growth this year and next on indications that monetary policy will switch from quantitative easing to government bond absorption in gradual “helicopter money” fiscal stimulus. Officials will target long-term yields above zero in an effort to encourage 2 percent inflation expectation, as prices again verge on deflation and the yen settles in the 105/dollar range after an immediate post-Trump election plunge. Business sentiment as measured by the Tankan survey has improved but manufacturers remain wary of China and other key overseas markets. The central bank is now a top shareholder in one-third of listed companies, and has begun to draw criticism from the over $1 trillion state pension fund and other institutional investors for large block control affecting values. The so-called third structural reform “arrow” of Abenomics has also stumbled with US rejection of the Trans-Pacific Partnership, and the Prime Minister flew to New York for a brief meeting with President-elect Trump to get reassurance on bilateral commercial and military ties. Tokyo continues to be evaluated in the Treasury Department’s regular currency manipulation analysis, and the Republican candidate called for possible renegotiation of the Okinawa base presence to secure more local payment and personnel. Japan “hawks” in Washington have resurfaced from 1980s battles urging tougher trade stances, but the argument is blunted by the country’s recessionary “lost decades” since which have also reversed banks’ global power and profitability. Smaller regional banks are struggling again with the zero-interest rate policy and anemic borrower demand, while mega-lenders have rediscovered export finance niches abroad which have come under pressure with slowing trade. In recent years they have expanded into frontier markets like Myanmar bolstered by aid agency programs which may soon be retrenched on human rights and foreign opening setbacks. The civilian-military regime headed by Nobel laureate Aung San Suu Kyi has been in the spotlight for alleged abuses of the Muslim Rohingya minority, forcing large-scale exodus to neighboring countries by land and sea. Despite headline 7 percent growth and sanctions lifting, liberalization and privatization efforts have been halting and banking and the nascent stock market still lack basic oversight.
Singapore stocks were flat through December as the hub endured a Q3 4 percent contraction on a double-digit slide in non-oil domestic exports. Local foreign exchange deposit growth has shrunk noticeably with the unwinding of China-oriented carry trades, and real estate prices have likewise softened with reduced Chinese purchases. The monetary authority has kept a neutral stance into 2017, while allowing “some flexibility” to ease especially if deflationary tendencies persist. Bank bad loans are creeping toward 4 percent of the total, and the local dollar has been in the cross hairs on more services weakness and safe haven reputation harm with implication in Malaysia’s 1MDB scandal. The Prime Minister also took a personal blow after a special appearance with President Obama to promote TPP before the treaty was consigned to the chopper.
