Wednesday, 17 April 2013 - 20:00
Japanese aggressive monetary policy
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Japan is the latest country to embark on aggressive expansion of its money supply. In the last few months the bold monetary policy initiative from the newly installed prime Minister of Japan, translated into an immediate depreciation of the yen versus the US dollar and at the same time a huge uptick in Japanese share prices.
In the 1970’s Japan experienced high monetary growth. This led to a major bubble in the property and stock market, culminating in the Nikkei 225 index reaching 38 900 in late 1989. Then the Bank of Japan put on the brakes in order to reign in the monetary supply. The stock market and property bubble burst and the economy went into recession. The stock market index went into a long term decline from its peak to an eventual low of 7055 in March 2009. At its peak, the Japanese share market comprised 45% of the MSCI World index. It has now fallen to just 8%.
The Japanese economy has been in general recession over the last two decades, despite the fact that the Bank of Japan ran a zero interest rate policy for much of this time. This is possibly because prices have been in decline and therefore real interest rates were actually too high – i.e. monetary policy was actually tight throughout most of this period, leading to a strong currency. Price deflation and a strong currency encouraged high savings, low investment and in turn on-going deflation.
Renowned economist Milton Friedman said this in a speech in 2000, “As far as Japan is concerned, the situation is very clear...They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high-powered money starts getting the economy in an expansion. What Japan needs is a more expansive domestic monetary policy. Bold monetary policy achieved through the cooperation of the government and the Bank of Japan will be indispensable for breaking away from deflation and the appreciating yen.”
Following years of half-hearted attempts to stimulate the weak economy, the new leadership has taken up on Friedman’s recommendation. The new Japanese Prime Minister, Shinzo Abe, together with new leader of the Bank of Japan announced sweeping economic and monetary easing policies - now termed as Abenomics. “Bold monetary policy achieved through the cooperation of the government and the Bank of Japan will be indispensable for breaking away from deflation and the appreciating yen.” -Prime Minister Shinzo Abe, January 11, 2013.
While high inflation is a problem for any economy, even more so is deflation. Japan has been in a deflation scenario for two decades and this latest plan is essentially an attempt to break the back of deflation in the economy.
The deflation environment has hampered business growth and according to BCA Research, the total amount of corporate profits today is essentially the same as 20 year ago, compared to the US, which is up 5 times. See chart below.
Source : BCA Research
The announcement sparked a depreciation in the yen against the USD from around 83 yen to its current 98 yen to the dollar. BCA Research estimates that this decline should translate into about a 35% increase in corporate profits for Japanese companies. The announcements led to a sharp uptick in prices with the Nikkei 225 index up from around 9 000 in November to the current level of around 13200.
The Japanese Nikkei 225 index
Will bold monetary policy work?
While the announcement of the impending monetary supply has proved positive for Japan, there is a growing degree of scepticism globally that the large scale aggressive monetary policy that the US, Europe and now Japan have embarked upon will lead to possible disastrous consequences.
So far it has had the exact intended result in Japan and should it prove to be sustainable, maybe just maybe Japanese companies may prove to be global winners.
Ian de Lange
021 914 4966
Wed, 17 Apr 2013
Revenue increased to R1.9 billion (R1.8 billion). Earnings before interest, taxation, depreciation and amortisation ("EBITDA") declined to R126.3 million (R145.2 million) and operating profit was lower at R106.2 million (R123.4 million). Total comprehensive income attributable to ordinary shareholders decreased to R77.3. . .
Revenue increased to R969.7 million (R763.5 million). Gross profit was higher at R258.3 million (R202.8 million) and earnings before interest, taxation, depreciation and amortisation ("EBITDA") rose to R123.9 million (R97.4 million). Net attributable profit was more than 25% higher at R70.1. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||33230.97||-630.00||-1.86%|
|JSE Indust 25||17:00||41527.78||-386.00||-0.92%|
|Rand / Dollar||19:58||9.1679||0.0475||0.52%|
|Rand / Pound||19:55||13.9619||-0.0234||-0.17%|
|Rand / Euro||19:55||11.9646||-0.0589||-0.49%|
|Rand / NZD||19:58||7.7386||-0.0070||-0.09%|
|Rand / AUD||19:55||9.4540||-0.0243||-0.26%|
|Yen / Dollar||19:59||97.5900||-0.1900||-0.19%|
|Euro / Dollar||19:55||0.7668||0.0083||1.09%|
|Dollar / Euro||19:59||1.3035||-0.0142||-1.08%|
|Pound / Dollar||19:55||0.6556||0.0050||0.77%|
Click here for the Sharenet Spot Price page
The JSE Today
* Includes all listed instruments on the JSE
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||44,984.00||-548.00||-1.20%|
|Oil & Gas ||27,926.00||-450.00||-1.59%|
|Oil & Gas Producers ||15,015.00||-242.00||-1.59%|
|Basic Materials ||23,368.00||-819.00||-3.39%|
|Forestry & Paper ||20,102.00||-299.00||-1.47%|
|Industrial Metals ||22,457.00||-395.00||-1.73%|
|General Industrials ||116.00||.00||0.16%|
|Consumer Goods ||44,637.00||-777.00||-1.71%|
|Automobiles & Parts ||7,812.00||-89.00||-1.13%|
|Health Care ||60,793.00||-145.00||-0.24%|
|Index Name||RP||Move||% Move|
|Food Producers ||67,312.00||-820.00||-1.20%|
|Personal Goods ||672.00||-27.00||-3.92%|
|Consumer Services ||79,965.00||128.00||0.16%|
|General Retailers ||62,176.00||-308.00||-0.49%|
|Travel & Leisure ||5,450.00||38.00||0.72%|
|Support Services ||2,332.00||8.00||0.36%|
|Non-life Insurance ||47,981.00||.00||0.00%|
|Life Insurance ||27,763.00||-257.00||-0.92%|
|General Financial ||2,683.00||-54.00||-1.98%|
|SHARIAH TOP40 ||3,025.00||-82||-2.65%|
|FTSE/JSE SHARIAH ALL||3,179.00||-77||-2.39%|
|FTSE JSE Fledgling ||5,906.00||-5||-0.10%|
|FTSE/JSE Alt X ||920.00||-9||-1.04%|
|SA LISTED PROPERTY ||533.00||0.09%|
|CAPPED PROPERTY ||429.00||-0.00%|
|FTSE/JSE RAFI 40||7,569.00||-145||-1.88%|
|Capped Top 40||17,570.00||-310||-1.74%|
|Capped All Share||19,159.00||-306||-1.58%|
|JSE TABACO ||6,325.00||-20||-0.33%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|ANG||ANGLOGOLD ASHANTI LIMITED||BUY||17/04/2013|
|HAR||HARMONY GOLD MINING COMPA...||BUY||17/04/2013|
|ILV||ILLOVO SUGAR LIMITED||HOLD||16/04/2013|
|TON||TONGAAT HULETT LTD||BUY||16/04/2013|
|BVT||THE BIDVEST GROUP LIMITED||HOLD||16/04/2013||
|Expected||Company Name||Fin. Date|
|18/04/2013||CIL||February 2013 (Interim)|
|18/04/2013||OSIRIS||February 2013 (Interim)|
|18/04/2013||REBOSIS||February 2013 (Interim)|
|19/04/2013||BCX||February 2013 (Interim)|
|19/04/2013||BCX - A SHARES||February 2013 (Interim)|
|RBP||Royal Bafokeng Platinum Ltd.||17/04/2013||Confirmed|
|FCCP||Foord Compass Ltd.||18/04/2013||Confirmed|
|FCPD||Foord Compass Ltd.||18/04/2013||Confirmed||
Stock Exchange News Service
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