March Update - US Looking Good, Japan Less Good and China Looking Bad

by Michael J. Howell12. March 2014 20:05
US Liquidity remains sky high on our indexes, which will underpin a strong economy this year. In contrast, China shows no signs of monetary easing (PBoC index 40.0) and the familiar further sight of weak overall Chinese liquidity (index 24.5) and weak cross-border capital flows to EM will add more downward pressure to Asian markets. However, what is lately a new sign is the sharp fall in Japanese private sector liquidity. We first noted this a month or two ago, but suggested then that it might be the benign accompaniment to domestic economic pick-up to the extent that it was reflecting a diversion of funds from the financial to the real economy. However, the recent appearance of poor monthly economic data may tell us that something else is underway, and perhaps the economic fall-out from a weak China is spreading? See latest Global Liquidity Update Report.

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Japan's Sell-Off

by Michael J. Howell30. May 2013 19:58

A 15% drop in just a few days focuses the mind. Is Tokyo's rally bust already? Not a chance, in our view. Nerves have been twanged by the sharp jump in JGB yields and associated steepening of the Japanese yield curve. But a steep yield curve is exactly what QE and liquidity policies should deliver. America since 2008 is a clear case in point, but the evidence is overwhelming and true throughout history and across geographies. In fact, this is how bond markets work. Forget all the talk that Central Banks push down yields by buying bonds. In a micro sense they do, but economics and finance are more about macro events. A steeper yield curve reflects fatter risk premia and fatter risk premia on bonds are the very reverse of slimmer risk premia on stocks, or should be if the monetary stimulus works. In short, bonds always sell off and enjoy these fatter risk premia when investors expect a return to 'better times'. Therefore, a steep yield in Japan, as in the US and Europe, signals coming economic recovery. Sell bonds, buy stocks. This is an unexpected opportunity for equities.

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Japanese QE is Fifty Fifty

by Michael J. Howell19. April 2013 13:53

We are big fans of the new BoJ QE policy. Latest weekly data confirm things are happening. Our measure of net liquidity provision jumped to Y57.7 trillion and the annualised growth in the Monetary Base leapt ahead by 54.3% at an annualised 3-month rate. Fifty and fifty is not an bad start.

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New Report: Japan's Great Experiment

by Michael J. Howell18. April 2013 12:22

Report published April 15th 'Japan's Great Experiment' analyses the effects of huge injections of cash into a banking system that is uniquely able to re-lever and can already satisfy Basel III capital requirements. The outlook remains very bullish for Japanese risk assets.

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Abe-cadabra: Japan Is Changing

by Michael J. Howell7. January 2013 17:17

Latest weekly BoJ net liquidity injections jump to Y50.4 trillion, or up from Y42 trillion at end-November. This looks more than just year-end window-dressing. Abe is working his magic!

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Money Quits Japan

by Michael J. Howell28. November 2012 13:30

Latest October capital flow data show an acceleration in money flows leaving Japan. This may be due to the upcoming Elections and expectations of monetary easing. Notwithstanding, it is a stark contrast both to recent patterns and evodence from other major economies. It likely helps to explain recent Yen weakness.

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