FinanceAsia Magazine

Issue: May 2014

Abenomics hangover
Japan’s best hope for reform and avoiding fiscal crisis, the package of economic policies championed by Prime Minister Shinzo Abe, is losing steam.

When Abe came to office in December 2012 he set out to reverse Japan’s 20 years of economic stagnation and 15 years of deflation using three policy arrows: monetary and fiscal stimulus combined with structural reform.

Although inflation has picked up, Abe has not followed through with reforms, which may mean his signature policies popularly known as Abenomics have achieved nothing more than a fleeting feel-good factor. Trade talks with the US are deadlocked and labour market deregulation is going nowhere in the face of opposition from vested interests.

The Nikkei 225 benchmark is down by 14% so far this year after surging 46% last year. Japan’s biggest broker Nomura saw net profits fall by 26% in the January to March fiscal quarter as trading volumes slumped. Despite record profits in 2013, workers’ wages fell in March for the 22nd consecutive month and machinery orders dropped 8.8% in February. Companies appear worried that a national sales tax hike on April 1 will hit consumer spending.

A headache may already be building in Japan’s financial system.

The central bank has aggressively printed money, potentially doubling the monetary base in two years, in an attempt to hit a 2% inflation target. However, sclerotic economic growth of 0.7% in the last three months of 2013 has left banks sitting on deposits while casting around for opportunities to deploy capital in faster-growing overseas economies.

Credit analysts worry that Japanese lenders are taking too much risk in volatile emerging markets. The three megabanks’ overseas loans grew by about 20% between March and December last year while their domestic loans stayed at the same level.

Japanese banks appear to be concentrating risk with a few large corporate clients, helping them finance a global acquisition spree. They are also making their own purchases of overseas financial institutions at eye-popping book multiples. The analysts argue Abenomics may result in loans soaring as happened in the wake of China’s stimulus designed to counteract the global financial crisis.

Abenomics may still come through. Politicians are debating improved corporate governance measures and a cut in the effective 35.6% corporate tax rate. Abe has said he will unveil the results in June.

Meanwhile the country’s debt mountain keeps on rising.

 

About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

Greenshoe
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

Soapbox
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.

 

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