Deflation Talks Rattle Japan Markets

[Beet]

5:00 AM New York, 7:00 PM Tokyo – Banks in Japan closed lower on the worries that more capital will be needed to meet regulatory requirements. Talks of deflation rattled investors. Mitsubishi UFJ Financial Group Inc plans $11 billion offering for the second time this year. The troubled airline JAL restructuring face hurdles.

Japan stocks extended losses on worries financial stocks will sale shares as the country slipped into recession. Investors were also unnerved as the troubled airline JAL is still struggling with the restructuring plan.

The Cabinet Office in a statement said that the economy is in “mild deflation” and urged the central bank to do more to revive the economy.

In Tokyo trading Nikkei 225 Index fell 1% or 96.1 to 9,401.58, and the broader Topix Index 1.1% to 829.22.

Banks led the decliners in trading as investors worried that corporate profits will decline and small business defaults will hurt banks.

In the first section of the Tokyo Stock Exchange 8.1 billion shares worth 517 billion yen were traded and in the second section 193 million shares valued at 2.1 billion yen changed hands.

Of the Nikkei 225 index stocks, 36 rose, 181 dropped, and 8 were unchanged. UBE Industries led gainers in the index shares with a rise of 2.8% followed by Mitsui Mining & Smelting gaining 2.4%.

BoJ Should Actively Fight Deflation, Fujii

Japan’s Finance Minister Hirohisa Fujii said deflation falls within the jurisdiction of monetary policy, urging Bank of Japan to actively deal with the problem.

http://www.123jump.com/market-update/Deflation-Talks-Rattle-Japan-Markets/35408/

The Nikkei had been trading at about Dow +1,000 all year, suddenly it's Dow -1,000. The banks over there are heavily leveraged on the stock market. The BOJ is being too optimistic and extremely contractionary in its policy.

[Sam Spade]

With what's gone on with the Yen today, I don't expect to see things to improve much in Japan tonight.  Basically, we're below the point of what Japan can allow their currency to appreciate and still be profitable as an exporting country.  The Yen this strong simply destroys Japan, without fail.

Let's just hope that the "why" this is occurring is nothing more than "dollar weakness."

Btw, Beet (off-topic) - Have you been on the gold parabolic move since 1050? (I know I called buying the breakout of the old high (bragging), but this one I played with a tiny bit of skin )  Such moves really are so beautiful when you catch them properly.  And I suspect there's probably, at minimum, another hundred bucks in it, possibly within a couple of months. 

But it's a very dangerous trade, so maybe not (depending on your risk level).    It'll be fun to watch it fall apart when it does too.  If we get a dollar carry unwind at the same time, well...

[Torie]

Sam Spade, did Japan ever really clean up its sick financial institutions, e.g., by making them account for the value of its loans at true market rates?  I know Japan refused to bite that bullet for a zillion years  it seems, but perhaps it finally got around to it after folks pretty much lost interest in Japan as China began to dominate the news.

[Sam Spade]

Sam Spade, did Japan ever really clean up its sick financial institutions, e.g., by making them account for the value of its loans at true market rates?

Not really.  Nearly every one of the banks was eventually pulled under, but the original problem was never "cleared", at least when it would have actually mattered.  By the point these institutions were finally made insolvent, the Japanese personal savings was all gutted and you had an insane debt-to-GDP ratio (which continues to get more insane, btw).

And when that cleared, you still had the Yen carry trade (because of ZIRP).  Btw, the unwind of that carry trade in the last half of 2008 was one of the key elements to the nastiness behind the collapse of the credit and equity markets.  It f-ed a whole lot of financial institutions because of the leverage they were using against it.

Speaking of which, we have a new 15-year high on the Yen this evening.  Broke the December 2008 lows.

[opebo]

...the Japanese personal savings was all gutted and you had an insane debt-to-GDP ratio (which continues to get more insane, btw).

Speaking of which, we have a new 15-year high on the Yen this evening.  Broke the December 2008 lows.

Interesting - low savings and high debt equals a stronger currency.

[Beet]

With what's gone on with the Yen today, I don't expect to see things to improve much in Japan tonight.  Basically, we're below the point of what Japan can allow their currency to appreciate and still be profitable as an exporting country.  The Yen this strong simply destroys Japan, without fail.

Let's just hope that the "why" this is occurring is nothing more than "dollar weakness."

Btw, Beet (off-topic) - Have you been on the gold parabolic move since 1050? (I know I called buying the breakout of the old high (bragging), but this one I played with a tiny bit of skin )  Such moves really are so beautiful when you catch them properly.  And I suspect there's probably, at minimum, another hundred bucks in it, possibly within a couple of months.  

But it's a very dangerous trade, so maybe not (depending on your risk level).    It'll be fun to watch it fall apart when it does too.  If we get a dollar carry unwind at the same time, well...

I made my first gold buy since last December on Wednesday, actually. I've always felt that the fundamentals for gold are strong, with only the extreme deflation scenario countering. Hard to say what's caused the breakout now, though. Perhaps the realization that the Fed will not raise interest rates soon, and the dollar 'carry trade' could last for some time?

btw: When the dollar devalues, the Japanese get hit with a double currency whammy. Another reason why the dollar-RMB peg is stupid. As for the "why", well of course it starts out as 'dollar weakness', but eventually it becomes more. Loss of current account surplus, loss of corporate profits, and financial crisis. Of course by that point you'd expect (or hope) the yen strength to reverse itself. But before that point, it's the BOJ's job to make sure it never gets to that point in the first place. Like any drinker they need to know their limit. You can only take so much appreciation. And it's not like they have to worry about inflation...

[Sam Spade]

I made my first gold buy since last December on Wednesday, actually. I've always felt that the fundamentals for gold are strong, with only the extreme deflation scenario countering. Hard to say what's caused the breakout now, though. Perhaps the realization that the Fed will not raise interest rates soon, and the dollar 'carry trade' could last for some time?

Actually, I think the fundamentals for gold are weak, but the chart is insanely strong.  The breakout didn't really occur on any news of note, which is the reason why I bought in the break of the all-time high.  Commodities charts often have these huge spikes and then collapses, so I have a pretty strict exit point that I've been moving up every week (remove 1/2 at 1150 right now).

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In other words, Japan is f-ed.  I agree.

[Sam Spade]

- look at them precious metals (well, gold and silver) run.

know this probably belongs in some damn trading thread, but I raised my remove 1/2 to 1170 (the bottom of the last level where gold hesitated for a while).  I am taking 1/2 off if we reach 1250 (that area looks like a possible termination or retrace point to me), but I'm going to let the other half run even past that point.  No need to get too greedy, even after a present 15% gain in one month.