Abe’s speech disappoints Tokyo
The yen rallies and Japanese stocks fall after the Prime Minister's latest plan to reboot his nation's economy fails to inspire investors.
Japanese Prime Minister Shinzo Abe disappointed Wednesday. He was supposed to pull another rabbit out of his hat -- but his latest speech not only didn’t deliver a rabbit, it barely showed the hat.
Abe’s speech had been billed as the next stage -- Stage 3 -- in his plan to revive the Japanese economy. Talk in Tokyo and press reports were that he would lay out a plan that would push cash from Japan’s public pension funds -- with their $2 trillion in assets -- from Japanese government bonds to domestic stocks and overseas assets. That would be enough, market analysts speculated, to reverse the upward trend in the yen and end the correction in Japanese stocks.But the actual speech was disappointingly short on specifics. The prime minister said he would promote private sector investment. He will ask for legislation to open up the energy, health, and infrastructure sectors to foreign investment -- as part of an effort to double foreign investment in Japan by 2020. He wants to see 3% annual growth.
But, and this is critical, Abe never got more specific on changes to public pension investment than to say a group of experts would make recommendations for changes in the fall.
The speculation in Tokyo is that Abe decided not to get more specific, in order to avoid conflict with powerful interests in agriculture and other Japanese industries ahead of the July 21 election for the upper house of Parliament.
And with that, the yen resumed its rally against the U.S. dollar. As of 3 p.m. New York time on Wednesday the yen traded at 99.21 to the dollar. We’re in critical territory here since 99.5 has, so far, marked the top of the range for the yen versus the dollar (with 103.50 as the bottom.)
An end of the day dollar rally back to that level would stabilize the market—for the day—but a significant drop below 99 would likely lead to another round of yen buying. (The Nikkei 225 ($N225) fell another 3.8% overnight.)
The key data point over the next few days is the U.S. jobs report for May, due on Friday morning. The consensus forecast has slumped slightly in the last few days, to 159,000 from 166,000, according to economists surveyed by Briefing.com. That would be a slight drop from the 165,000 net jobs added by the economy in April.
U.S. stock markets were rattled Wednesday by the drop in Tokyo and by the jobs numbers for May in the private ADP survey released earlier in the day. That survey doesn’t always track the government survey results to be announced on Friday, but the market isn’t inclined to overlook the significant miss -- 135,000 jobs added, versus a consensus among economists of 157,000. The Standard & Poor’s 500 Index ($INX) ended the day down 1.38% to 1,609. That puts the index into critical territory: a 50% retracement of the April-May move would take the index down to 1611. The 50-day moving average for the index sits at 1608.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio.
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