Japan: Bridging the productivity gap

As Japanese society ages it will need to rely ever more on automation and new technology to bridge the productivity gap. That creates a requirement for robots to start taking on the jobs that people used to do. Employment data and labour force projections underline the point.

The Japanese jobs-to applicants ratio has soared while the unemployment rate has plummeted as the economy recovers from 20 years of stagnation and deflation during which the nominal GDP actually contracted.

Meanwhile, even though more women are entering the workforce, the number of people in work will plateau at best in the next decade. Together, the combination of a tight labour market and the structural trend of an ageing population create a real need for an automated future.

Miyuki Kashima – head of Japanese equity investments. BNY Mellon Japan

As Japanese society ages it will need to rely ever more on automation and new technology to bridge the productivity gap. That creates a requirement for robots to start taking on the jobs that people used to do. Employment data and labour force projections underline the point. The Japanese jobs-to applicants ratio has soared while the unemployment rate has plummeted … read more

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Why the time is right to allocate to Japanese smaller caps

Japanese equities have been on a tear of late. The Topix  rose 20.7% for the 12 months between 31 January 2017 and 31 January 2018. Should the market continue to rise, history does seem to suggest the small cap section is a good place to be. An analysis of comparative returns on the small cap versus large cap sections of the Russell/Nomura Index from 1984 to 2017 suggests small caps outperformed in the vast majority of periods where markets rose.

The benefit of investing in Japanese small caps is also apparent when you consider the question of correlation. Investors who do so have the advantage of lower average correlations versus European, Asian ex-Japan, emerging and US indices. These low correlations are even more evident in small cap indices.

People often talk about alternatives when the question of diversification comes up but this aspect of exposure to Japanese equities is regularly overlooked. We’d argue investors looking for ways to diversify their portfolio would benefit from allocation to small cap Japanese stocks given their tendency to perform with relatively limited reference to the movements of wider global equity indices – an important consideration given the current market turmoil.

Miyuki Kashima – head of Japanese equity investments, BNY Mellon Japan

Japanese equities have been on a tear of late. The Topix  rose 20.7% for the 12 months between 31 January 2017 and 31 January 2018. Should the market continue to rise, history does seem to suggest the small cap section is a good place to be. An analysis of comparative returns on the small cap versus large cap sections of … read more

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The comeback king: Shinzo Abe and Japan’s reinvigorated economy

Between 2006 and 2012, Japan had no less than seven prime ministers; more than one a year. November’s landslide election of Shinzo Abe for a record-breaking third term signals a decisive end to an era of political instability and bodes well for a reinvigorated economy.

Immediately after Abe’s recent victory , the Nikkei 225 hit a 21-year high, building on a run that saw Japanese equities comfortably outperform European and US stock markets since the start of September.

On the macroeconomic front, too, the picture looks rosy. Corporate profits and business sentiment are up. GDP has risen for seven quarters in a row, its longest spell of interrupted growth for 16 years. Nominal GDP was almost 11% higher in the third quarter of 2017 than it was five years earlier.  We see this spurt of growth as a major milestone. For the first time since 1997, nominal GDP is now above ¥533 trillion, meaning the economy has finally recovered the ground lost over two long decades of stagnation.

If you step back and look at what the government promised on the economy and what it has actually achieved since it launched fiscal and monetary stimulus in 2013, it’s pretty impressive. We think it points the way to a positive outlook for investors.

Miyuki Kashima – head of Japanese equity investment, BNY Mellon Japan

Between 2006 and 2012, Japan had no less than seven prime ministers; more than one a year. November’s landslide election of Shinzo Abe for a record-breaking third term signals a decisive end to an era of political instability and bodes well for a reinvigorated economy. Immediately after Abe’s recent victory , the Nikkei 225 hit a 21-year high, building on … read more

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Christmas Quiz: win one of five mini remote control helicopters

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To enter, please answer the above questions and submit via email to Marketeye@bnymellon.com before midnight Wednesday 16th December 2015. The full terms and conditions of the competition can be found here and the competition is only open to FCA registered financial professionals resident in the UK. When entering please confirm that you accept the terms and conditions. Valid entries must … read more

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What’s really going on with the Japanese economy?

One of Prime Minister Shinzo Abe’s initial economic arrows was aimed at pulling Japan out of deflation to move closer to the Bank of Japan’s 2% target. While that is yet to be achieved there are some encouraging on-the-ground indicators: Wages are going up as evidenced by the data on part-time workers. This is the first sector of the labour force to see wage increases because corporations are more reluctant to increase the compensation of full-time and permanent staff in the early stages of a recovery. Nevertheless, this demonstrates how much employers are willing to pay to attract the ‘marginal worker’, so the fact these pay packets have been expanding is a positive sign.

The inflation rate (CPI) minus energy and food is also close to 1%. We call this the ‘core core’ reading and I believe it is a more important metric to keep an eye on than CPI. Additionally, living in Tokyo, inflation feels higher still. The University of Tokyo Daily Price Project, which tracks daily point of sales data, currently shows a reading of around 1.5%, which feels much closer to reality. Abe has made an impressive start towards an inflationary environment; a commendable achievement against a global backdrop of prices under pressure.

Miyuki Kashima, BNY Mellon Japan

One of Prime Minister Shinzo Abe’s initial economic arrows was aimed at pulling Japan out of deflation to move closer to the Bank of Japan’s 2% target. While that is yet to be achieved there are some encouraging on-the-ground indicators: Wages are going up as evidenced by the data on part-time workers. This is the first sector of the labour … read more

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Will Japan’s snap election cost it dear?

Prime Minister Shinzo Abe has postponed a consumption tax rise originally planned for October 2015, instead opting to call a snap election, but can Japan’s highly indebted government actually afford such a delay? The fiscal hawks worry about the implications for Japan’s public debt, which will amount to almost 230% of GDP by the end of this year, according to the OECD’s May projections. Such worries, however, seem premature. While the debt numbers may seem intimidating, Japan still finances these liabilities with surprising ease. This is partly because the government also owns substantial financial assets. So Japan’s net public debt will be a more manageable 143% of GDP by the end of this year, reckons the OECD. The debt burden is also surprisingly light because interest rates are remarkably low. Japan’s net interest payments will amount to only about 1% of GDP this year, the OECD calculates, which is lower than all but one of the other G7 countries.

 

Simon Cox, BNY Mellon Investment Management Asia Pacific

Prime Minister Shinzo Abe has postponed a consumption tax rise originally planned for October 2015, instead opting to call a snap election, but can Japan’s highly indebted government actually afford such a delay? The fiscal hawks worry about the implications for Japan’s public debt, which will amount to almost 230% of GDP by the end of this year, according to … read more

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The week that was…

In the week ending 9th October, what stole the financial headlines?

The battle to slow the land gains of the Islamic State in Iraq and Syria continued. With ongoing air strikes from the West and its allies, Islamic fighters advanced apace as they seized a significant portion of the Syrian border town, Kobani. With the US ruling out a ground operation, both the German and UK governments put pressure on Turkey – which borders Kobani – to help the ailing Kurdish town. In the US, the release of the September minutes from the Federal Open Market Committee meeting showed members expressed concerns over the potential negative impact of weaker foreign growth on the US economy.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 10/10/14. ISSG is part of The Bank of New York Mellon.

The battle to slow the land gains of the Islamic State in Iraq and Syria continued. With ongoing air strikes from the West and its allies, Islamic fighters advanced apace as they seized a significant portion of the Syrian border town, Kobani. With the US ruling out a ground operation, both the German and UK governments put pressure on Turkey … read more

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The week that was…

In the week ending 2nd October, what stole the financial headlines?

The battle between the West and Islamic State militants intensified. Backed by a number of Middle Eastern states, the US-led air campaign gained additional backing as both the Australian and Canadian governments pledged military support. Canada’s government has promised CF-18 fighter jets and refuelling and surveillance aircraft. Meanwhile, the anti-Islamic State movement gained further traction as Turkey, thus far reluctant to take a frontline role against the militants, signalled it may send troops into Syria or Iraq and let allies use its air bases. Elsewhere, positive US jobs data raised the possibility of an early interest rate hike by the US Federal Reserve. September’s job report showed the unemployment rate had fallen to 5.9%, its lowest level since August 2008.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 03/10/14. ISSG is part of The Bank of New York Mellon.

The battle between the West and Islamic State militants intensified. Backed by a number of Middle Eastern states, the US-led air campaign gained additional backing as both the Australian and Canadian governments pledged military support. Canada’s government has promised CF-18 fighter jets and refuelling and surveillance aircraft. Meanwhile, the anti-Islamic State movement gained further traction as Turkey, thus far reluctant … read more

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Brazil prepares to pass judgement on Dilma’s economic record

With the first round of Brazilian general election this weekend, President Dilma Rousseff looks in real danger of losing out. With a dubious economic record since she assumed power on 1 January 2011, Dilma has been criticised for interventionist policies which, while beneficial to vast swathes of the population in the short term, have hamstrung the economy in the long term. She, by contrast, has blamed the negative effects of crises abroad and a faltering global economy.

The electorate goes to the polls on 5 October. If no candidate gains more than 50% of the vote, a second round run-off will be held on 26 October.

Once the election question has been settled would you be more or less inclined to invest in Brazil? Join the debate and let us know your thoughts using the comment button below.

With the first round of Brazilian general election this weekend, President Dilma Rousseff looks in real danger of losing out. With a dubious economic record since she assumed power on 1 January 2011, Dilma has been criticised for interventionist policies which, while beneficial to vast swathes of the population in the short term, have hamstrung the economy in the long term. … read more

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The week that was…

In the week ending 18th September, what stole the financial headlines?

The Middle East and the battle against the Islamic State of Iraq and the Levant, also known as Isis, remained firmly in the spotlight as the West upped the ante with further air strikes and attempts to bolster regional support. Indeed, the French president, François Hollande reported that French military aircraft had carried out air strikes in Iraq – its first for 15 years. Meanwhile, the US House of Representatives approved President Barack Obama’s plans to train and arm moderate Syrian rebels. The US$500m funding proposal is aimed at squeezing Isis forces in Syria. However, question remain over whether the US is prepared to send ground troops to the region. While Obama has ruled this out, the US army chief of staff, General Ray Odierno was quoted last week as saying air strikes alone will not be enough to destroy Isis.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 19/09/14. ISSG is part of The Bank of New York Mellon.

The Middle East and the battle against the Islamic State of Iraq and the Levant, also known as Isis, remained firmly in the spotlight as the West upped the ante with further air strikes and attempts to bolster regional support. Indeed, the French president, François Hollande reported that French military aircraft had carried out air strikes in Iraq – its … read more

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