Japanese ADRs: Leverage, Illiquidity, BoJ Disarray, Much Needed Nikkei Holiday

by: Steven Towns

Japanese stocks rallied Wednesday, but not quite as high as may have been expected after the big gains in the states and in Chicago Nikkei 225 futures. Japanese ADRs gave back a lot of their prior day gains Wednesday. A number of ADRs had declines of more than 5%: FUJIFILM (FUJI), Mitsui & Co. (OTCPK:MITSY), Nidec (NYSE:NJ), NTT DoCoMo (NYSE:DCM) and Wacoal (NASDAQ:WACLY). The lone advancer was long-time favorite Internet Initiative Japan (NASDAQ:IIJI). There’s no escaping the volatility. And that’s why we’re not so certain we’ve seen a bottom yet for the N225. The matter of yen repatriation prior to fiscal year-end is one issue, while Q4 results and uncertainty of new FY outlooks due out from late April are another.

Bank of Japan disarray dominates Japan-related news headlines. FT Alphaville’s Gwen Robinson posted a hilarious spoof of the Fed trying to call the BoJ Governor in “More BoJ kabuki: ‘Moshi moshi, is anybody there?’” Bernanke is offered the job:

“Does he want a job? There is a nice one available here - not too much work, doesn’t have to worry too much about interest rates - ministry of finance takes care of that, though he can pretend he does. Ah, and sushi very tasty too… Hello? Hello? Is he interested?”

So the DPJ is not letting the LDP get away with installing a Finance Ministry puppet. Good for them. Now we really need former PM Koizumi to come back. Seriously. In case you didn’t know, the Nikkei is closed today for Vernal Equinox holiday.

And in case you missed it, the Wall Street Journal reports Endeavour Capital LLP, a $2.9B fixed-income hedge fund, lost $725 million in Japanese bond trading gone bad! See Bloomberg’s coverage too.

Endeavour’s CEO Paul Matthews as the fund cuts its leverage to 12.5x capital from 18x:

It’s one thing to have the market move against you, but the lack of liquidity, to not be able to get out of government bonds, is very unusual.