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The Nikkei gained 2.9% last night. DXJ +1.1% premarket
¥2.6T in QE later, William Pesak notes one year of aggressive monetary ease has failed to lift living standards, nor has it convinced companies to boost paychecks. The only inflation Japan is feeling is the kind no one likes: Higher energy prices.
BOJ Governor Kuroda's main achievement this year, argues Pesak, is to settle once and for al that the country's problem isn't the amount of yen sloshing around, but how it's used. Unless people borrow and banks lend, the economy won't revive. And don't forget the secular deflationary forces of an aging population and the rise of China.
The Bank of Japan has surprised markets by expanding lending facilities that are designed to spur corporate investment by offering low-interest loans to commercial banks in the hope that they will lend the money to businesses.
At a policy meeting, the BOJ doubled one program to ¥7T ($68B) and said individual banks could borrow twice as much under another facility.
The BOJ also maintained its program of increasing the monetary base by ¥60-70T a year.
The boosting of the lending facilities comes after data yesterday showed that Q4 GDP grew a less-than-expected 0.3%. Notwithstanding, the BOJ maintained its view that Japan is recovering moderately.
The move helped weaken the yen and the Nikkei to surge 3.3%. The USD-JPY is +0.6% at ¥102.57. (PR)
Japanese GDP growth slowed to 0.3% on quarter in Q4 from 0.5% in Q3 and missed consensus of 0.7%.
Annualized GDP softened to +1% from +1.1% and undershot forecasts of +2.8%.
The GDP deflator, "which measures the change in prices of final goods and services and is considered as a key indicator for inflationary pressures," fell to -0.4% on year from -0.3%.
Industrial production +0.9% in December vs -0.1% in November and consensus of +1.1%. On year, output +7.1% vs +4.8%.
Capacity utilization +2.2% vs -0.5%.
Japan's Q4 economic performance was kept down by strong import growth, which is a negative factor in GDP calculations, and a limited increase in exports.
Imports +3.5% on quarter, exports +0.4%, business investment +1.3%, consumer spending +0.5%.
The soft growth adds to pressure on Prime Minister Shinzo Abe to detail reforms that will make Japan more competitive. This is especially the case with the upcoming rise in sales tax in April.
"This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April," says economist Takuji Okubo. "Abe really needs to be quick in showing to the market that he can deliver reform."
The data comes a day before the Bank of Japan is forecast to leave its monetary policy unchanged.
Despite the disappointing GDP, short covering helped the Nikkei end +0.6% following a day of choppy trading.
The Nikkei closes -0.6% to round off its worst month since May 2012, with the index dropping 8.5% in January.
Stock markets seem to be still highly troubled by the concept of positive economic news. In the U.S., the economy is trundling along nicely, while in Japan, inflation is heading towards the BOJ's 2% target and unemployment has hit a 16-year low. But it means that the Fed is tapering and the BOJ is less likely to add to its already massive stimulus.
Much of Asia is closed today, due to the start of the Lunar New Year, which will keep Chinese markets shut until February 6.
Asian shares have mostly fallen as investors have seemed to grow more fearful about the significance of poor Chinese manufacturing PMI data yesterday.
Investors have sought safe havens such as the yen - the USD-JPY is -0.3% at ¥103 - helping to send the Nikkei -1.9%.
"A correction could occur," says investment strategist Shane Oliver. "We have to expect more volatility. Shares are no longer dirt cheap, meaning the easy gains are behind us."
The once place where the PMI data didn't seem to to have an effect today was China, whose Shanghai Composite rose 0.6%. Stocks were partly boosted by money market rates falling again following a $42B+ injection of cash this week from the central bank ahead of the Lunar New Year. The seven-day repo rate dropped 77 bps to 4.61%.
The very crowded short Japanese yen trade continues to unwind (just a bit). Dollar/yen is down 1% to ¥103.13 in morning action. The pair had risen to nearly ¥106 on the year's first trading session. FXY +0.9%.
Asian shares tilt lower and European equities are mixed, while U.S. stock futures are flat-to-higher.
Japan's Nikkei sank 2.35% on the first day of trading of 2014, although that was off the back of a nine-day winning streak prior to the New Year break. "A consolidation move of some kind was in order for stocks after that long nine-day run up," says asset manager Yoshihiro Okumura. "The magnitude of the fall is understandable considering the dollar's weakness."
The Shanghai composite dropped 1.8%, pulled lower by slowing services growth, the re-opening of the IPO market and concern about how government reform might affect GDP.
In Europe, Spanish shares climbed 0.7% following strong PMI data. Elsewhere, London is -0.2%, Paris flat, Frankfurt -0.1%, Milan +0.7% and the the EU Stoxx 50 is +0.1%.
U.S. stock futures: Dow +0.1%. S&P +0.1%. Nasdaq +0.1%
Japan's Nikkei 225 has closed the day and the year at a fresh six-year high of 16291, representing a rise of 0.7% for the session and 57% for the year. That makes 2013 the index's best annual performance since it jumped 92% in 1972.
Japanese stocks have been benefiting from the central bank's massive money printing, which has helped weaken the yen and boost exporters. The USD-JPY is +0.1% at ¥105.29 after the yen earlier hit a five year low of ¥105.41.
Elsewhere in Asia, Hong Kong ended flat and China -0.2%, while India is -0.2%.
Barring a big move higher in the next couple of sessions, the yen (FXY -0.2%) appears set to end 2013 pretty close to the year's low, the dollar buying more than ¥104 this morning vs. less than ¥80 in November 2012.
"We do not believe that the current pace of yen depreciation is sustainable," says JPMorgan's Junya Tanasa, expecting an unwind of the popular Nikkei long/yen short trade at some point in 2014.
For a contrary view, check out Kyle Bass, who contends the real move lower in the yen hasn't even begun yet. He's calling for dollar/yen rising all the way to ¥200 and - as we've all seen - once currencies get a head of steam going in a certain direction, no one can be sure of where the move will stop. ¥350? Why not?
Japan's Nikkei 225 has climbed 1% to another six year high of 16,174 as the yen has weakened and touched a five-year low. The USD-JPY is +0.4% at ¥104.77 after earlier hitting ¥104.84, the weakest yen level since October 2008. Another factor boosting stocks is the start of tax-free investment accounts, which has sparked buying from retail investors.
Chinese shares dropped 1.6% even though money market rates continued to ease, with the seven-day repo falling to 5.33% in late trading from 5.58% yesterday. Elsewhere in Asia, India's Sensex is +0.2%.
Turkey's ISE 100 is -1.1% following a drop of 4.2% yesterday as the scandal-induced political turmoil continues.
The Nikkei hit its highest level in almost six years, rising 1.8% to 15,727 as the yen continued to fall vs the dollar following U.S. economic data overnight, including surprisingly strong weekly jobless data.
At the close of Tokyo trading, the USD-JPY was at ¥102.08, well above Wednesday's corresponding level of ¥101.53. The yen is now at ¥102.19.
Elsewhere in Asia, Hong Kong -0.2%, China +0.8%, India +0.7%.