pascal jeannenot

77 Bank: Japanese Regional Banks - A Mirror on America

Interesting comment John, set aside 77 bank this case is a repeat standard in Japanese regional banking universe, you have touched part of Japan peculiarity.

Seeing Opportunity in Takefuji -- Japan's Most Hated Value Stock

Who dares win !

Seeing Opportunity in Takefuji -- Japan's Most Hated Value Stock

who dares win!

Seeing Opportunity in Takefuji -- Japan's Most Hated Value Stock

The logic beneath the investment is good, no doubt that most negative elements have been factored in the consumer loan sector and in fact Takefuji , Eyeful, Acom had started to bottom out by mid september ...however new worrying elements appeared since.


Key concern is not consumer loan rate cap in itself but interest overpayment special loss reserve legual basis.. I explain : the problem emerged from the grey zone set between previous allowed interest payments (up to 30 %) and new capped interest payments set temporarily at 18 20 %..

By mid march the Japanese institute of certified public accountants was swamped by a huge number of 'overpayments' requests from customers. The set guidelines were therefore to order the consumer loan companies to set additional reserves to proceed to refunding of -recent- interest overpayment .

Accrued amount should be set as a special loss reserve against net earnings. Takefuji the largest consumer loan lender started with 41 billion yen reserves quickly followed suit by other lenders and the cost of overpaid interest refunding soared to big levels for consumer loan companies , this explain the current rush to revise dowside net earnings expectations for full year estimates . This said mid term current earnings were good for NIS ( example) and Takefuji.

Unfortunatly things went even a bit further when the certified accountants association side rose the idea to repay also -PAST- interest overdue payments (and not only recent ones) to the outcry of industry. The association said they were working on even stricter compulsory reserve basis to that purpose implying further special loss reserves for the lenders. Consumer companies then fought back saying that there was a danger to eat easily into shareholders equity.. Analysts were quick to calculate that if for one company loan balance is 1 trillion Yen reserves over charged interest refunding could easily go up by some 100th billion yen (indeed eating into the lenders shareholder's equity). This ignited a new dowside revision rush.
The key problem rather than cap on lending rates is therefore the extreme harsh reserves drawing guidelines imposed by certified public accountants for the consumer lenders ( and the soaring costs associated with it).

the market is certainly expecting a full sector shakeout but the risk inherent to buying mid small consumer loan companies equals taking also the over payments refunding special reserve liabilities... , so too high expectations are forbidden for the short term.

This said unless this 'special loss reserve basis' is made even harsher by the certified public accountants ( which could easily eat into the lenders sherholder's equity ) then there is a great value opportunity for daring investors. But the above mentionned must be monitored for that purpose.

Sharp vs Sony: LCD TV Battle Heating Up in Japan

Yes Steven , you rightly said 'because this is where the major players are shifting their resources and where margins are highest' but beware of the war of attrition.
I shall add fuel to this article by stressing that the the Large Flat Screen TV price is now rapidly going down in Japan. Price per 'Inch' of flat panet TV is forecasted to down to 4000 Yen (30 % down compared to last year). The Japan domestic diffusion has now reached 20 % of market. The cheapeast LCD TV screen found on the market is 32 inches at 120,000 Yen. Competition has been heating up on this very segment therefore makers focus on +40 inches segment . Price per inch was 10,000 Yen by last year end. This year it is trending toward one fourth at 4000 Yen per inch. When electronics discounter store chain (3048) Bic Camera opened its Kawasaki megastore the 28th of september it registered double digit demand. Up to last year Baby Boomers were the main buyers but customer range has now extended to people in their 30's or 20's. usually 30 % of sales for large LCD TVs are concentrated in october november period. For current fiscal year sales already increased 30 % at 2 million 200,000 units. If the price per inch further decreases the more Japanese consumers will come in (which is good for the scale merit). Matsushita chairman was quoted saying that should the price continue downward the only way to make it profitable is secure top market share. Matsushita is now preparing to market 50 to 65 inches TV screens. Same for the others. Sharp is obviously one step ahead but the huge convertible launched has put a short term cap over the stock.
Problem is that large LCD srceen TVs are now becoming 'standard' consumers's product in Japan therefore asolute value of the product comes down with the price itself. Still Japan leads the race by far.

Yen Carry Trade Not Over Yet

Yes yen carry trade is back with a vengeance which is normal considering the Yen/$ rate differential which you mentionned and Yen carry trade is obviously a factor impeding further Yen appreciation.
In fact the keyword for traders to engrave in their mind is Yen FOREX implied volatility, when Yen FX volatility goes down so does the Yen. Since mid august the Yen FX rate
Volatility has been low at 7 - 8 %. (114 - 117 against $). Due to this low volatility rate US hedge funds have quickly embarked again on Yen carry trade operations. On the other hand when the Yen volatility is high then rate differential gain disappears and hedge funds run away.
BOJ ZIRP end kick started Yen strength as hedge funds stopped to carry trade the Japanese currency however the US/Japan rate differential status quo since led to the quick resurgence of Yen carry trade.
CME Yen futures were sold again on the 29th of august and actually reached a historic high for volume on that very day. Of course yen carry trade capital is geared to so called High Yield currencies (euro, GBP, AU$, NZ$ etc...) but also this capital feeds BRICS stock markets substantially and commodities markets also. Provided Japanese rates and Yen volatility do not shoot up hedge funds will keep on carry trade the Yen.


This said I do not share (at all) the categorical view of Enzio Von Pfeil: think twice!
Japanese base money (high powered money) is quickly being drawn by BOJ therefore Yen in circulation will go down even if Japanese base rates do not appreciate. Also I would be extremely careful in over asserting that the Yen volatility will stay low forever.

True a weak Yen maybe somewhat problematic for foreign investors investing in Japanese equities but I do believe that for foreign investors capital gain appreciation in Japan is much more important than potential currency loss.
And finally as I am a convinced monetarist fan for Japan herself the benefits of having a relatively weak currency plus an expanding economy largely outweight this. When inflation is not a worrying factor (not yet) a weak currency is godsent.

Mitsubishi UFJ to Expand in India, Receives License in Russia

You mentionned 'As of last September Mitsubishi UFJ Financial Group owned 61.2% of Mitsubishi UFJ Securities.', well as you know today's big news was the fact that MUFJ has decided to buy back 100% of MUFJ securities and therefore delist the sub form TSE. This is a very interesting move which can be translated as MUFJ considering its securities arm a sufficiently strategic asset to fully incorporate it with the group. Obviously this is a positive developement for MUFJ. This move also perfectly illustrate the more wider picture regarding Japanese parent companies new strategic view toward their listed subsidiaries : in short fully buy them out (and therefore delist) or sell them off. You can be sure than from the second quarter (september) such buy back/spin-off will increase substancially as Japanese management is keen to hear the arguments of the buyers investing in the parent companies. I feel this is also part of a more wider movement toward corporate governance principles in some way. In today's newsletter I mentionned an interesting article in the Nikkei Financial daily which stressed that some groups like Hitachi (but I would personnally add Matsushita or Toshiba nor to mention other listed groups like Nippon Steel) still have a plethoric number of subsidiaries (listed or not) and obviously target to 1- either totally buy back to increase consolidated earnings or 2-sell them off. The second option will soon be facilitated by TSE new set of rule to ease sell-off (or buy back) listed subsidiaries. Considering buyout funds are now knocking at japan's doors this precise business field will soon become hot.
I would specially take a close look at what Matsushita will decide regarding its corporate galaxy. In the long term obviously it sounds positive for the parent nor to mention Japanese retail investors if they screen with accuracy the next candidates for sale as listed subsidiaries fundamental ratios (Per, Pbr etc..) are usually less than the parent.

Another BoJ Rate Hike This Year?

The BOJ policy member names you are quoting for reference are, in some way, part of the old guard. such declarations are therefore no surprise and translate the increased wilingness from BOJ to communicate on its own. But behind the scene power broking balance in this venerable institution is complex.To give you a hint it is important also to monitor who's the front runner in LDP' presidency race, Abe seems to have take the lead and this says something regarding the above mentionned subtile mecanics (even if you may think it is unrelated).
Now for rates;at mid july six month futures had already discounted 0,50 % up to march 07. As yourself I also do not believe that BOJ will embark in further rate hikes before quite a while (but not for the same reasons)whatever the level of increased communications with the FOMC. True 'fine tuning' was not really the strong point of previous BOJ governors (read my lips) but Japan has changed. In addition I would not be overly concerned by any would be 'Inflation burst' in Japan due to the structural changes of the economy. I do not see this as a concern for the foreseeable future.

Japanese Stocks Tank Tuesday after Sea Day Holiday (EWJ)

18th day's fall was pretty surprising to say the least but I do not think tensions in the Middle-east nor Korean Missiles crisis are the real culprit (it sure keeps pressure on Japanese stocks but limited..). The 18th fall was obviously not triggered by real fundamental negative elements. A large chunk of investors (hard believers in the fact that Japanese stock market is mostly driven by foreign investors) seem to follow the herd instinct . For now those investors sole readable scenario is : US economy cycle excess supply >tightening&... fall>weak earnings> stocks renewd falls etc....with financial easing again in the very end. Take it upside down if you want but it does not translate in a stocks uptrend
Of course such scenario certainly does not feet in Japanese current economic cycle nor a substancial part of domestic investors. But the relative absence of those very Japanese domestic players recently (individuals, institutions, investment trusts) made it easier for future traders to take the lead in short term (remember 1987). This said even for those seeking technical double bottom there was absolutely no reason to push it that far ! so contrarian I shall remain.
Tough time for the contrarian real value investor to maintain cruise speed but nevertheless pretty good timing.
Now coming back to your previous article on Gaijin/ Japanese view gap I would have indeed numerous comments to make, maybe later I shall devevelop further this interesting point.

The Long Case for Japanese Stocks (EWJ)

good point from Enzio . This said the BOJ tightening has been already largely priced in the market and I am not overly concerned by Japan considering the ample domestic liquidity for onshore equities investments. Same goes for earnings and Japan can certainly accomodate a mild US slowdown.
However the point is now rather : will FOMC tighten further in august (probabilities are as high as 70 %) In which case at what stage will the typical scenarios of stagflation or economic slowdown take the lead amidst US financial community ? In a certain way news of a US house price fall or economic slowdown would be welcomed at that point by Japanese stockmarket.

Tokyo Stock Exchange: Nearly $1 Trillion Lost in Just Over 2 Months (EWJ, ITF)

You are looking at it from the wrong angle Steven. The main culprit behind the 20 % fall since 7th of april high has been selloff by 'excess liquidity' driven investors , actually foreign equities invested US mutual funds cancellations can explain this. This said in an earlier comment you were right to mention the very attractive level of the advance/decline ratio which touched a low of 54 % (a low not seen on 11 years), this is a powerful buy signal for Japanese onshore individuals and domestic funds. Technically speaking it is true that until the Nikkei recovers the 15500 level one cannot confirm a rock solid bottom. Nevertheless such a buy opportunity ony appears once in 3 to 5 years on the Japanese stockmarket. The new growth markets (MOTHERS,HERAKLES,JASD... have already stabilized the 14th and 15th which does mean that domestic players are already on the buy side. And of course I do confirm , putting aside the lenght of Nikkei or TOPIX rebound,this is an extraordinary chance to go long.