Richard Katz

The Oriental Economist - April 2016 Issue

Richard Katz's the Oriental Economist April 2016 issue includes reports Playing Trade Poker with Trump, Will a ‘double-election’ follow this summer - Second Tax Delay, Sad Shunto, Fiscal Straits Pit Elderly Against Children- Daycare Dilemma, and Pharaonic Construction Program - Call of the Crane.

TOE March 2016

Richard Katz's March 2016 issue of the Oriental Economist. Topics include Abe’s Approval: A Mile Wide, Just An Inch Deep, So Strong and Yet So Weak; Negative Rate Backfire, Tax Postponement Mulled; Raising Profits without Raising Sales, A New Bottom Line; Nuke Power Plans Don’t Add Up and Flood of New Diet Members Decimates LDP ‘Old Guard’ - Abe’s New Conservativism

TOE Alert: Court Injunction Probably Just Delays, Not Prevents, Nuke Restarts

Key points: - Court decision ordering shutdown of two nuclear reactors will likely just delay, rather than prevent, restarting many of Japan’s reactors - High courts will likely maintain their past rulings that lower courts must defer to the expertise of the nuclear regulators - Still, the decision could lead to other court cases causing further delays and more costs for the utilities - If the courts make the utilities add additional safety measures, that could lead the utilities to lessen the number of reactors they find financially viable - Tomorrow is the fifth anniversary of the march 2011 Fukushima disaster, and only two nuclear reactors are back in operation, far less than any pro-nuclear policymaker to whom we spoke expected by this time - The Abe administration policy is to have nuclear power supply 20-22% of all electricity in Japan by 2030; this goal is unlikely to be met

TOE Alert: Teflon Abe; the Curse of One-Party Democracy

Key points: - As we expected, public disenchantment has grown as Abenomics failed to deliver on its promises; in a new Nikkei poll, 50% of respondents said they were dissatisfied - However, we were wrong in our expectation that disenchantment with Abenomics would propel a steady erosion of Abe’s overall approval ratings; over the last year, approval has stabilized at around 40-50%, a high level for a PM with Abe’s tenure - There is growing expectation that Abe will call—and win—a double-election this summer of both Upper and Lower House; Abe will not, however, secure a two-thirds majority in both Houses needed to revise the Constitution

Abe Considering Another Postponement of Tax Hike on Poor Consumer Spending

Key points: - Kantei considering another postponement of the consumption tax hike - This is partly due to upcoming election and partly due to ongoing bad news on consumer spending - Consumer spending in January was down a whopping 4% from a year ago - Spending is now even lower than it was in mid-2014 after the consumption tax was raised from 5% to 8% - Auto sales are down 20% from a year ago - Some economists see GDP falling again in January-March, after having fallen at a 1.4% annual rate in October-December

TOE Alert: Exports Plunge 9% in January from Year Ago; GDP Forecasts for 2016-17 Being Lowered

Key points: - In January, real (price-adjusted) exports plunged by 9% from a year ago, the most severe downturn in three years; three-month average down 5% - Declining exports are a global problem for Japan, not a China problem - Nor does it seem a problem of a global slowdown in imports, but of a Japanese loss in market share ​- Credit Suisse sees GDP growing just 0.4% in calendar 2016 and falling 0.1% in 2017 (latter assumes tax hike is implemented on schedule in April 2017)

TOE Alert: Growing Number of Currency Traders See Yen Going to Y95-110 Per Dollar; Abe Aide Says Delay Consumption Tax

Key points: - Abe Advisor Honda calls for postponement of consumption tax hike - Investment bankers increasingly see yen moving to ¥95-110/$ during 2016 - Even MOF intervention seen as creating only temporary interruption in yen rise ​- Separating out the fundamental and technical factors

TOE Alert: GDP Falls 1.4%; Still 0.4% Below Pre-recession Peak Almost Eight Years Ago

Key points: - GDP fell at 1.4% pace in Oct-Dec. - This is the eighth quarter of the last 16 in which GDP has fallen - GDP still 0.4% below pre-recession peak almost eight years ago - At this point, Japan’s recovery from 2008-09 slump no better than in Eurozone - US, UK and Germany all doing substantially better than Japan - Biggest hit to growth is ongoing slump in consumer spending; spending even lower than it was almost four years ago in Jan-March 2012 - Artificial stimulus of spending on consumer durables has gone into big reverse - Second arrow missing in action as government spending flat for last two years

TOE Alert: BOJ Negative Rates Backfire; People Move to Cash Instead of Stocks

Key points in Richard Katz's report include: - Kuroda’s negative rate policy presumes low rates will force firms, banks and households to shift to higher-return risky assets - But Kuroda’s premises about firm and household behavior have been consistently mistaken - They are based on theories about what a perfectly rational person would do rather than looking at what real-world firms and households actually do - Ever since the BOJ pushed interest rates to the floor, beginning in 1995, households have shifted out of higher return time deposits at the banks into cash and ordinary deposits, which pay almost no interest - They have not increased their purchases of insurance annuities - Pension funds have gone up because people have no choice ​- Households have been consistent sellers of stocks in the past decade, selling even more when the market is rising a lot

TOE Alert: Real Wages Fall almost 1% in 2015; Fourth Consecutive Fall

Key points of this TOE Alert include: - Real wages per worker fell 0.9% in 2015, marking the fourth decline in a row; - One of the most disappointing omens for the future in the December report was the 0.8% fall in nominal bonuses, a harbinger for a disappointing shunto negotiations on overall wages; ​- Some officials and economists keep blaming the data, rather than look at the reality