Our analysis

Bets against Japan Megabanks

Bearish bets on Japan Megabanks have swelled to a six-year high as their recent surge fuels speculation that the shares have risen too far, too fast.

Margin-account holdings that profit when shares of Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. fall reached 109 million shares on Dec. 2, the most since July 2010, according to weekly data from the Tokyo Stock Exchange. The lenders rallied over the past month as Donald Trump’s election victory drove up bond yields in the U.S. and Japan, attracting overseas buying while failing to impress individual investors who see the rebound as overdone, according to Tokai Tokyo Financial Holdings Inc.





The Man They Call ‘Mr. BOJ’

Masayoshi Amamiya is viewed as so essential to operations at the Bank of Japan.  He is known inside the central bank as “Mr. BOJ.”  He has been at the central bank for 37 years, and he is regarded as a potential candidate for governor or deputy.


Why is he important now?

The shift in recent months from a blitz on deflation to a long-haul campaign that’s set to outlast Governor Haruhiko Kuroda’s term.   Amamiya is at the fore of managing interest rates and nudging consumer prices toward the BOJ’s distant 2 percent inflation goal.

Why will he be important in the future?

The 61-year-old could also be among contenders in early 2018, when Shinzo Abe’s government considers replacements for Kuroda, 72, and his two deputy governors.  Amamiya was approached about taking one of the deputy posts in 2012.  But suggested instead his peer Hiroshi Nakaso, according to a person with knowledge of the matter who spoke on condition of anonymity.

What is his background?

Amamiya, the long-time head of the powerful monetary affairs department, joined the BOJ straight out of college and has been at the heart of policy making for decades.

Yet his path to a career in central banking was far from assured. As a student at the prestigious Aoyama high school in Tokyo, the only course he ever failed turned out to be a chemistry class taught by the father of an official at the BOJ.  Amamiya’s first passion was classical music and he considered going to a conservatory after high school. This option closed when his parents intercepted his mail and hid the application forms. In the end Amamiya went on to study economics at the University of Tokyo.

Fast-forward to 2016 and he’s the most powerful official at the central bank outside of the nine-member policy board. His monetary affairs department drafts policy, and the markets division, which he also runs, has investors around the world on tenterhooks as it buys and sells financial instruments to implement that policy.

Donald Trump Could Give Japan a Boost

President-elect Donald Trump ’s promise to fire up U.S. growth by cutting taxes and developing a trillion dollars of infrastructure has helped fuel a dollar rally that’s weakened the yen by nearly 8.5 percent since the day before the election, almost certainly bringing relief to Japanese policy makers.

Add rising oil prices, the likelihood of higher interest rates in the U.S. and a global shift toward fiscal stimulus to spur growth, and you have a recipe for Japan’s economy gaining some traction next year.

“It could be a potentially good year for Japan if we get the ‘Trump the Keynesian’ scenario,” said Paul Gruenwald, Asia-Pacific chief economist at S&P Global Rating, referring to John Maynard Keynes, who advocated government spending to replace private demand in economic downswings.

The Japanese economy has struggled in recent years. A collapse in oil prices in 2014-15 and economic and political uncertainty throughout 2016, including the Brexit vote, countered the Bank of Japan’s efforts to generate inflation and growth through quantitative easing and a weaker currency. The yen rose to nearly a three-year high this year, while the core consumer price gauge sank to a three-year low in negative territory.

With a more favorable environment, economists are raising their forecasts for Japan as well as the global economy.

Growth Forecasts

Morgan Stanley MUFG said it sees growth of 1.3 percent next year and 0.9 percent in 2018 — well above the potential growth rate of about 0.3 percent. It also forecasts inflation near 2 percent at end-2018, up from minus 0.4 percent in October.

To be sure, the shift in markets has been driven by expectations that could go unfulfilled. There’s no guarantee that Trump will be able to enact his policies, and even if he does, getting infrastructure projects off the ground can be difficult and slow. The dollar rally may lose steam, or a flareup of global turmoil could see the haven yen quickly reverse and strengthen.

Yet other factors support a more upbeat outlook for Japan. Not least is its own fiscal stance. In its forecasts, Morgan Stanley noted that a fiscal stimulus package passed by parliament in October, including money for infrastructure and earthquake relief, will be spent over the next two years.

Trump’s spending promises, if realized, are expected to fuel demand for imports and related services — as well as inflation, higher U.S. interest rates and a stronger dollar — a welcome scenario for Japanese exporters.

A big increase in U.S. infrastructure spending could unleash growth and employment, said Douglas Paal, a vice president at the Carnegie Endowment for International Peace. “The dollar could soar, sucking in imports as well as investment. ”


Even after Brexit and Trump, Japan is remarkably stable.

Cracks are appearing in societies around the world. First we had Brexit, then Donald Trump. Italy—with a constitutional referendum looming—and France—with an election next April—could be the next dominoes to fall. We need to think the unthinkable now.

In the UK and the US, the “insurgent” voters  came mainly from the same five groups: rural dwellers; the over-40s; males; those with less education; and white/non-immigrant populations.

And in both cases the insurgents wanted the same thing: to topple an out-of-touch establishment and force change at any cost.

So what sort of change did they vote for?

I’ve boiled it down to 5 key points.

  • Less globalization
  • Less immigration
  • More equality
  • More jobs in rural areas
  • Better public services and infrastructure

As other developed societies are busy tearing themselves apart, Japan appears remarkably cohesive and content by contrast.

How come?

I think it’s because Japan’s elite have been delivering on that 5-point menu for a long time.