Investment Insights Podcast – Japan: Sunset on the Horizon?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded April 29, 2016), Stuart puts the focus on Japan and their struggling economy especially on the current political climate and its economic impact.

Why talk about Japan?

  • It’s the third largest economy in the world.
  • It’s one of the world’s leading lenders to the rest of the world, including the U.S.
  • Political fallout and economic downside loom if monetary easing policy is not accompanied with fiscal progress.

What’s the latest?

  • On April 27, the Bank of Japan decided not to add to currently high quantitative easing, greatly disappointing the markets.
  • The Japanese Yen appreciated over 2% (versus the U.S. dollar), that’s a negative given that two-thirds of the equity market is based towards overseas earnings.

How did Japan get here?

  • Back in 2013, Shinzo Abe inspired hope to reinvigorate the economy through the three arrows: monetary policy, fiscal stimulus, and structural reform.
  • The reality is there has been little-to-no follow through on fiscal policy or structural reform.
  • Bank of Japan has created a massive QE program, owning one out of every three long-duration government bonds.

Japan_Chart_1

So, did the quantitative easing measures work?

  • QE helped asset prices, but did not reset inflationary expectations nor economic growth (GDP around 1%).
  • Japanese corporations aren’t investing back into Japan, but rather overseas.
  • Negative interest rates have resulted in a deceleration in bank lending.

That’s not great, but what does that mean exactly?

  • Failure in Japan could also have implications for global markets.
  • Despite stagnant growth for parts of the last three decades, Japan remains the third largest economy and second largest equity market.
  • Japan is also one of the largest holders of U.S. Treasuries.

Shoot me straight here, has Japan entered into the “sunset” phase?

  • It appears likely that Japan still has liquidity to muddle through its problems for now, but one cannot rule out a more negative scenario with the latest inaction and failure to improve the economy.
  • Fiscal stimulus could come in light of the recent earthquake, but progress on tax code reform and increased spending would provide longer-lasting relief.
  • One potentially negative scenario could come in July if a larger-than-expected victory for the opposition happens–this could lead to general elections and the departure of Abe causing policy uncertainty and higher volatility.

Please click here to listen to the full recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

Investment Insights Podcast – The World of Negative Interest Rates

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded February 2, 2016), Andy discusses what the world of negative interest rates looks like and how it impacts investors:

  • Japan surprised markets by entering the world of negative interest rates, joining Sweden, Denmark, and the European Central Bank.
  • Just a few years ago it seemed that negative interest rates were impossible; but, today there is over $5.5 TRILLION dollars of government debt with negative yields.
  • Long-term impact to investors is, candidly, unknown. Short-term impact seems to lean towards lower yields globally, including the U.S.
  • Large yield differentials between developed countries (Germany, Japan, U.S.) are a major reason why the U.S. dollar continues to appreciate.
  • Demand created by large yield spreads is why we believe we won’t see meaningfully higher yields in the United States anytime in the near term and why we believe the Fed will back off their initially suggested pace of raising interest rates, perhaps even holding off overall.

For Andy’s full insights, click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.