Arranged for Global Interdependence Center, 2010 International Conference in Shanghai
January 11th, 2010
Outlook for the Yen
DIAM Co. Ltd Chief Economist
Kozo Koide
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
0
Resent Move of YEN, A Lot of Bears of YEN YEN has been depreciating after BOJ’s action on 12/1 $/Yen
< $/YEN Rate (Daily) > 1/8: Kan (Minister of Finance, at inauguration) "Cheap yen is preferable" 9/24: Fujii (Minister of Finance, at the meeting with Secretary Gaithner) "FX market is a stronghold of free economy"
8/30: Landslinding Victory of DPJ
Data:Bloomberg
1
10.01.04
09.12.28
09.12.21
09.12.14
09.12.07
09.11.30
09.11.23
12/1: BOJ introduced new liquidity supply 09.11.16
09.11.09
09.11.02
09.10.26
09.10.19
09.10.12
09.10.05
09.09.28
09.09.21
09.09.14
09.09.07
09.08.31
09.08.24
09.08.17
11/29: Fujii after Dubai Shock: "An appropriate action should be taken against abnormal move. But we should watch & see before current situation" 09.08.10
98 97 96 95 94 93 92 91 90 89 88 87 86
09.08.03
DIAM Economic Research Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
YEN Pendulum in the Last Decade YEN has been appreciated due to flight to ‘quality’. – Financial crisis invited higher risk premium upon deficit countries’ currency. – Interest rate differentials or external imbalance. Japan : Low interest rate but has large current surplus. Capital mobility matters.
< $/YEN Rate >
\／$
100MYen
135
FX Intervention by Japan(RHS)
80,000
130
＄/Yen Rate
70,000
125
60,000
120
Pariba Shock
115
50,000
110
40,000
105
30,000
100
Lehman Shock
95
20,000 10,000
90
Source:BOJ
2
DIAM Economic Research Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
0 10.01
09.07
09.01
08.07
07.07
07.01
06.07
06.01
05.07
05.01
04.07
04.01
03.07
03.01
02.07
02.01
01.07
01.01
00.07
08.01
Dubai Shock
85
00.01
Real Interest Rate Differentials & $/YEN Not instant sensitivity with $/Yen exchange rate, though... – But it has become higher in about the last 5 years. < $/Yen Rate & Real Interest Rate Differentials >
％
2.5
$/Yen (Monthly Average,LHS)
6 US > JPN
LOG10
Short-term real interest rate differential (3MLibor, US -- JPN)
7
More Sensitive
5
2.4
4 3
2.3
2 1
2.2
0 ▲1
2.1
▲2 ▲3
2.0
▲4
Data:Datastream, Ministry of Internal Affairs & Communications(JPN), Department of Labor(US)
3
09.01
08.01
07.01
06.01
05.01
04.01
03.01
02.01
01.01
00.01
99.01
98.01
97.01
96.01
95.01
94.01
93.01
92.01
91.01
90.01
89.01
88.01
87.01
1.9 86.01
▲5 85.01
US < JPN
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
BOJ, Took a Step Ahead BOJ has introduced new liquidity supply on Dec. 1, ’09. – The near-term direct effect against deflation is restricted. – But affected the expectation in the market about future policy. 【O/N Call Rate ・ Reserve Account in BOJ (Monthly Average)】
％
100M\
400,000
BOJ Reserve Account
0.70
09.10
09.04
08.10
08.04
07.10
07.04
06.10
06.04
05.10
05.04
0.00
04.10
-
04.04
0.10
03.10
50,000
03.04
0.20
02.10
100,000
02.04
0.30
01.10
150,000
01.04
0.40
00.10
200,000
00.04
0.50
99.10
250,000
99.04
0.60
98.10
300,000
Source ： BOJ
4
0.80
O/N Call Rate (right scale)
＇Note（Shadow : Target of BOJ Reserve Account
350,000
98.04
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Instant Reaction to Unemployment Rate? Peak-out of unemployment rate is a sign for rate hike? < US : FF Rate & Unemployment Rate >
％
％
12
1
FF Rate (monthly Average)
11
Unemployment Rate (3MMA, RHS（
10
2 3
9 4
8 7
5
6
6
5
7
4
8
3 9
2
出所：労働省、FED
5
09.01
08.01
07.01
06.01
05.01
04.01
03.01
02.01
01.01
00.01
99.01
98.01
97.01
96.01
95.01
94.01
93.01
92.01
91.01
90.01
89.01
88.01
11 87.01
0 86.01
10
85.01
1
84.01
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
US, Taking a Breath in Sight ? The rate hikes implied in the markets in US are not so sure. – Possibly the demand-supply situation in US would be relaxed toward the middle of this year. < US : Shipment (YoY) --- Inventory (YoY) > ％
Shipment(YoY)---Inventory(YoY), 3MMA ShipmentDI --- InventoryDI (6Mahead, in Philadelphia FED, RHS)
15
70
10.01
09.07
09.01
08.07
08.01
07.07
07.01
06.07
0
06.01
▲20
05.07
10
05.01
▲15
04.07
20
04.01
▲10
03.07
30
03.01
▲5
02.07
40
02.01
0
01.07
50
01.01
5
00.07
60
Data : DOC, Philadelphia FED
6
Pt
10
00.01
DIAM Econoimic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Current A/C Surplus & $/YEN Rate Higher Yen regardless of contraction of current surplus < Current A/C of Japan & $/YEN Rate > $/YEN Rate JPN:Current Account / Nominal GDP (4QTotal %, RHS,6Qleading)
2.4
7
1.0
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
10.09
09.09
08.09
07.09
06.09
05.09
5.5
04.09
1.9
03.09
5.0
02.09
2.0
01.09
4.5
00.09
2.0
99.09
4.0
98.09
2.1
97.09
3.5
96.09
2.1
95.09
3.0
94.09
2.2
93.09
2.5
92.09
2.2
91.09
2.0
90.09
2.3
89.09
1.5
88.09
2.3
87.09
ď ľ
Capital Account, Large Swing of “Others” Large swing of “other investment’ is eye-catching. – Major part of recent inflow is ‘other investment’ 【 Capital Account (12mts, Total）】 Portfolio Investment Other Investment Other Capital Account
100M\ 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 ▲50,000 ▲100,000 ▲150,000 ▲200,000 ▲250,000 ▲300,000 ▲350,000 ▲400,000 ▲450,000 ▲500,000
Financial Derivatives FDI Capital Account I N
O U T
02.01 02.04 02.07 02.10 03.01 03.04 03.07 03.10 04.01 04.04 04.07 04.10 05.01 05.04 05.07 05.10 06.01 06.04 06.07 06.10 07.01 07.04 07.07 07.10 08.01 08.04 08.07 08.10 09.01 09.04 09.07 09.10
Source:MOF
8
DIAM Economic Research Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Unwinding of YEN Carry has been Going On A lot has been flowing back through interoffice A/C 【Other Investment ex.Trade Credits (12mts. Total) 】 Bank's Interoffice Account(L/T) Securities Lending Repurchase Agreement ＆ Others Currrency & Deposit Other Investment (ex. Trade Credits)
100M\
Other L/T Loans Bank's Interoffice Account(S/T) Others Other Assets/Liabilities
400,000 300,000 200,000
I N
100,000 0
O U T
▲100,000 ▲200,000 ▲300,000
09.10
09.07
09.04
09.01
08.10
08.07
08.04
08.01
07.10
07.07
07.04
07.01
06.10
06.07
06.04
▲400,000
06.01
DIAM Economic Research Source:BOJ
9
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Japanese, not Taking Much Outright FX Risk
Bank & pension are using more hedging operation Growing mutual fund take more FX risk – But the majority is going to emerging &/or high interest rate zone. 【Outward Portfolio Investment (Equity & Long/M id-term Bond) 】 Life Insurance Trust Bank (Trust A/C) Others
100M\
250,000
Bank(including Banking A/C of T/B) Mutual Fund Total
200,000 150,000 100,000 50,000 0 ▲50,000
12 mts. Total ▲100,000
01.09 01.12 02.03 02.06 02.09 02.12 03.03 03.06 03.09 03.12 04.03 04.06 04.09 04.12 05.03 05.06 05.09 05.12 06.03 06.06 06.09 06.12 07.03 07.06 07.09 07.12 08.03 08.06 08.09 08.12 09.03 09.06 09.09 09.12
10
Source:MOF
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
DIAM Economic Research
US$/YEN, & Effective Exchange Rate YEN, not so appreciated against ‘other’ currencies. < Yen Exchange Rate >
Source: BoJ, Bloomberg
Jan. 1999 = 100
80
120.00
90
110.00
100
100.00
110
90.00
120
80.00
130
70.00
140
60.00
US$/YEN AUD$/YEN Nominal Effective Exchange Rate (RHS)
150
50.00
160 10.01
09.07
09.01
08.07
08.01
07.07
07.01
06.07
06.01
05.07
05.01
04.07
04.01
03.07
03.01
02.07
02.01
01.07
01.01
00.07
40.00 00.01
DIAM Economic Research
11
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Current A/C Surplus & $/YEN Rate If we assume a time lag for 6Qs before moving rate... < Current A/C of Japan & $/YEN Rate > $/YEN Rate JPN:Current Account / Nominal GDP (4QTotal %, RHS,6Qleading)
2.4
12
1.0
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
10.09
09.09
08.09
07.09
06.09
05.09
5.5
04.09
1.9
03.09
5.0
02.09
2.0
01.09
4.5
00.09
2.0
99.09
4.0
98.09
2.1
97.09
3.5
96.09
2.1
95.09
3.0
94.09
2.2
93.09
2.5
92.09
2.2
91.09
2.0
90.09
2.3
89.09
1.5
88.09
2.3
87.09
ď ľ
Twin Deficits of US, & $/YEN Simultaneous deterioration cast shadow upon $ denominated assets – If US current a/c would deteriorate with the legacy of huge fiscal spending, ... – CHINA: anchor against or catalyst for high yen? < $/YEN Rate & Foreign Researve > Simultaneous Deteriaration of US Twin Deficits $/YEN Rate Foreign Researve(RHS)
LOG10 2.5
Plaza Accord ('85/9)
70 60
2.2
911 Attack ('01/9)
50 40
Louvre Accord('87/2) 2.1
30
Clinton's Talk Up('93/4)
Data:Datastream, Tresuary Department (US)
13
Lehman Shock ('08/9)
20 10
04.12 05.12 06.12 07.12 08.12 09.12
0 97.12 98.12 99.12 00.12 01.12 02.12 03.12
90.12 91.12 92.12 93.12 94.12 95.12 96.12
(Note):Tw in Deficits:Current Account Deficit / Nominal GDP (%) Federal Government's Deficit / Nominal GDP (%) QtQ deference after 4QMA
83.12 84.12 85.12 86.12 87.12 88.12 89.12
1.9
110
80
2.3
2.0
TYen
100 90
2.4
77.12 78.12 79.12 80.12 81.12 82.12
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Cristal Ball, with Many Colors Current level is higher than ‘fundamental’ value, but... – 59, 70, 98, 105, 113 $/Yen
< PPP Rate of $/YEN >
280 260 240
$/YEN Rate PPP(CGPI & PPI final goods) PPP(CPI core)
220 200 180 160 140 120 100 80 60 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Data:Datastream, BOJ, Ministry of Internal Affairs & Tellecommunication(JPN), DoL(US)
14
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Bull, Pushed to the Edge of a Cliff
15
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Demography : Front Runner in Asia All Asian counties are doomed to face rapid aging. – The refraction points in other Asian will not so far away. – Going down with much faster speed in some countries. 【 Asia : Productive Population Ratio 】
% 80
Japan
China
Korea
HK
Singapore
Taiwan
75
70
65
60
55
Estimate from CY2010 Productive Population Ratio: Age 15-64 / Total population
Source: UN, National Statistic Bureau (Republic of China)
16
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
50
1950
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
1. Fertility rate↑
Higher Female Labor Participation
Labor participation rate of female has becoming higher – Centered in late 20’s, 30’s – Higher labor participation of women → Higher opportunity cost to have children 【 Labor Perticipation Rate (Female) 】 80% 70% 60% 50% 40% 30% 20%
08.12
10%
85.12
0% 15-19
20-24
25-29
30-34
Source : Ministry of Internal Affairs & Communications, National Research Institution of Social Welfare
17
34-39
40-54
55-64
65+
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
1. Fertility rate↑
Still We Have Hope The neck is day-care system & spending for education – OECD estimate the fertility rate would be risen to 2.0 provided that public support for day-care and spending for education – Japanese women still do want babies. (Not like German) 【 Potential Impact of Various Policy Reforms on Total Fertility Rates 】
%
3.0
Expectate Progress in Fertility Rate by Policy Enhancement Current Level of Birthrate
2.5
0.4
2.0 0.2 0.3
1.5
0.0
0.2
0.5 0.6 0.7 0.8
0.3 0.3 0.4 1.0
0.4 0.6
0.9 1.1
0.7
0.2
1.0 0.5
2.0 1.9 1.7 1.6 1.7 1.7 1.8 1.7 1.5 1.5 1.4 1.4 1.5 1.3 1.2 1.3 1.3 1.2 1.1
Source: OECD
18
Korea
Portugal
US
Netherland
Ireland
Greece
France
UK
Finland
Japan
Canada
Czech
Italy
Austria
Belgium
Denmark
Sweden
Germany
0.0 Spain
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research
Higher Productivity : Emission Control
Japan boasts of its highest energy efficiency. – Additional cut is unfair, impossible OR good chance for innovation » Solar energy : Highest cutting edge with low growth due to a lack of initiative » Nuclear power : 3 companies out of 4 which can build & operate advanced generator are Japanese Japan=100
< Unit Energy Input by Country >
as of 2007
1000 900 800 700 600 500 400 300 200 100 0 Japan S ource：IEEJ
19
EU
US
Korea
China
India
DIAM Economic Research
Outlook for Yen (GIC, Shanghai) Jan 11, 2010 DIAM Economic Research