Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Categorized | Banks, Financial

Japan’s record cash pile no good for banks

Posted on September 26, 2016

People walk past the Bank of Japan building in Tokyo...People walk in front of the Bank of Japan (BOJ) building in Tokyo August 20, 2007. BOJ will scrutinise the impact of turmoil in global financial markets at a policy meeting this week, with worries over market sentiment seen marking it hard to justify a rate hike. REUTERS/Toru Hanai (JAPAN)©Reuters

Earlier this month, when the Tokyo University of Agriculture found that the average lifespan of the nation’s dogs and cats was at record highs, most brokers knew what to do. They found three stocks that could immediately be pitched as “pure-plays” on the Japan pet longevity story.

But when the Bank of Japan said the cash and bank deposits of the nation’s corporations were at a record high of ¥242tn ($2.4tn) — as it did on Monday in a quarterly report — most brokers were stumped.

    There is no shortage of things to say about the figure itself — it’s just that none of it puts a compelling “buy” on Japanese equities. What is particularly jarring is that the record has been achieved despite Japan’s year-old corporate governance code, which was supposed to put pressure on companies not to hoard cash.

    In fact, the bolder brokers say that the present situation presents an obvious “sell” on Japan’s banks — a sector that was struggling to convert deposits into loans anyway, and has been suffering since the BoJ’s negative interest rate policy (Nirp) made making deposits costly. Accordingly, when the Topix banks index plunged 30 per cent between the announcement of Nirp in January and mid-August, few thought the move overdone.

    Over the past six weeks, though, the Topix banks index has rallied 20 per cent from that low — a move driven by optimism that the BoJ would show some form of mercy to the banks via policy decisions, and that its buying of exchange traded funds (ETFs) would start to favour those tracking the banks-heavy Topix over the banks-underweight Nikkei 225.

    Last week, when both of these hopes seemed to come true, the banks rally appeared justified.

    On closer inspection, however, the banks index may be set up for a fierce correction. The BoJ’s new policy may steepen the Japanese government bond yield curve, but it does so at the longer dated end that benefits life insurers, not the banks. On ETFs, the steep collapse of the Nikkei-Topix ratio from a 17-year high last month suggests the market has already thoroughly priced-in the BoJ purchasing policy shift. In the past, a growing mountain of deposits was great for the banks. These days, it’s for the dogs.