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USDJPY Japan Corporates Fear Collapse

Posted by: : Shayne HeffernanPosted on: December 18, 2014 USDJPY Japan Corporates Fear Collapse

USDJPY Japan Corporates Fear Collapse

Japanese firms are holding a record amount of cash equivalent to almost half the country’s gross domestic product, Bank of Japan figures showed Thursday, despite growing calls to open up those corporate coffers.

The currency holdings and deposits of non-financial, private-sector companies jumped to 233 trillion yen at the end of September, up 4.2 percent from a year ago, according to the data. Japan’s GDP in the year to April 2013 — the latest annual figure available — was 483.1 trillion yen.

The figures come days after Prime Minister Shinzo Abe, fresh from a weekend election victory, stepped up pressure on firms to hike wages as part of his broader push to reinvigorate the world’s number three economy.

Spring labour negotiations ushered in the biggest pay increases in years, but the rise was far outpaced by soaring profitability among many Japanese firms that have benefited from a sharply weaker yen.

Abe has repeatedly said his “Abenomics” growth blitz, aimed at ending years of deflation and tepid growth, would only work if profitable big firms boost their capital spending and put more spending money in employees’ pockets — a call backed by labor unions.

But an April sales tax hike designed to pare down a massive national debt slammed the brakes on the economy, which fell into recession during the third quarter.

“The accumulation of savings is a result of companies’ cautiousness in spending on new investment and salaries,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“Corporate performance is improving and if you compare corporate investment with the previous year then spending is rising… but they’re not spending at the pace that they’re earning.”

Unleashing that nearly US$2 trillion held in corporate piggy banks would be a ”driving force behind an economic recovery”, he added.

“But you can’t force companies to spend in the free market economy,” Ueno said.

“You have to create a business environment that makes them think ‘now is the time to spend’.”

Convincing consumers to spend more is another key challenge, highlighted by a BoJ report Thursday that showed the rapidly aging population’s household assets rose 2.7 percent in the third quarter to a record 1,654 trillion yen, partially reflecting a domestic stock market rally.

The central bank’s report also showed that the outstanding balance of Japanese government bonds came in at 1,015 trillion yen by September, up 3.6 percent from a year earlier, with Japanese investors holding more than 90 percent of that debt.

Last week, Fitch Ratings placed Japan’s sovereign credit on Rating Watch Negative, warning that delaying another consumption tax rise next year would put at risk the government’s bid to bring down one of the world’s heaviest public debt burdens.

The warning came a week after Moody’s downgraded Japan’s credit rating, citing “rising uncertainty” over the debt situation and Abe’s faltering efforts to kickstart the economy.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

Trade FX, Equities and Options with the World's Leading Platform , call our trade desk 631 482 0376, or contact us to get started.

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