Japan – Clement Tan

March 19, 2024June 6, 2024

Bank of Japan ends the world’s only negative rates regime in a historic move, abandons yield curve control

By Clement Tan | March 19, 2024 | CNBC.com

Japan’s central bank raised interest rates on Tuesday for the first time since 2007, ending the world’s only negative rates regime and other unconventional policy easing measures enacted over the course of the last few decades to combat deflation.

These changes mark a historic shift and represent the sharpest pull back in one of the most aggressive monetary easing exercises in the world. The BOJ’s actions also precede the U.S. Federal Reserve’s interest rate decision later this week.

“The likelihood of inflation stably achieving our target has been heightening … the likelihood reached a certain threshold that resulted in today’s decision,” BOJ Governor Kazuo Ueda said at a press conference after the central bank’s decision, according to a translation provided by Reuters.

January 12, 2024June 6, 2024

Japan wants higher returns for investors — here’s what it’s doing

By Clement Tan | January 12, 2024 | CNBC.com

Japan is stepping up efforts to ensure its listed companies become more efficient with capital allocation and increase shareholder returns this year.

The operator of Tokyo’s stock exchange will release Monday, its first monthly list of public companies that have shared their plans for optimizing capital management to enhance returns for their investors.

The Japanese government and the TSE also have plans in the works for increasing corporate board independence and female representation.

“It’s not just the Tokyo stock exchange, but the entire Japan government is pushing for better corporate governance right now,” said Toru Yoshikawa, a business professor at Waseda University in Tokyo.

The Tokyo Stock Exchange is entering into its second year of corporate governance reforms, kickstarted in March last year, by directing listed companies whose shares are trading below a price-to-book ratio of one — an indication it may not be using its capital efficiently — to “comply or explain.”

July 28, 2023October 15, 2023

Bank of Japan loosens yield curve control, pledging ‘greater flexibility’

By Clement Tan | July 28, 2023 | CNBC.com

Japan’s central bank on Friday loosened its yield curve control, underscoring concerns about its protracted monetary easing on financial markets and the real economy.

In a policy statement, the Bank of Japan said it will continue to allow 10-year Japanese government bond yields to fluctuate in the range of around plus and minus 0.5 percentage points from its 0% target level — though it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This move effectively expands its tolerance by a further 50 basis points.

The BOJ pledged to “conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations,” citing the need to remain nimble given “extremely high uncertainties for Japan’s economic activity and prices.”

In what was BOJ Governor Kazuo Ueda’s first major policy change since he took the helm in April, the central bank also kept its ultra-loose interest rate intact, electing to hold its short-term interest rate target at -0.1% after its July policy meeting. It also raised its median forecast for inflation to 2.5% for fiscal 2023, up from its 1.8% prediction in April.

“This is not intended as a step toward policy normalization. Rather, it’s a step aimed at enhancing the sustainability of YCC,” Ueda said at a press conference in Tokyo on Friday afternoon explaining the central bank’s decision, according to a translation provided by Reuters.

June 13, 2023October 15, 2023

Is Japan Inc finally serious about corporate governance reform?

By Clement Tan | June 13, 2023 | CNBC.com

For the first time in decades, Japan stocks are back in vogue.

In the last few weeks, the benchmark Nikkei 225 and Topix indexes touched their highest levels in more than 30 years as foreign investors pour into Japanese equities with a consistency rarely seen in at least a decade.

After what turned out to be a false dawn a decade ago, when “Abenomics” first raised hopes of corporate governance reform in Japan, many seem to think better of the latest measures by the Tokyo exchange.

“The recent Tokyo Stock Exchange initiative is a game-changing moment, because it’s going to challenge a lot of companies that are trading on less than one-time price-to-book to improve profitability and support their share price,” said Oliver Lee, a Singapore-based client portfolio manager, at Eastspring Investments.

The Tokyo Exchange Group recently finalized its market restructuring rules. Among the latest measures was one that directed listed companies to “comply or explain” if they are trading below a price-to-book ratio of one — an indication a company may not be using its capital efficiently.

The exchange warned such companies could face the prospect of delisting as soon as 2026.

Part of the optimism in Japanese stocks stems from how specific and tangible the Tokyo exchange’s requirements are this time round. Warren Buffett’s bullish calls on Japanese equities has also helped boost confidence among foreign investors.

There is hope this would press Japanese companies’ notoriously resistant management — which typically view shareholders as enemies — for greater capital efficiency and profitability. It could in turn lead to a domino effect among other Japanese companies once the big players start to make changes.