Tài liệu Japan Economics/Fixed Income Weekly doc

Client-Driven Solutions, Insights, and Access Japan Economics/Fixed Income Weekly Focus: the largest trade deficit in 1Q/2013 ··· 2 The trade balance recorded a deficit of ¥922.0 billio

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Japan Economics/Fixed Income Weekly

Focus: the largest trade deficit in 1Q/2013 ··· 2 The trade balance recorded a deficit of ¥922.0 billion in seasonally adjusted terms, resulting in the largest-ever quarterly deficit of ¥2.75 trillion (2.3% of GDP) in the January-March quarter Export volume rose +1.8% mom, recording the first recovery in three months, helped by the general machinery and transport equipment sectors, which seem to have opted to reduce product prices The terms of trade, meanwhile, continued to deteriorate as the yen depreciated As the country’s external balance has deteriorated persistently, its capacity to recycle savings abroad should have shrunk further

Fixed income market update ··· 4 Since the BOJ announced new monetary easing measures at its policy meeting

on 4 April, the JGB market has been unstable with yields having risen throughout the yield curve except for the 12yr-14yr zone, and volatility remains high in all maturities

Business cycle update ··· 7 Money and credit update ··· 14 Policy update ··· 16

Fiscal policy: the US and Japanese governments officially reached agreement

on Japan’s participation in Trans-Pacific Partnership (TPP) trade negotiations Upcoming Indicators/Events ··· 17

March nationwide CPI (26th Apr): core CPI is expected to be -0.2% yoy

Japan Economic Forecasts ··· 20 JGB Yield Forecasts ··· 20

Takashi Shiono +81 3 4550 7189 takashi.shiono@credit-suisse.com Tomohiro Miyasaka +81 3 4550 7171 tomohiro.miyasaka@credit-suisse.com

http://www.credit-suisse.com/researchandanalytics

Focus: Customs-cleared trade for March

 The trade balance recorded a deficit of ¥922.0 billion in seasonally adjusted terms,

resulting in the largest-ever quarterly deficit of ¥2.75 trillion (2.3% of GDP) in the

January-March quarter

 Export volume rose +1.8% mom, recording the first recovery in three months, helped

by the general machinery and transport equipment sectors, which seem to have opted for to reduce product prices

 The terms of trade, meanwhile, continued to deteriorate as import prices rose As the country’s external balance has deteriorated, its capacity to recycle savings abroad has shrunk

Customs-cleared trade data for March continued to record a wide trade deficit of ¥922.0 billion (seasonally adjusted) While nominal imports pulled back -1.2% after a surge in February (+6.9%), nominal exports continued to grow +1.6% after +1.3% in February Our own seasonally adjusted estimates show the export volume index turned positive at +1.8% mom in March for the first time in three months, while import volume fell -1.5% after +4.1%

On the other hand, significant deterioration in the terms of trade continued as the change

in import prices (+1.1%) outpaced that of exports (-0.2%)

Exhibit 1: Trade balance, billion yen Exhibit 2: Import and export volumes, mom%

Source: MoF, Credit Suisse Source: MoF, Credit Suisse

By item, rebounds in the volume of exports were observed for chemicals, general machinery, and transport equipment to the US and China, but exports to the EU remained weak Meanwhile, exports of general machinery, chemical products, and electrical equipment to other parts of Asia were resilient Import volume fell particularly sharply for mineral fuels, foods, and chemicals, which significantly increased last month

On a quarterly basis, growth in nominal imports (+9.6% qoq) outpaced growth in exports (+7.2%) in the Jan-Mar period, leading to the historically highest deficit (¥2.75 trillion, - 2.3% of GDP) in quarterly aggregate terms In real terms, export volume remained almost unchanged (+0.9%), while import volume expanded +3.5% in the Jan-Mar period

As we discussed in Japan Economic Analysis Issue No 37 (22 February 2013), export volume continues to lack upward momentum despite a cyclical upswing in global production activity and an improvement in price competitiveness stemming from the weaker yen We see little prospect of the trade balance improving significantly any time soon given that (1) structural pressures such as societal aging and industrial "hollowing out" continue to drive up import volume, and (2) the yen's devaluation has a disproportionately large impact on (predominantly foreign-denominated) import prices

Hiromichi Shirakawa

+ 81 3 4550 7117 hiromichi.shirakawa@credit-suisse.com

Takashi Shiono +81 3 4550 7189 takashi.shiono@credit-suisse.com

We expect a cyclical recovery in export volume to continue for few months given the past improvements in ISM/PMI indices, and that the weaker yen has made Japanese exporters more competitive on the price front, but there are also still numerous potential negatives, including a glut of raw materials inventories in China, US fiscal tightening, and the ongoing crisis in Europe

Exhibit 3: Export volume by region and item in March 2013

mom %

Chemical products

Non-ferr metals

Metal products

General machinery

Electrical machinery

Transport equipment

Source: MoF, Credit Suisse

Exhibit 4: Contribution breakdown of export volume in March 2013

mom %

Chemical products

Non-ferr metals

Metal products

General machinery

Electrical machinery

Transport equipment

Source: MoF, Credit Suisse

Exhibit 5: Import volume by item

mom %/qoq %

Mineral fuels

Chemical products

General machinery

Electrical machinery

Transport equipment

Fixed income market update JGB market has remained volatile since the BOJ policy meeting on 4 April

Despite the BOJ announcing quantitative and qualitative monetary easing at its policy meeting on 4 April, the JGB market has remained volatile, with yields rising throughout the yield curve except for the 12yr-14yr zone (Exhibit 6) and volatility has been high in all maturities (Exhibit 7)

Until 4 April, the BOJ's strong commitment to forward guidance and its purchases of JGBs with residual maturities up to three years had kept yields low at the short end of the curve, and maintained liquidity and low volatility throughout the JGB market In contrast, the quantitative and qualitative monetary easing it announced on 4 April indicated plans to purchase JGBs over a period of about two years This was perceived as shortening the length of its commitment to maintain policy unchanged, and has continued to destabilize yields in the short-term to intermediate sectors

Exhibit 6: Changes in the JGB yield curve Exhibit 7: Historical volatility of JGB yields

(2)

0246810121416

Source: Credit Suisse Source: Credit Suisse

BoJ to purchase roughly 70% of JGB issuance: overseas, a precedent was established by the Bank of England when it purchased roughly 80%

of Gilt issuance

Under its quantitative and qualitative monetary easing, the BoJ plans to purchase ¥89.04 trillion of coupon JGBs (excluding T-bills, floating-rate notes (FRNs), and CPI linkers − hereafter "JGBs") annually (¥7.42 trillion per month for 12 months) This is equivalent to about 70% of the amount of JGBs scheduled to be issued in FY2013 Putting aside for now the question of whether JGB purchases by the BoJ are the equivalent of monetizing government debt, a monetary policy precedent has already been set overseas by the Bank

of England (BoE), when it purchased about 80% of Gilt issuance

The BoE, the UK's central bank, had been easing monetary policy since the failure of Lehman Brothers by cutting the policy rate Once it lowered the policy rate to 0.5% in March 2009, it deemed further reductions in the policy rate impractical, and decided to purchase £200 billion of UK government bonds (Gilts), thereby implementing quantitative easing (QE) It later increased its Gilt-buying operations by £75 billion in October 2011,

£50 billion in February 2012, and another £50 billion in July 2012, bringing total purchases

to £375 billion

Tomohiro Miyasaka

Director +81 3 4550 7171 tomohiro.miyasaka@credit-suisse.com

Exhibit 8 shows the BoE's Gilt holdings and the amount of its weekly purchases Exhibit 9,

a comparison of the BoE's guilt purchases with the amount of Gilt issuance, shows the BoE purchased roughly 80% of Gilt issuance in FY2009 The BoE's large-scale purchases reduced liquidity and raised volatility in the UK's government bond market, and those market conditions persisted until the BoE halted its Gilt purchases in early 2010 The BoE subsequently resumed its bond buying program in October 2011 Although the share of Gilt issuance purchased by the BoE in FY2011 and FY2012 was not as high as it was in FY2009, the BoE was still the biggest investor in the Gilt market According to our strategist colleague in London, the BoE's Gilt purchases distorted their yields, and those distortions remain

Under QE3 in the US, the Fed purchased $45 billion of Treasuries monthly Because Treasury issuance in 2012 totaled $2.3045 trillion, the Fed's Treasury purchases amounted to approximately 23% of issuance (($45 billion x 12)/$2.3045 trillion) Hence the BoE's FY2009 purchases and the BoJ's upcoming purchases are considerably higher relative to total issuance Based on what happened in the UK, we think it will take several months before the JGB market regains stability

Exhibit 8: The BoE's Gilt purchases and holdings Exhibit 9: The BoE's Gilt purchases as a fraction of

issuance

050100150200250300350400

050100150200250

Source: BoE, Credit Suisse Source: BoE, Credit Suisse

The biggest tightening of supply-demand from long-term JGB purchases will probably occur in the over-5yr to 10yr zone

As of end-March 2013, the BoJ held approximately ¥86 trillion of coupon JGBs (excluding T-Bills, FRNs, and CPI linkers) Exhibit 10 shows holdings versus market issuance outstanding for each maturity zone

Approximately ¥23 trillion of the BoJ's ¥86 trillion of JGB holdings matures within the next year On the other hand, its long-term JGB purchases will increase those holdings by approximately ¥89 trillion over the next year (purchases of ¥7.42 trillion per month times

12 months), and bring total holdings to approximately ¥152 trillion by end-March 2014 Exhibit 11 shows holdings versus market issuance outstanding for each maturity zone

On that basis, the BoJ will hold over 30% of outstanding issuance in the over-5yr to 10yr zone by end-March 2014 This is based on the BoJ's planned monthly purchases in that zone of ¥3.4 trillion Even if the financial institutions selling into the BoJ's purchasing operations provide the BoJ with the entire ¥2.4 trillion of monthly 10yr JGB issuance, the BoJ will have to purchase the remaining ¥1.0 trillion from the secondary market As of end- September 2012, however, the five major banking groups1 combined only owned about

¥13 trillion of JGBs in the over-5yr to 10yr zone (Exhibit 12), and we expect BoJ purchases from the secondary market to cause supply-demand in that zone to become fairly tight Furthermore, if the BoJ is unable to get enough JGBs in the over-5yr to 10yr zone from the secondary market, it may need to shorten the average residual maturity of its long-term JGB purchases

Exhibit 10: JGBs outstanding by years of residual

maturity (actual) Exhibit 11: JGBs outstanding by years of residual maturity (forecast)

050100150200250300

5yr

over 5yr to10yr

Source: BoJ, Credit Suisse Source: BoJ, Credit Suisse

Exhibit 12: Aggregate JGB holdings by maturity of the five major banking groups

As of end-September 2012

13

020406080100120140

Up to 1yr

Source: Company data, Credit Suisse

Business cycle update

The largest trade deficit in 1Q/2013

 The consumer confidence index was up 0.6pt mom to 44.8 to reach the highest level since the Lehman shock

 Customs-cleared trade data for March continued to record a wide trade deficit of

¥922.0 billion (seasonally adjusted)

Foreign demand and external balance (Exhibits 13-18)

Customs-cleared trade data for March continued to record a wide trade deficit of ¥922.0 billion (seasonally adjusted) While nominal imports pulled back -1.2% after a surge in February (+6.9%), nominal exports continued to grow +1.6% after +1.3% in February Our own seasonally adjusted estimates show the export volume index turned positive at +1.8% mom in March for the first time in three months, while import volume fell -1.5% after +4.1%

On the other hand, the significant deterioration in the terms of trade continued as the change in import price (+1.1%) outpaced the change in export price (-0.2%) The country’s current account surplus disappeared (-¥0.1 billion or -0.0% of GDP) on a seasonally adjusted basis in February (January: ¥364.6 billion or +0.9% of GDP) Although the margin was very small, this was only the second current account deficit recorded under the current statistics (since 1996) Meanwhile, the figure on a non-seasonally adjusted basis recorded a surplus (¥637.4 billion) for the first time in four months

Industrial production (Exhibits 19-22)

Industrial production was virtually flat (-0.1% mom) in February after a 0.3% mom gain in January, coming in much weaker than expectations (BBG: +2.5% mom, METI forecast survey: +5.3% mom) Upward momentum in manufacturing activity remained sluggish, having little benefitted from the yen’s depreciation While the inventory-to-shipment ratio declined (-1.0%, shipment:+0.8%, inventory:-2.0%), its level still exceeded the latest bottom in February 2012 by 9.8%, inviting pressures for production adjustment continuously Simultaneously released results of METI’s forecast survey predicted a modest recovery in manufacturing output in March (+1.0%) and April (+0.6%) If the March figure comes in as predicted, the January-March quarter IP could increase 1.4% qoq

Corporate sentiment (Exhibits 23-24)

According to the March Tankan survey, the headline business conditions DI recovered 4pp

to -8 for large manufacturers led by an improvement in several processing industries such

as automobiles, general machinery and business machinery, which seem to have benefitted from the recent depreciation of the yen Meanwhile, the business conditions for material industries such as iron & steel and textiles worsened, probably due to a deterioration in the terms of trade The DI for large non-manufacturers widened its positive margin to +6 (from +4 in the December survey), reflecting resilience in the construction and retail sectors supported by continuing demand for earthquake rebuilding activities and relatively robust household consumption However, the conditions for the utility and transportation sectors deteriorated meaningfully amid increased energy costs due to the yen’s depreciation As such, the survey failed to indicate any material rebound in economic activities as of March while three-month ahead expectations DI showed somewhat clearer recoveries both for large manufacturers (+7pp to -1) and large non- manufacturers (+3pp to 9)

Hiromichi Shirakawa

+81 3 4550 7117 hiromichi.shirakawa@credit-suisse.com

Takashi Shiono +81 3 4550 7189 takashi.shiono@credit-suisse.com

Corporate capex (Exhibits 25-28)

According to the MoF’s Corporate Survey, capital investments (excluding software) made

by private-sector companies (excluding the financial and insurance sectors) increased 0.9% qoq, reverting to positive growth for the first time in four quarters The manufacturing sector’s capital spending continued to drop (-5.1%), but the non-manufacturing sector began to ramp up capital spending (+4.4%), pushing up the headline figure Meanwhile, core machinery orders rebounded +7.5% mom in February after the significant fall (- 13.1%) in January Since the Jan-Feb average orders were -6.9% lower than the Oct-Dec

2012 average, the Jan-Mar machinery orders are not likely to achieve the expected level

in the Cabinet-Office’s forecast survey in December (+0.8% qoq) Orders from the manufacturing sector (+8.6%) recovered clearly, but those from the manufacturing sector was almost unchanged (+0.6%) Meanwhile, orders from abroad, a leading indicator of domestic core orders, were up +8.0% But, the recovery is still short to recover the significant falls for previous two months (-4.8% in Jan ,-12.6% in Dec)

non-Employment (Exhibits 29-33)

The unemployment rate rose by +0.1pp to 4.3% in February as expansion in the employed population (+90K) was fully offset by that in the labor force (+120K) The labor participation rate rose particularly for females (stood at 48.9%, a 0.8pp higher than the latest bottom in September 2012) Employment in construction (+220K), manufacturing (+70K) and household-related services (+110K) recovered The job offer-to-applicant ratio remained unchanged at 0.85

Consumer sentiment (Exhibits 34-36)

The February Economy Watchers’ Survey reported that the household activity-related DI rose by 3.4pp mom to 51.7, sustaining the recovery for the third straight month on the back of the weak yen and a strong stock market The DIs rose for all components: the retail sector (+3.7), the food and beverage sector (+3.1), the service sector (+2.8), and the housing sector (+3.3) The household activity-related DI for future economic conditions rose 1.6pp to the record high of 57.5 Similarly, the February Consumer Confidence Survey reported a 0.6pt mom increase in the headline index to 44.8 to reach the highest level since the Lehman shock Moreover, the percentage of respondents expecting that prices would be higher one year out increased 2.3pts, to 71.8%

Consumer spending (Exhibits 37-38)

Retail sales were up 1.6% mom in February for the first positive growth in two months (Jan: -0.2%) Sales for wide-range retailers were up materially in categories such as general merchandise (+2.8%), foods (+0.4%), automobiles (+1.1%), machinery (+1.5%), and fuels (+3.6%) Meanwhile, real household consumption showed continuous strength at +2.2% mom in February after a 1.9% mom gain in January, supported by improved sentiment amid a stock price rally By item, expenditure for transportation & communications (+13.9%), education (+7.9%), clothing (+6.8%) and recreation (+2.7%) were strong The average level of consumption over January and February is 3.0% higher than the 3Q average

Residential investment (Exhibits 39-40)

New housing starts rose a sharp 9.4% mom, seasonally adjusted, in February Housing starts totaled 944,100 units on a seasonally adjusted annualized basis, recovering to a level surpassing the five-year average of approximately 870,000 housing starts Housing investment was up for the built-for-rent (+6.0%), built-for-sale (+12.4%) and issued (+20.7%) categories, but down for the owned (-3.1%) category

October-December

corporate capital

spending shows

positive qoq growth for

first time in four

a weak yen and a

strong stock market

Consumer spending

picked up in February

Housing starts up

sharply in February

Public demand (Exhibit 41)

Reconstruction investment following the Great East Japan Earthquake will likely expand at

a slower pace in January-March Guarantees on advances paid on public works projects fell a sharp 8.5% mom on a three-month moving average basis in January, and even the three-month moving average slowed to 0.1% (+0.4% in December) Public works orders were down a substantial 17.2% in January Although the fiscal 2012 supplementary budget includes additional public works projects, progress in construction could be slower than expected in light of the heavy snowfall in the Tohoku region and the chronic shortage

of construction and civil engineering workers

Wage and price indicators (Exhibits 42-44)

According to the February Labor Survey, total cash earnings were down 0.7% yoy (+0.1%

in January) On a seasonally adjusted basis (adjusting for the leap year), total cash earnings were almost flat, showing a 0.1% mom decline, but contractual cash earnings rose 0.4% yoy and scheduled cash earnings recovered to 0.2% growth The core (excluding fresh food) CPI inflation rate was -0.3% yoy in February, softening from -0.2%

in January The “one-off” technical boost associated with the February 2012 change in the survey coverage for televisions disappeared (pushing down the CPI by 0.25pp), while higher energy prices (contribution: +0.42pp yoy from +0.33pp yoy) and a rise in overseas package tour prices (+0.04pp from -0.03pp) underpinned the index The core core (ex foods and energy) CPI inflation rate came in at -0.9% yoy in February (-0.7% in January)

earnings are flat, while

core core CPI falls

deeper into negative

territory in reaction to

changes in surveyed

items for air conditioners

Exhibit 13: US Manuf ISM Survey New Order Index Exhibit 14: Manufacturing Survey New Order Index

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

NY Fed Manufacturing Survey Philadelphia Fed Business Outlook Survey

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: NY Fed, Philadelphia Fed, Credit Suisse

Exhibit 15: China PMI Manuf Survey Exhibit 16: Real Trade Indices

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

60 70 80 90 100 110 120 130 140

Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Real Exports Real Imports (2005=100)

Source: Thomson Reuters DataStream, Credit Suisse Source: BoJ, Credit Suisse

Exhibit 17: Customs-Cleared Trade Indices Exhibit 18: Current Account Balance

-3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0

-10 -5 0 5 10 15 20 25 30 35

Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12

Current Account (LHS) YoY diff (3MMA, RHS)

Source: MoF, Credit Suisse Source: BoJ, Credit Suisse

Exhibit 19: Industrial Production and Shipments Exhibit 20: Industrial Production and Shipments (2)

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Production (mom % chg) Shipments (mom % chg) Production (yoy % chg) Shipments (yoy% chg) (%)

Note: Production data in March and April are METI's forecasts

Source: METI, Credit Suisse

Source: METI, Credit Suisse

Exhibit 21: Industrial Inventory Index and Inventory to

Shipment Ratio Exhibit 22: Industrial Inventory Changes

Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13

(2005=100)

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Seasonally adjusted mom % chg YoY % chg

(%)

Source: METI, Credit Suisse Source: METI, Credit Suisse

Exhibit 23: BoJ Tankan Survey (Business

Conditions DI) Exhibit 24: Business Watchers’ Survey for Manufacturers and the Nomura PMI

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Future condition DI Nomura/JMMA Manufacture PMI (%)

Source: BoJ, Credit Suisse Source: Cabinet Office, the BLOOMBERG PROFESSIONAL™ service

Exhibit 25: Core Machinery Orders (1) Exhibit 26: Core Machinery Orders (2)

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Seasonally adjusted mom % chg YoY % chg

(%)

Source: Cabinet Office, Credit Suisse Source: Cabinet Office, Credit Suisse

Exhibit 27: Floor Area of Construction Started

0 1000 2000 3000 4000 5000 6000

Tokyo Nagoya Osaka (%)

Source: MLIT, Credit Suisse Source: Miki Shoji, Credit Suisse

Exhibit 29: Changes in the Number of Workers Exhibit 30: Changes in the Non-Farm Payroll Number

Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13

Seasonally adjusted mon%

(%)

-1.5 -1 -0.5 0 0.5 1

Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13

Seasonally adjusted mom%

(%)

Source: MIC, Credit Suisse Source: MIC, Credit Suisse

Exhibit 31: Unemployment Rate Exhibit 32: Job Offers to Applicants Ratio

220 240 260 280 300 320 340 360

Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 (X)

Source: MIC, Credit Suisse Source: MLHS, Credit Suisse

Exhibit 33: New Job Offers (Including Part-Time

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Seasonally adjusted mom % chg

yoy % chg

(%)

20 25 30 35 40 45 50 55

(%)

Source: MHLW, Credit Suisse Source: Cabinet Office, Credit Suisse

Exhibit 35: Business Watchers’ Survey – Current

Business Conditions for Households (1) Exhibit 36: Business Watchers’ Survey – Current Business Conditions for Households (2)

Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Food and beverage Services

Housing (%)

Source: Cabinet Office, Credit Suisse Source: Cabinet Office, Credit Suisse