PM Abe Channels King Canute

June 26th, 2016 9:31 pm | by John Jansen |

The opening paragraph of this Bloomberg story remarks that prime Minister Abe issued instructions to calm markets and that has resulted in a rebound in Japanese equities. It made me think of the story of King Canute in which he attempted to command the tides. I doubt that Abe will be any more successful than Canute.

Via Bloomberg:
June 26, 2016 — 8:24 PM EDT
Updated on June 26, 2016 — 9:18 PM EDT

Japanese shares rebounded from their worst drop since the aftermath of the 2011 earthquake, led by defensive stocks, as Prime Minister Shinzo Abe issued instructions to calm markets following the U.K.’s shock decision to leave the European Union.

The Topix index added 1.4 percent to 1,221.18 as of 10:17 a.m. in Tokyo, with five shares advancing for each that fell, and pharmaceutical, railway and food companies posting the largest advances. The gauge plunged 7.3 percent on Friday, its biggest single-day drop since shares tumbled 9.5 percent on March 15, 2011. The yen held steady at 102.37 per dollar, even as the British pound resumed its decline, after the Japanese currency posted its biggest gain on Friday since the depths of the Asian financial crisis.

“We’ve regained some calm,” said Masaaki Yamaguchi, a Tokyo-based equity market strategist at Nomura Holdings Inc. “The yen is slightly weaker compared to levels seen at the European market close” on Friday, providing some consolation to investors in Japan, he said.

Abe asked for various measures to stabilize markets, Finance Minister Taro Aso told reporters in Tokyo after a meeting with the prime minister, Bank of Japan Deputy Governor Hiroshi Nakaso, Chief Cabinet Secretary Yoshihide Suga and others. Abe ordered the BOJ to provide funds to support the financial system, and gave instructions to ensure liquidity, Nakaso said.
Policy Expectation

“There’s some expectation for policy cooperation,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center in Tokyo. “But until we actually see this materializing, it’s difficult for the market to gain strength.”

What little consolation investors may have for now is the growing chance of policy action by central banks globally to ease the market turmoil and pour liquidity into financial markets. Odds that the Federal Reserve will raise interest rates by the end of this year fell to 15 percent, down from a 34 percent chance before the Brexit vote.

“The fact that the Japanese market has started higher will be a source of comfort for global market participants,” Yamaguchi said. But “we still don’t have a lot of clarity on direction. What sort of policy we get will have significance.”

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The fallout from the British vote continued to hit exporters. Toyota Motor Corp. slid 2 percent after plunging 8.7 percent on Friday. Mazda Motor Corp. dropped 8.3 percent after Nomura cut its rating on the automaker, citing a slowdown in the European car market and a stronger yen. Nippon Sheet Glass Co., which counts Europe as its largest market, dropped 4.3 percent, taking its two-day decline to 22 percent.
Defensive Rally

Meanwhile, so-called defensive shares led gains on the Topix, with drugmakers, food producers and railway stocks rising the most among the gauge’s 33 industry groups. Japan Tobacco Inc. added 5 percent, while Astellas Pharma Inc. jumped 6.3 percent.

The Nikkei 225 Stock Average gained 1.7 percent to 15,209.45. Futures on the S&P 500 Index slipped 0.6 percent. The underlying U.S. equity gauge plunged 3.8 percent on Friday, the most in 10 months, joining a selloff in global risk assets on concern the U.K. decision to leave the EU will hamper worldwide growth.

 

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