Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 03 August 2016 at 2:06 GMT

Morning Report APAC: Japan's fiscal stimulus disappoints

APAC Sales Trading Desk / Saxo Capital Markets


  • Japan's long-awaited fiscal stimulus disappointed
  • There was strong USD selling overnight on a mix of news
  • US treasuries closed mix as the two-year note dipped 0.6 basis points 
  • India’s proposed national sales tax bill could be approved by a massive majority 

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time; GMT+8)

Overnight news


  • The long-awaited fiscal stimulus from Prime Minister Shinzo Abe was finally announced: the cabinet Tuesday approved a spending-and-lending package totalling JPY 28 trillion ($275 billion), including JPY 4.6 trillion in outlays this year and just under JPY 3 trillion further out. The administration completed its plan days after the central bank adopted a modest boost to its own stimulus efforts.
  • The package – the second to be compiled in the current fiscal year – will include cash handouts of JPY 15,000 for people on low incomes, NHK reported. A full breakdown of measures may not be available until the legislation is presented to the parliament. What the government did say Tuesday was that there will be a total of JPY 13.5 trillion in "fiscal measures," of which JPY 7.5 trillion is spending and JPY 6 trillion is low-cost loans.
  • The International Monetary Fund said increased spending "will slightly improve" prospects. It also welcomed the Bank of Japan's expanded easing.
  • The government may issue JPY 100 billion of 40-year bonds to fund the expanded budget, Reuters reported.

United States

  • US consumer spending rose more than expected during June. Personal consumption rose 0.4% MoM (Mkt est: up 0.3%) however incomes only increased 0.2% MoM (Mkt est: up 0.3%). Spending was driven by a 0.7% increase in purchases of non-durable goods. Spending on services rose 0.5% but outlays on long-lasting manufactured goods declined 0.3%. The personal saving rate was 5.3%, the lowest since March 2015, down from 5.5% in May.
  • The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, crept up 0.1% MoM (Mkt est: up 0.2%) and rose 0.9% YoY (Mkt est: up 0.9%)


  • India’s proposed national sales tax bill could be approved by a massive majority in the upper house of parliament this week, after Prime Minister Narendra Modi secured opposition backing, analysts said. Shares of local consumer companies have gained as the GST inches closer to being enacted after a decade of opposition.

 South Korea

  • Several Bank of Korea board members raised concerns about the financial risks associated with the low interest rate environment, minutes from the July 14 meeting showed. One said the effects of June’s rate cut and the supplementary budget need to be studied.


Foreign exchange



Strong USD selling overnight with a mix of news: first the disappointment of the fiscal measures from Japan that actually were as expected but the market doesn’t feel it will help revive the Japanese economy. Oil closed below $40 for the first time since April and very mixed data in the USD.

USDJPY dropped on the back of the fiscal stimulus 1.70% as the market is stopping out of its long USD (remember that most of the funds and real money investors kept buying USDJPY when the market heard a fiscal stimulus will be announced). The very short-term resistance is now at 101.50/101.60 and the main support being at 100.

AUD had a big squeeze higher after it failed to break the 0.7500 level following the Reserve Bank of Australia rate cut. The market was short through overnight options or short-dated options but it failed to capitalise.

Even the GBP followed the overall USD move and rallied overnight ahead of the Bank of England meeting. We could have similar moves as the AUD with the market already pricing a cut from BoE and the investors being already short GBP.

The move in USD/EM lower was very mild considering the strong USD selling against G10 currencies. The market being more concerned here of poor level to go short USD and the selloff in equities.

Foreign exchange volatilities


The market seems to be caught short volatilities in USDJPY and the short-end got paid up with USDJPY getting closer to 100, three days before the next nonfarm payroll number.

AUD 1M trades at the year low at 10.00 volatilities after the rates cut. We are seeing some banks buying some gamma at this level but nothing major.



  • Franklin Templeton Investments may increase exposure to bonds in its Indian fund if the highest stock valuations in 15 months aren’t backed by growth in company profits.
  • The first offshore rupee bond was listed in London, easing concerns that Brexit may diminish the city’s role in global finance. HDFC’s 30 billion rupees ($450 million) of August 2019 notes will trade on the LSE. The offering is the first issued overseas by an Indian company.
  • US treasuries closed mix as the two-year note dipped 0.6 basis points to 0.679% and the 10-year bond yield is rising 3.1bps to 1.552%.
  • The RBA announced yesterday that it will reduce its policy rate by 25bps to a historical low of 1.50%. RBA commented that it sees improvement prospects for sustainable growth and inflation and further rate cuts. Following the rate cute and statement, probability of a further cut in September meeting is currently at 8%. 10 year Australia bond yield was at historical low as well at 1.819%.






DJIA edged 0.5% lower, logging its first seven session losing streak in a year. S&P 500 retreated 0.67%, with losses in discretionary (-1.5%), industrials (-0.9%), financials (-0.9%) and tech (-0.8%), while energy (+0.9%) was the lone winner. 

Ford Motor dropped 4.3% after the auto maker reported a decline in US vehicle sales in July, led lower by a drop in retail sales. Rival General Motors closed down 4.4%.

Airlines were under pressure after a report from Delta Air Lines (-7.8%) and a travel warning related to the Zika virus in Miami. United Continental Holdings down 6.3%, JetBlue Airways slid 6.5%, and American Airlines Group falling 5.9%.

Europe’s Stoxx 600 fell 1.3%, to a two-week low, with the personal and household and media sectors outperforming and the banks and autos sectors underperforming. 

Commerzbank AG dragged banks to the worst performance, slumping 9.2% after scrapping its profit target and forecasting a drop in earnings. 

Biogen spiked 9.4% on a WSJ report that Merck & Co. and Allergan have both considered a takeover. The biotech company recently said its CEO would step down, and earlier replaced a few senior managers. Biogen may not be interested, though, the Journal said.

Asia-Pacific stocks

Hong Kong analyst ratings

- Dongfeng Motor-H (489 HK) cut to “neutral” vs “buy” at Goldman Sachs

Hong Kong preview

- 361 Degrees (1361 HK) 1Q17 trade fair order grows at ’high single-digit’

- China First Heavy (601106 CH) parent has no discussion on restructuring

- Chinasoft (354 HK) to sell units to But’one for 6.331b yuan in stock

- Huaneng Power (902 HK) first-half profit drops 31% on weak China demand

- Hutchison Telecom (215 HK) 1H net HK$376m vs HK$508m year ago

- I-Cable Communications (1097 HK) 1H net loss widens to HK$134.8m

- IM/Tianjin Tianhai (900938 CH) deal could be pushed to Feb.: DealReporter

- Jihua Group (601718 CH) parent received no documents on reported merger plan

- Sinopec (386 HK) plans to bring in investment to pipeline unit

- Spring Airlines (601021 CH) has no new plans to make plane orders

- Valin Steel (000932 CH) ArcelorMittal plans to sell stake for 1.1b yuan

- Wanda Cinema Line (002739 CH) signs license pact with IMAX

- Wharf (4 HK) plans to issue up to 4b yuan medium-term notes in China


Japan analyst ratings

 - Adastria (2685 JP): Cut to neutral at JPMorgan

- Itochu Techno-Solutions (4729 JP): Raised to outperform from neutral at Daiwa

- JFE Holdings (5411 JP): Credit rating cut to Baa2 by Moody’s with negative outlook

- Konami (9766 JP): Cut to neutral at Okasan

- Net One Systems (7518 JP): Raised to outperform from neutral at Daiwa

- Nihon Kohden (6849 JP): Raised to buy at Mizuho

- Olympus (7733 JP): Rated new buy at Goldman

- Otsuka (4768 JP): Cut to neutral at Daiwa

- Sysmex (6869 JP): Rated new neutral at Goldman

- Terumo (4543 JP): Rated new neutral at Goldman

- Tokyo Steel (5423 JP): Cut to outperform from buy at Daiwa

- Toto (5332 JP): Cut to neutral at Mizuho

- Yaskawa Electric (6506 JP): Cut to neutral at Credit Suisse; raised to outperform at Macquarie

Japan preview

- Casio Computer (6952 JP): 1Q oper. profit -22% to 7.11b yen

- Fast Retailing (9983 JP): Japan Uniqlo sales jump 18% in July

- Fujimi (5384 JP): 1Q oper. profit -27% to 911m yen

- Honda Motor (7267 JP): 1Q oper. profit +12% to 266.8b yen vs analyst est. 183.6b yen

- Idemitsu Kosan (5019 JP): 1Q net income +62% to 18.4b yen; seeks second meeting with founding family on Showa Shell deal

- Iriso Electronics (6908 JP): 1Q oper. profit -6.3% to 1.37b yen

- KDDI (9433 JP): 1Q oper. profit +19% to 275.1b yen vs est. 255.1b yen

- Kikkoman (2801 JP): 1Q oper. profit +0.8% to 8.47b yen

- Marui Group (8252 JP): 1Q oper. profit +6.2% to 6.14b yen

- Minebea (6479 JP): 1Q oper. profit -44% to 6.97b yen vs est. 6.32b yen

- Mitsubishi Corp. (8058 JP): 1Q net income +35% to 100.8b yen vs 75b yen year ago

- Mitsumi Electric (6767 JP): Posts wider losses for 1Q

- Mitsubishi Tanabe (4508 JP): 1Q oper. profit +16% to 29.2b yen

- Nidec (6594 JP): To buy Emerson’s motor, generator ops. for $1.2b

- NTT Urban (8933 JP): 1Q oper. profit +33% to 5.23b yen

- Obayashi Road (1896 JP), Nippo (1881 JP), Nippon Road (1884 JP): Cos. say offices searched by Japan FTC on possible antitrust violation

- Santen Pharmaceutical (4536 JP): Cuts full-year oper. profit forecast 6.2% to 36.3b yen

- Sega Sammy (6460 JP): Turns profits in 1Q

- Septeni Holdings (4293 JP): 9-month oper. profit +58% to 3.17b yen; to split stock 5-for-1 on Oct. 1

- Stella Chemifa (4109 JP): Boosts full-year oper. profit forecast to 3.16b yen from 1.37b yen

- Takeda (4502 JP): Cx601 achieved primary endpoint in Phase 3 trial for Crohn’s

- Tokai Carbon (5301 JP): Falls to losses in 1H

- UACJ (5741 JP): 1Q oper. profit +6% to 4.92b yen

- Yamaha Corp. (7951 JP): 1Q oper. profit +33% to 11.8b yen; lifts 1H profit targets

- Yamazaki Baking (2212 JP): 1H oper. profit +51% to 19.5b yen vs co. forecast 14.8b yen, lifts full-year target 13% to 34b yen

- Yaskawa Electric (6506 JP): Downgraded to neutral from outperform at Credit Suisse

- Yodogawa Steel Works (5451 JP): 1Q net income triples y/y, oper. profit more than doubles


Australia analyst ratings

 - Santos (STO AU) raised to overweight vs equalweight at Morgan Stanley

- Seven West Media (SWM AU) cut to neutral vs outperform at Credit Suisse

- Bapcor (BAP AU) cut to hold vs add at Morgans Financial

Australia preview

- Rio Tinto Group (RIO AU) First-half earnings; co to invest incremental $338m in Silvergrass mine

- Viva Energy REIT (VVR AU) ASX trading debut

- Genworth Mortgage Insurance (GMA AU) First-half earnings

- Seven Group Holdings (SVW AU) Full-year earnings

- Infratil (IFT NZ) to invest A$82.5m in Canberra student accomodation

- Crown Resorts (CWN AU) gets legal challenge to Barangaroo development in Sydney

Source: CIMB / Bloomberg


 Oil closed below $40 for the first time since April. Photo: iStock

– Edited by Gayle Bryant

This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. 

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