Tags: fed | economy | rate | gold

Japan's Political Antics Could Sway Strategy for Global Investors

Japan's Political Antics Could Sway Strategy for Global Investors

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Wednesday, 03 August 2016 07:07 AM Current | Bio | Archive


Atlanta Fed President Dennis Lockhart, who isn't an FOMC voter this year, said he doesn’t rule out a Fed rate increase at the next FOMC meeting in September or later this year.

We’ll have to wait and see the data on the health on the U.S. But if economic growth is strong enough to push the Fed to raise rates (by nothing more than 0.25 percent), the central bank risks an undesired strengthening of the dollar.

Besides all that, the reshuffling of the Japanese cabinet resulted in Prime Minister Shinzo Abe keeping the key heavyweights of his cabinet in place. Of course, Bank of Japan Governor Haruhiko Kuroda didn’t have to do anything with that “reshuffling” and thus remained in his post.

Geopolitically speaking, it was the nomination of Mr. Abe’s hawkish ally, Mrs. Tomomi Inada (who is currently the Chairwoman of the Policy Research Council of the Liberal Democratic Party and who shares Prime Minister Abe’s goal of revising the post-war pacifist Japanese constitution), which some conservatives consider as a humiliating symbol of Japan’s defeat in World War II that will play its role over time.

Add to that Mrs. Tomomi Inada is well known for visiting regularly the Yasukuni Shrine that commemorates all people who died in service of the Empire of Japan and you know that China as well as South Korea won’t be happy at all (for not saying worse) with her nomination of Minister of Defense.

When we take all that in the context of the ongoing Senkaku Islands (uninhabited) territorial dispute that are also known as the Diaoyu Islands in the People's Republic of China and the Tiaoyutai Islands in Taiwan and we have something like a time-bomb element extra in that already geopolitically threatened region because of China’s unilateral territorial claims in the South China Sea.

I don’t think it’s an overstatement to say that today’s nomination of Mrs. Tomomi Inada as the new Japanese Minister of Defense is not constructive news for securing peace in that region, which could cause at some time in the future, a broad based military conflict in the Far East, which of course would have a very negative impact on markets.

If such a scenario should happen (hopefully never!) then there is no doubt that gold would be the safe haven of choice.

In the meantime, the Japanese yen jumped to around 101 yen per dollar and the Nikkei 225 index lost 1.88 percent and the yield on the Japanese bond jumped from -29 percent to -0.05 percent, which is huge, because of the underwhelming size of the announced Government’s stimulus package of 4.6 trillion yen ($45 billion).

The Bank of Japan disappointed markets with only a modest addition of 6 trillion yen ($59 billion) to its monetary stimulus and that will be used for stock market purchases.

All this makes me think back at what happened with the 10-year Japanese yields that jumped in March 2011 and reached their climax with a rise of +1 percent in May of that year, which translated in an fall of about 7.3 percent in the Nikkei 225 index, notwithstanding the government intervened.

Will we have a similar scenario this time around? Only time will tell, but watch out, what happens in Japan over the coming months will probably affect markets everywhere.

In times like this, I think it probably could be wiser to remain sitting on the fence.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
It is a fact that the U.S. economy should show a somewhat better, which is far from a stellar growth performance during the second half of this year. It’s also a fact that (justified) doubts remain if that growth performance could be that strong so that it would push the Fed to raise rates.
fed, economy, rate, gold
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2016-07-03
Wednesday, 03 August 2016 07:07 AM
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