Markets consider the end of « abenomics »
Blowback from scandal deepened today as Japanese Prime Minister Shinzo Abe took responsibility for the loss of trust in his governments. However he continues to deny that he or his wife had intervened in the sale of land to a connected school operator. Only last week the finance ministry announce that documents over the discounted sales to Moritomo Gakuen has been tampered with. With suspicions swirl over a cover up sparking a political crisis, oppositions and not with public is calling for the Premier and finance minister Aso to resign. Two opinion polls published over the weekend indicated that Abe’s support collapsing to its lowest since he took office in 2012, highlighting the majority of Japanese believed he was accountability for the scandal. At this point markets must contemplate the end of ‘Abenomics’ with multiple resignations. USDJPY fell to 105.60 low in reaction. When BoJ introduced the 1st Arrow JPY depreciated and the Nikkei index had rallied significantly. Despite fundamentals not warranting a strong JPY without Abenomics, especially considering economic fundamentals and US yield spreads, pulling support for Abenomics will likely drive JPY higher. We remain negative on USDJPY watching 104.30 support.
People’s Bank of China new governor
Following Zhou Xiaochuan retirement announcement five months ago, markets were looking for newly elected People’s Bank of China governor announcement of March 19. Multiple hints converged towards Liu He, Xi Jinping’s former economic adviser who made a notable showing during this year’s World Economic Forum edition in Davos. With the objective of maintaining monetary policy stable and to continue ongoing financial reforms within the country, the choice fell on Yi Gang, former deputy governor who joined the central bank in 1997. Adding up to its functions of monetary policy, financial reforms and the promotion of foreign investment in the country, the PBOC will be able to implement laws and regulations for the banking and insurance sectors, adding further control and stability to the Chinese economy which currently suffers from continued shadow banking and industrial overcapacity in the mid-term. On his side, Liu He is appointed as one of China’s four vice-premiers and will be responsible for economic policies and financial issues.
Recent announcements had a rather smooth impact on the equity market and USD/CNY. Hong Kong Hang Seng and Shanghai Composite increase by +0.10% and +0.29%, currently valued at 31’538 and 3’279. USD/CNY is stabilizing at 6.33 (-0.08%) and expected to trade sideways in the short-term.
