Japan's Easy Money Policy to Continue

Last week, at its June policy meeting, Bank of Japan (BoJ) policymakers made it quite clear that the easy money is not going to end anytime soon.

Last month, the BoJ hold its rates steady. It offered an upbeat view on private consumption (for the first time in six months) and overseas economies, signaling confidence at the BoJ's that the recovery was gaining momentum. However, along with the Federal Reserve and ECB, the Japanese central bank is yet to deal with its major economic concern - inflation.

In the summary of the policy meeting, one of the board members said 'inflation is distant from BoJ's 2% target, it would likely take time to take time to accelerate, and thus the best approach would be to maintain the current ultra-loose policy'.

Another member said it is necessary to continue with the current easy policy and wait for a steady increase in demand and further falls in the unemployment rate to lead to higher wages, prices, and inflation expectations.

So despite some signs of a strengthening economy, inflation remains a major concern at the BoJ.

Japan released May retail sales numbers this week. Retail sales rose 2% in May from a year ago versus 3.2% in April. This was below market expectation due to slower sales of durable goods and clothes.

Although some economic data is upbeat, the overall situation is still a mess. The loose policy could continue for a long time as the bank waits for inflation and demand to improve.

On the other side, ECB head Mario Draghi signaled a slowdown, stop, or even reverse the quantitative easing process since inflation and growth are both slowly picking up.

Draghi's speech at the ECB Forum in Sintra was perceived as a little hawkish. He said only temporary factors are holding back inflation. However, he maintained that monetary policy will 'need to be persistent' as inflation is still not 'self-sustaining'.

For the moment, the ECB is still buying bonds each month under its QE program. And Europe too remains a mess. Although economic conditions might be improving in the eurozone, inflation is still a major concern for the ECB. In fact, it's a big problem for all the central banks of the major developed economies.

Global indices ended the week on a mixed note. European stocks traded on a weak note. Germany (DAX) ended with a loss of 3.21%, France (CAC) ended with a loss of 2.76%, and the London market (FTSE) was down 1.5%. Asian markets ended the week on a mixed note. The Nikkei Index was down 0.49%, the Hang Seng Index was up 0.37%, and the Shanghai Index was up 1.07%. US markets traded in the red and ended their session with a loss of 1.99%.

Indian Stock Markets Volatile Ahead of GST Roll Out

Back home, the Indian indices ended their weekly session on a negative note. The BSE Sensex was down 0.69% for the week, while the NSE Nifty was down 0.56%.

Metal (+3.53%) Telecom (+2.75%), and FMCG (+2.13%) were the biggest gainers for the week. Energy (-2.07%) and Finance (-1.21%) were the biggest losers for the week.

Just days before the implementation of GST, Finance Minister Arun Jaitley said that people may face some difficulty initially as the Goods and Services Tax (GST) is rolled out, but in the long run the new indirect tax regime would help cut tax evasion and check price rises.

He added that while negotiating with the states on GST there were some tough issues like petroleum and potable alcohol on which states were unwilling to leave their taxation powers: 'If we insisted on that, then the deal would have been broken. The Constitution amendment provides that petroleum products can be taxed under GST as and when GST Council decides. And once GST is implemented, in 1-2 years, once again the Council will get opportunity to revisit it.'

Mr Jaitley said he was in favour of a proposal to bring real estate under GST, but few states were not in favour.

GST will be launched on 1 July and will subsume a host of indirect levies like excise, service tax, and VAT. Products like kerosene, naphtha, and LPG will fall under GST but five items including crude oil, diesel, and petrol have been excluded.

Also, the government has deferred implementation of a provision that required ecommerce players to deduct tax on payments made to their vendors from 1 July. The government also notified that small businesses that sell through these ecommerce platforms don't have to register themselves immediately.

The hospitality industry got a breather with five-star restaurants getting parity with other AC restaurants at 18% GST and the Rs 5,000 room rent limit moving up to Rs 7,500.

The Finance Ministry has also started notifying various provisions of law relating to interest calculation, input tax credit, and valuation under the GST regime. Also, provisions in the Central GST Act (CGST), Integrated GST (IGST) Act, and Union Territory GST Act and rules under them are being notified.

GST promises to transform India into a single common market, and many sectors will gain immensely from this transition.

If you would like to dig deeper into the practical implications of GST, download Vivek Kaul's free report, What the Mainstream Media DID NOT TELL YOU about GST.

In the news from the IPO space, market participants are tracking the IPO of AU Small Finance Bank, which opened for subscription this week with a price band of Rs 355-358 per share.

Eris Lifesciences also made its debut on the stock markets this week. The company made a modest introduction on the BSE, with the stock listing at Rs 612. This meant a 1.49% premium to its issue price of Rs 603.

Investors are in an IPO frenzy. And it's easy to see why: Almost 75% of the IPOs listed in 2017 till date have given positive returns. Although we are nowhere near the euphoria of 2007, we are slowly but surely getting there.

According to Hindu Business Line, till June 2016, only 40% of the IPOs launched between 2004 and 2011 were trading above their issue price.

Equitymaster has always recommended IPOs cautiously. Here's Rahul Shah, co-head of research at Equitymaster, explaining his group's rationale behind the approach:

    We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.

Bottomline: You need to evaluate each IPO on its merits by considering its fundamentals, and most importantly, the valuations. And this is particularly important when the hype surrounding IPOs is at its peak.

Initial public offerings (IPOs) have been a hot topic. In the last fifteen days, we saw three IPOs - Eris Lifesciences, GTPL Hathway, and CDSL. Equitymaster reviewed each of them and released their recommendation notes. You can check them on their IPO page.

The Indian Energy Exchange (IEX) has also filed draft papers with the Securities and Exchange Board of India (SEBI) for its IPO. IEX is India's first power exchange providing an automated trading platform for electricity and renewable energy certificates.

Once the IPO details are released, Equitymaster will review it and publish their view. Meantime, if you want to know more about IPOs and whether they are right for you, you can download the free special report - How to Get Rich with IPOs.

In other news, as per an article in the Economic Times, the financial year in India could commence from January instead of April as the Centre appears set to make the historic transition and end the 150-year-old tradition.

That means the Centre could present the next Budget in November this year. The government is working on aligning the financial year with the calendar year after Prime Minister Narendra Modi pitched for a change.

Nifty 50 Index Ends June Expiry Flat

The Nifty 50 Index ends its June expiry this week. Let's have a look how the index performed during the expiry.

The index traded on a volatile note during the expiry. In the initial days, the index traded with a positive bias to hit a new life high of 9,709. But the buying interest did not last long and the index dragged to a low of 9,560 during the mid-expiry. It bounced strongly to retest its life high, but the bears continued to dominate and the index slipped to a low of 9,475 in the last week of expiry. Finally, it ended the expiry flat.

Towards the end of the expiry, the index broke below its 20-day exponential moving average (EMA), which has acted as strong support since January. The RSI indicator also broke below 50, which had acted as support during declines.

Does this indicate end of the bull rally? The rollover of the Nifty might give us some clue. Watch out for the rollover report in Profit Hunter newsletter in the Market Notes section.


Gold Trades on a Negative Note

Gold traded on a negative note during the week. After opening gap down on Monday, the yellow metal gradually traded up throughout the week. The buying was seen amid firm trend in the precious metals overseas. The commodity also edged up as US dollar weakened against other major currencies on bets that the ECB was preparing to scale back monetary policy stimulus. Finally, on Friday, gold witnessed some selling pressure and ended the weekly session with 1.03% loss.

Gold Trades in the Red

Silver Follows Gold's Lead

Silver too traded in an uptrend during the week. Like gold, it opened the session gap down on Monday. But the selling was temporary as the white metal gradually traded up until mid-week tracking trends in global markets. Silver witnessed some selling pressure towards the end of the week. Finally, the commodity ended week with 0.37% loss.

Crude Oil Rallied 7% for the Week

Crude oil traded on a positive note during the week. It opened its session up on Monday and continued to trade north throughout the week. The commodity rose on a dip in US output. The buying continued on Friday as well and the commodity ended its weekly session with 6.88% gains.

Crude Oil Witnessed Buying Interest

Natural Gas Traded in an Uptrend

Natural gas traded on a positive note during the week. On Monday, it opened the session gap up and traded with a positive bias until midweek. The buying was seen on the back of a smaller-than-expected rise in US supplies. The commodity witnessed selling pressure towards the end of the week but it ended the weekly session up 1.41%.


Dollar Trades on a Positive Note

The dollar traded on a positive note during the week. It opened its session lower on Tuesday but recovered and traded positive throughout the week to hit a fresh one-month high. The currency rose on demand from importers and weak domestic equity markets. Finally, on Friday, the currency witnessed some profit booking and ended the weekly session marginally up.

Dollar Ends in the Green

Euro Witnesses Buying Interest

The euro traded in an uptrend during the week. It opened the weekly session higher and ended the day positive. The currency continued its uptrend throughout the week. The buying was seen as the ECB hinted it would scale back its monetary policy stimulus. The currency continued its up move on Friday and ended its weekly session 2.14% up against the rupee.

Pound Trades in an Uptrend

The pound too traded in an uptrend during the week. It opened the weekly session lower but the selling was temporary as the currency traded up until the end of the week. The currency rose as Bank of England (BoE) chief Mark Carney hinted at UK interest rate rise. On Friday, the currency witnessed minor profit booking but ended the weekly session with 1.89% gains.

Yen Trades on a Negative Note

The yen traded on a negative note during the week. On Monday, it opened the session gap down and continued to trade down throughout the week. The weakness was seen as the BoJ said stimulus will stay. Finally, on Friday, the yen recovered a bit and ended the weekly session with loss of 0.69%.

Commodities 23rd June 30th June % Change
Gold/10 gms 28,734 28,439 -1.03%
Silver/kg 38,488 38,344 -0.37%
Crude Oil/barrel 2,777 2,968 6.88%
Natural Gas/mmBtu 191.10 193.80 1.41%
Currencies 23rd June 30th June % Change
USD / INR 64.78 64.82 0.07%
EUR / INR 72.46 74.01 2.14%
GBP / INR 82.57 84.13 1.89%
JPY / INR 58.32 57.92 -0.69%

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