Opportunities in Japan and high quality, short duration credit


Keep abreast of market moving events with CIO's weekly bulletin
Chief Investment Office12 May 2022
Photo credit: DBS


Japan was sold off in line with the rest of the world as the Russia-Ukraine conflict deepened. Japan is not directly impacted by the crisis, but a spiralling oil price will have a heavy impact on its economy. As a heavy industrial user of oil and a net oil importer, a higher oil bill will worsen its trade balance. We estimate that a USD10 increase in oil price will reduce trade balance by 0.2% of GDP and raise inflation by 0.35 %pts. For an economy which is still coping with Covid recovery, higher inflation would affect domestic sentiments further. Moreover, the Japanese yen has weakened as it loses its safe haven status under the threat of a widening yield gap as a result of Federal Reserve tightening, thereby worsening the import bill. Electronics exports have been Japan’s key engine of economic growth. The outlook remains intact with the prospect of easing China policies despite near-term concerns of supply disruption due to lockdowns. Looking forward, we expect a limited economic rebound in 2Q after a negative 1Q.

We believe Japan’s key inflation gauge could top 2% in the coming months — a number that the Bank of Japan (BOJ) has been targeting after nine years of aggressive monetary easing to bring the inflation up.  After Japan’s real estate and stock market bubble burst in the early 1990s, Japan has gone through two decades of zero nominal growth in the economy.  We think the BOJ is likely to stick to its loose monetary policies of yield control and expand its fiscal stimulus programme to ease the impact of inflation and let it overshoot. 

We are generally cautious on Japan but believe that there are opportunities to seek out under a weak yen and high inflationary environment. We recommend staying in sectors with quality big companies where Japan has a global competitive edge. A potential re-opening of the country to more foreign visitors shall favour the domestic stocks and tourists should be attracted to the weak yen. With 10Y BOJ yield still capped at 0.25%, high dividend yielding names should be supported by local funds.

Keep abreast of market moving events with CIO's weekly bulletin. Find out more about what we think on credit, rates, FX, and thematics. Download the PDF to get the full report.

DISCLAIMERS AND IMPORTANT NOTES

This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

Any information relating to past performance, or any future forecast based on past performance or other assumptions, is not necessarily a reliable indicator of future results.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

If you have received this communication by email, please do not distribute or copy this email. If you believe that you have received this e-mail in error, please inform the sender or contact us immediately. DBS Group reserves the right to monitor and record electronic and telephone communications made by or to its personnel for regulatory or operational purposes. The security, accuracy and timeliness of electronic communications cannot be assured.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) (“DBS”) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the “MAS”).