BNY Mellon Investment Manager Says Failure in One Area Could Derail Program
NEW YORK and LONDON, May 13, 2013 — Japanese Prime Minister Shinzo Abe's economic agenda must succeed on three fronts -- fiscal, monetary and growth policies -- to generate a lasting positive effect on that nation's economy, according to a white paper from Mellon Capital Management Corporation, the San Francisco-based global multi-asset manager for BNY Mellon.
Mellon Capital also cautioned that this agenda could affect the performance of various asset classes.
"The extensive liquidity injections by the Bank of Japan and the economic growth initiatives and reforms announced by the new Japanese government continue to have a significant impact on the relative performance of asset classes and local markets around the world," said Vassilis Dagioglu, managing director of asset allocation portfolio management at Mellon Capital. "Investors should study the effects of such policies when making asset allocation decisions."
Regarding the challenge facing the Japanese economy, Sam Valtenbergs, senior quantitative analyst at Mellon Capital and author of the report, said, "Just getting one or two policy initiatives right will not be enough to generate a lasting, positive effect on the Japanese economy. The perceptions of both Japanese and non-domestic stakeholders must be changed so the country attracts foreign investment. This includes instilling confidence that assets will rise and firms can compete globally."
The Mellon Capital report, Abenomics: A Final Roll of the Dice, notes that the Abe administration needs a flexible fiscal policy that accelerates public works projects, an easing monetary policy that achieves an inflation rate of two percent, and a growth strategy focused on deregulation, tax reform and immigration reform.
The depreciating yen and economic stimulus resulting from Abe's policies have been reflected by a sharp uptick in the forward looking earnings revisions of analysts for the TOPIX, the Tokyo Stock Price Index, the report said. However, the report also cautions that Japanese stocks are overvalued on a fundamental basis and further upward earnings revisions would be required before Japanese equities become attractive to Mellon Capital.
Regarding the Japanese bond market, the report notes that the central bank is absorbing approximately 70 percent of newly issued bonds, which is preventing yields from rising. The Japanese economic growth is expected to benefit from the low interest rates. At the same time, there is a threat of higher inflation due to the increased cost of imported commodities and stronger domestic demand, the report said.
In addressing the yen, the report said that Bank of Japan's policies will likely continue to drive its value lower. However, the report adds that these policies have raised questions as to whether the yen will continue to be viewed as a safe haven currency when investors are looking to reduce risk.
Founded in 1983 by innovators in the investment management field, Mellon Capital Management Corporation applies a disciplined and analytical approach to global investment management strategies. As of March 31, 2013, the firm had $303.9 billion in assets under management, including assets managed by dual officers of Mellon Capital Management Corporation, The Bank of New York Mellon and The Dreyfus Corporation, and $6.3 billion in overlay strategies. Additional information about Mellon Capital is available at www.mcm.com.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at http://www.bnymellon.com/.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 36 countries and more than 100 markets. As of March 31, 2013, BNY Mellon had $26.3 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
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