Japan's `Behind the Curve' Stimulus Fails to Attract MFC Global, STB Asset

The expansion of a Bank of Japan lending program and a government stimulus package announced this week to weaken the yen and bolster economic growth have failed to encourage investors at MFC Global Investment Management (Japan) Ltd. and STB Asset Management Co.

MFC Global’s Hidehiro Tomioka is favoring “safe areas” such as financial companies rather than auto, technology and machinery stocks whose overseas earnings could be hurt by a strengthening yen. STB Asset’s Junichi Misawa said “bolder” action would have prompted him to change his investments. A strong yen makes Japan’s exports more expensive and reduces income from overseas sales when converted back into a company’s home currency.

The yen’s surge to a 15-year high against the dollar has threatened Japan’s export-led recovery and prompted the Bank of Japan to boost a bank-loan facility by 10 trillion yen ($118 billion) to a total of 30 trillion, it said in a statement after an emergency meeting in Tokyo two days ago. The yen, which that day fell to its lowest intraday level against the dollar in a week, resumed its appreciation immediately after the BOJ announcement.

“The strong yen is a real headache to the Japanese stock market,” said MFC Global’s Tomioka, who manages about $1.4 billion. “The Bank of Japan is going to continue to be behind the curve, so the pressure on the yen to strengthen will continue.”

Japan’s Nikkei 225 Stock Average has climbed as much as 3.4 percent since Aug. 25 on speculation policy makers will move to halt the advance in yen. The gauge has fallen 21 percent from an 18-month high on April 5, past the 20 percent level that signals a bear market to some analysts, as the yen’s advance threatened profits at the country’s export-reliant companies.

Slowing Growth

Japan’s economic growth slowed to an annual 0.4 percent pace in the three months ended June 30, the weakest expansion in three quarters. Japan’s economic output totaled $1.288 trillion in the second quarter, less than China’s $1.337 trillion.

MFC Global’s Tomioka said the BOJ’s lending-program expansion needs to be “triple or five times” the 10 trillion announced two days ago to influence financial markets.

Prime Minister Naoto Kan also said the same day as the BOJ’s announcement that the government will spend 920 billion yen on a stimulus package to be finalized on Sept. 10.

“There was a faint hope in the market that the BOJ would do more,” said Misawa, head of equity investment at Tokyo-based STB Asset, which oversees about $14 billion. “Had they taken a bolder measure, it may have impacted the trend in the yen and the market, and I may have changed my position.” He declined to be more specific.

Barclays Forecast

The yen reached 83.60 per dollar on Aug. 24, the strongest since June 1995. Japan’s currency two days ago sank to 85.91 per dollar, the weakest since Aug. 19, and rose as high as 83.83 yesterday.

Heightened concerns about earnings in the face of a stronger yen and declining domestic demand mean stocks will continue to fall, said Fumiyuki Takahashi, a strategist in Tokyo at Barclays Plc. Consumer prices fell for a 17th month in July and household spending grew less than forecast, statistics bureau data showed on Aug. 27.

Takahashi expects the average book value of shares in the Topix index will decline below 1, their current value, as the measure drops to 750 by the first half of October. The gauge closed at 804.67 yesterday.

The Topix slumped 3 percent yesterday, the most since June 7. The gauge’s 1,669 companies trade at an average 14.5 times estimated profit, the lowest level since October 2008, data compiled by Bloomberg show.

“I feel sorry for the BOJ,” said Naoki Fujiwara, who helps oversee?about $6 billion at Shinkin Asset Management Co. in Tokyo. “The government lacks clear policies and are begging the BOJ to do something, while the market rushes them to take action.”

-- With assistance from Akiko Ikeda in Tokyo. Editors: Darren Boey, Nick Gentle.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net.

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