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Daily Dispatches – Japan in $400 billion bind

Shinzo Abe's tough call

Shinzo Abe's tough call

Don’t envy Japanese Prime Minister Shinzo Abe, who is facing a very difficult Hobson’s choice.

News reports today said the Japanese market could face equities carnage topping US$400 billion if the government failed to implement proposed sales tax changes by April next year, with economists polled by Bloomberg suggesting the market could lose 10-12%.

But implementing the sales tax increase to re-fill the indebted nation’s coffers, says Bloomberg, would likely strain households further. Japanese citizens have been struggling to cope with flat wage growth yet rapidly rising consumer prices.

And then there is international public opinion. Taking a populist approach and delaying the tax would tarnish Japan’s reputation. “Abe doesn’t have much choice as delaying the sales tax plan would be too risky,” said JPMorgan economist Masamichi Adachi, who is a former Bank of Japan official. “Abe would lose all of the trust that has buoyed Japanese markets so far.”

While economists over recent months have highlighted the likely blow to consumption and the risk of the economy sinking into one quarter of contraction due to higher sales tax, the government could use stimulus to cushion the impact.

Reuters reports that the Bank of Japan could consider further monetary easing if Abe raised the sales tax as planned to 8% from 5%. Quoting from a report in Japanese newspaper Asahi, Reuters said BOJ Governor Haruhiko Kuroda had suggested to a government panel that the central bank could ease policy if the economic outlook worsened at the time of next year’s scheduled tax hike.

Abe, who has made ending 15 years of deflation and revitalisng the economy among his top priorities, will decide in early October whether to change to the sales tax hike plan..

The government also plans a further sales tax hike, to 10% in October 2015, to pay for rising welfare costs.

China probe takes down top regulator 

The Financial Times reported that the minister in charge of China’s state-owned assets regulator was removed from his post as an investigation widens into suspected high-level corruption among senior Communist party officials.

Jiang Jiemin was fired from his position as head of the State-owned Assets Supervision and Administration Commission, which regulates and holds shares in China’s largest state-owned companies, according to an official announcement.

Jiang is a close associate of Zhou Yongkang, who headed  China’s internal security and intelligence services until March this year. Some have suggested Zhou will be the next official to fall in the corruption probe’s cross hairs.

BofA selling China Construction Bank sharesholding

Bank of America had started selling its remaining stake in China Construction Bank, according to Reuters, and   could raise US$1.5 billion. The latest sale would comprise BofA’s final step in its multi-year exit from the asset.

A number of Western banks had exited investments in Chinese financial firms recently.

“The only thing that will be central to banking in China will be China’s domestic banks,” Donald Straszheim, head of China research at International Strategy & Investment Group in Los Angeles, told Reuters.

Earlier this year, Goldman Sachs sold out of its seven-year investment from Industrial and Commercial Bank of China.

Nikko Asset Management’s Singapore equity team defects to Threadneedle

Four Asian equity specialists had left Nikko to join Threadneedle, according to AsianInvestor. But all is not lost – Nikko had apparently signed an MOU to acquire a Singapore-based Asian equities boutique of seven.

These would not be replacements for the departing four professionals – Nikko was looking to hire for those roles.

New deputy for RHB Bank

Malaysia’s RHB Bank Bhd was set to announce the appointment of Khairussaleh Ramli as deputy CEO, according to a Reuters report. Ramli currently works for Maybank as head of it its Indonesian unit.

RHB is keen to expand in Indonesia, where it is in talks to buy a 40% in Bank Mestika for about US$200 million.

British Virgin Islands wealth management targets rich Asians

BVI wouldl officially open a representative office in Hong Kong tomorrow, according to a report in AsianInvestor, to generate trust and wealth management business from rich Chinese and South East Asians.

The Caribbean territory was also hoping to divert business from rival Cayman Islands, which has historically been a popular destination for Asian alternative vehicles such as hedge and private equity fund firms.

BVI also see Singapore as a potential hub due to the growing number of wealthy Indonesians banking in the Lion City.

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