Spotlight on Japan & travel

INSIGHT WEEKLY : January 21, 2024

An easy to read economic and financial summary. If the images do not load, click to download external images in your email to see the newsletter in full, or click the link above to read online.

🌐 Overview

🌐 Major indexes

🇬🇧 UK

UK markets suffered a fall due to a blip in inflation. Inflation went up from 3.9% in November to 4.0% in December.

The FTSE 100 dropped over 2% in the week due to concerns that the interest rate cuts may be delayed. Rates are still at 5.25% and investors feel that the first rate cut could be delayed to mid year. The UK government has been hinting that there may be tax cuts in the budget announcement in March to help stimulate the economy and attract more investment into the UK.

🇺🇸 US

A new record for the S&P500, reaching all time high in Friday, surpassing the record set two years ago. Tech stocks, mainly Taiwan Semi Conductor, Nividia, Microsoft and Apple, and an improvement in the consumer sentiment index, sent the index to new highs. The US is not in sync with the rest of the world. The economic recovery is faster despite earlier fears of inflation, recession, geopolitical tensions and domestic political deadlock. The indicators are positive, and technology developments are showing great potential. Those who have invested in the US are showing good returns.

🇯🇵 Japan

Japan’s inflation/deflation history

There was a period of very high inflation during the early 1970’s with inflation rates getting up to nearly 30%, which was then brought under control in the following years. It was the bursting of the stock market and real estate bubble that set the economy on a low growth, almost zero and sometimes negative interest rates, low inflation and even deflation path. The economy has been through a period of stagnation up to the present day.

There are other reasons for low inflation. The government has an energy price policy. Price hikes can only happen slowly so utility companies are forced to secure long term contracts for energy. The same approach is taken for wheat. There was also the slower recovery from the pandemic which helped to delay and smooth out the post pandemic increase in demand. Also wages are low in Japan and consumption is weak. Consumers faced with deflation, would rather wait till prices get cheaper. Also the ageing population saves more and spends less. And unusually, in Japan people generally save more despite very low savings interest rates.

Conditions therefore are perfect for a low inflation economy.

The inflation index in Japan is also different. Food is weighted more, housing and energy is weighted less. So inflation looks different (lower) in Japan compared to the US.

But inflation rose recently before dropping a little. The rise was due to higher services costs, supply chain issues and energy prices finally working its way through the economy. The fall in the Japanese Yen has led to inflation on imported goods. The Bank of Japan would like to move away from loose monetary and start to raise interest rates from negative rates but it can only do so if there is some inflation in the economy. Unlike other countries Japan is looking for a bit more inflation.

Is inflation good for Japan ? A little bit of inflation will be good. It encourages investment, and encourages purchases. In a deflating economy, purchases are deferred as it will be cheaper later.

The Nikkei 225 has performed well in 2023 with a 28% increase. In the first few weeks of this year, it is up 8%. More gains are expected. Also the Yen is expected to appreciate, so overseas investors are expecting the double benefit of Japanese stocks and the currency appreciating.

Japan’s moon landing

On Friday, Japan joined the exclusive club of countries that have landed softly on the moon, though not all in the club have landed there recently. The last landings were US (1972), former Soviet Union (1976), China (2020), India (2023), Japan (2024). The US is the only country to have landed humans on the moon.

Despite a soft landing, Japan’s spacecraft may only function for a short while. The solar panels are not working, and the batteries will soon be out of power.

🇯🇵 Travelling to Japan

There are not many countries like Japan. Culturally unique, beautiful gardens, bustling clean cities, the cherry blossom season (in March and April), the famed geishas, historically isolationist, the post war industrial powerhouse, Shinkansen (bullet train), sumo, sushi, yakitori, sake and more.

Not to be missed :

Tokyo : the neon in Shinjuku, shopping in Ginza, the nightlife in Shibuya, old town Asakusa, sushi breakfast at Tsukiji Fish Market and more.

Kyoto : tea ceremony, sake tasting and museum, Fushimi Inari Shrine, geisha spotting (note : taking photos of geisha in Gion is banned)

Link : Guide to sake

Mt Koya : one or more nights stays in peaceful monasteries

Hashimoto : Sugimura park

Matsuyama : for onsen (hot springs baths). Also in other places.

Link : Etiquette guide for onsens

Osaka : Dotomburi, Osaka castle, Shinsaibashi-suji Shopping Street, Minami, food

Hiroshima : museum on the atomic bomb that was dropped during the Second World War.

Mt Fuij : an iconic symbol of Japan. It can be climbed by experienced climbers.

It is best to avoid the summer months, which are hot and humid, especially in the cities.

Japanese society places great importance on behaviour, harmony, the group rather than the self. Politeness and courtesy is common place. There is a Japanese word that exemplifies culture and etiquette, omotenashi, which roughly translates as a sincere and transparent form of hospitality and mindfulness.

Link: General etiquette in Japan

'If I had to eat only in one city for the rest of my life, Tokyo would be it.' Anthony Bourdain

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🚢 Shipping

There have been further attacks on shipping in the Red Sea shipping followed by retaliatory air strikes at sites in Yemen. Container traffic fell by 60% in December, and likely to have dropped even further in January. Some ships are not moving and waiting to see what happens next. Qatar has stopped sending LNG (Liquefied Natural Gas) through the Red Sea. Others have taken the longer route around Africa. Costs are going up. For example, a container from China to Europe used to cost around $700. Now it is over $3,000. The demand for bunker fuel at refuelling stops in Singapore, Mauritius, South Africa, and other places has increased significantly.

In the Panama canal, the authorities are further cutting the number of crossings due to the severe drought bringing ever decreasing water levels.

The increased costs will pass through to customers and a threat to the expected downturn in inflation.

Shippers may take the view that the Red Sea is no longer a viable route for the foreseeable future.

🛢️ Oil prices are stable : Brent at $79, WTI at $73. Oil tankers do not appear to be targeted in the Red Sea attacks, and oil supplies appear to be consistent.

💰 Gold is volatile, slightly lower than last week: Gold at $2,029 per ounce

🏅5️⃣ Billionaire Leaderboard (change in week)

Elon Musk (Tesla, SpaceX)$225bn ⬇️ $5bn

Bernard Arnault and family (LVMH) $178bn ⬇️ $4bn

Jeff Bezos (Amazon) $177bn no change

Larry Ellison (Oracle)  $138bn ⬆️ $3bn

Mark Zuckerberg  (Facebook/Meta) $135bn ⬆️ $3bn