The yen hit 115.5! Things are moving fast these days! 115 didn’t prove to be too particularly important as it is essentially only visible as a resistance on 30 minute charts, if that. This leaves a lot of the analysts scrambling for cover as 115 were their year-end targets as late as Friday. Yes, there is a lot of volatility (dammit, writing takes time) pushing it to 114.5 at current, but the main point was that 115 was less important than 114.38 (now looking suspiciously like resistance), and positive momentum going forwards will probably be rather unhindered here. If true, it will leave a lot of the currency analysts scrambling to catch up, forcing new re-evaluations unless the price hits 110 within the month.
More interesting is instead what these yen might be held against to go functionally short. Bloomberg has a pretty great piece on the S3 already-covered BOJ equity investments: the JPX Nikkei Index 400 getting more investments and shaming companies into distributing cash to shareholders. This move is really important since it actually powers the velocity of money throughout Japan. Even without this it offers great trajectory forecasts for current investors like… I don’t know, pension funds and those who front-run them? Increasing the return on equity towards 12% across Japan would be a pretty great achievement, and targeting the JPX Nikkei Index 400 really puts the onus on Abe to drive through corporate tax reforms to lower that tax and further increase the velocity of money in Japan.
A closer look at taxation in Japan, and comparing it to that of Sweden, reveals lower corporate taxation in Sweden (35.6% vs 22%) but that is roughly adjusted for on a percent-basis on social security contributions as a salary component being much higher (14.4% vs. 31%). The net effect is of course which of these costs more for a company and which of these helps employment/salary gains the most.
- If the choice is on lowering contributions by companies, this adversely affects long-term prospects for spending, or current prospects as employees need to contribute more at one point or another, or decrease consumption. On the other hand, it makes hiring cheaper, and salaries can be increased, compensating for this and giving the Japanese workers more disposable income.
- Lowering the corporate tax rate increases investment prospects out for the long term, and massively improves cash flows. However, unless the velocity of money gets accelerated, this could well be saved in corporate coffers or placed with non-productive fixed assets like housing rather than consumption or productive investments.
- This is an unorthodox approach, but I would suggest this: give companies tax credits for total cash or earnings (not debt) invested or distributed to shareholders as long as the current ratio is held within a range from 1.x to 2. An alternative or addition is that these tax credits could be given to companies that increase payroll. Both of these approaches increases the spending, lowers the effective corporate taxation, and the tax credit system allows a more agile change than overall taxation with a slight government cash flow preference. The increased velocity of money would give the government more transactions to tax anyway, so I fail to see how this framework would be negative, given a few tweaks and specification of x.