Sunday, March 13, 2011

JAPAN FINANCIAL SHOCKS

JAPAN no words are required to describe even to a 4 years child since he also heard and saw the name many times on Television and Newspaper. On Monday morning every one will be having an eye on what will be the affects of the crisis of Japan. Now I don’t call myself as a financial guru or speculator but rather prefer to mark myself as an analyst.

THE CRUDE AFFECTS:
The crude prices have taken a U turn after the debacle of Japan. Over here I would like to accentuate my readers that Japan is one of the biggest importers of crude oil. So prices are bound to fall but prices will rise more high in the coming days as Japan had shutdown refineries which were having a combined oil-processing capacity of 1.2 million barrels a day, roughly a quarter of Japan's total refining capacity. Hence the good news of low crude prices are meant for short term. Moreover fires broke out at two Japanese refineries while others closed down automatically when the earthquake hit. This will also add losses for the Japanese oil refineries
FINANCIAL SHOCKS:
Japanese losses will be borne and shared maximum by the Insurance companies. Already Shares in some of the world's biggest reinsurance companies took a pounding on fears that the earthquake in Japan and the subsequent tsunami will cost them dearly.For rebuilding Japan the government have to come out with a new budget policies on 1st April 2011. For now, officials will use about 200 billion yen ($2.4 billion) left over from the budget for the fiscal year ending March 31.The bill will bear the cost of long term and short term funds planning for expenditure. The northern Tohoku region most affected by the disaster makes up about 8% of gross domestic product, and is host to factories making products from cars to beer.  The Ministry of Finance projected in January that government debt will increase 5.8 percent to a record 997.7 trillion yen ($12.2 trillion) in the year starting April 1.
US treasuries are also under severing threat form calculating the losses of Japan. Since when Japan will go for rebuilding its states then it might press the button of selling foreign holdings. Japan is the second-largest holder of Treasury securities, with $882 billion at the end of 2010, following China's $1.16 trillion, according to U.S. Treasury data. This sell of will create global sell of for the world financial markets. Dollar will be worst affected with correction in many asset classes due to pull out of Japanese funds. Japan is the second-largest holder of Treasury securities, with $882 billion at the end of 2010, following China's $1.16 trillion, according to U.S. Treasury data. Moreover the insurance companies will have to sell their holding across various asset classes which will further initiate a correction for all assets classes. Japan’s sovereign debt was recently downgraded, financial markets may become more wary of even an incremental increase in government borrowing and bond issuance

Japanese investments in India were on the rising steps. the India Brand Equity Foundation has released a report "Proven Strategies: Japanese Companies in India" which records that about 71% of surveyed Japanese companies in India planned to raise their investments in India. The report surveyed 25 Japanese companies in India and profiles 17 Japanese companies in India. After the crisis all these investment planning will get stopped affecting the long term strategic growth of the Indian economy. Information technology sector will also a take hit from the collapse of Japan. Japanese firms are setting up software development centre’s in Bangalore, India. Factory shutdowns, power cuts and the impact on consumer confidence may hurt Japan’s GDP for a period of months, while contributing to growth later as reconstruction occurs.

These include electronics industry giants such as Sony, Matsushita, Fujitsu, Toshiba, among others. All these are now uncertain for quite some time.

Recently the Japanese investors were flocking for growth from investments .Japanese investors were hungry for yield in a low-interest environment. India was their favored destination followed with Europe and other nations.
I read somewhere that many are whispering that rebuilding Japan will proposer the global economy particularly the struggling ones. I repeat here that again that every economy survives at the cost of another economy. Japan rebuilding will bring growth but with a high cost. It is hardly important to any one what financial crisis Japan will face but every one is eager to know what crisis the other economies will face from Japan earth quake. Japan will make it difficult for US treasuries and other nations as redemption of investments will triggered off. Gold and other precious metals may see some selling pressure from the Japanese earthquake and tsunami.Preliminary estimates reckon the disaster could knock around 1% off Japanese GDP.

Among all these this disaster can bee a boon for the other nations as rebuilding of infrastructure and other segments will bring investment opportunities and job opportunities for those nations who will come forward towards Japan. In this case Indian infrastructure migh face some hardships since capital requirements will be the deciding factor for the growth of Japan and Indian infrastructure. In other words the growth of Japan economy will fetch more return to investing nations as compared to investments into Indian infrastructure. This may sound like some thing strange but think for a moment where you will invest your money where growth rate will be high with return more guaranteed. Don’t forget Indian markets are fighting with corruption boons. Japan in fact stays away from all these for the next 3 years.

Indian economy will face some tightness in foreign investments into the country. Time will be the best speaker so wait and watch.

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