Wells on Japanese Banks
Wells Fargo Advantage Funds' latest "Overview Strategy, and Outlook" contains an "Update on Japanese Banks, which explains, "Last month, we traveled to Tokyo to meet with several issuers, including Sumitomo Mitsui Banking Corp., Sumitomo Mitsui Trust Bank, Mitsubishi UFJ Trust and Banking Corp., and Mizuho Financial Group. We also had the opportunity to meet with Fitch Japan, Standard & Poor's Japan, and Moody's Japan to discuss the Japanese banking sector. With over $230 billion of commercial paper (CP), Yankee certificates of deposit (CDs), and asset-backed commercial paper, representing more than 10% of all prime money market instruments outstanding, the Japanese banking sector has become increasingly important to us as an investment alternative. While Japan's recent economic history is frequently characterized as The Lost Decade, the consensus is that Abenomics and the Bank of Japan's (BOJ's) monetary easing have boosted expectations for higher growth and an end to deflation and have improved the operating environment for banks." The commentary continues, "However, banks and the rating agencies noted that there are risks if the government's policies -- specifically the third arrow related to structural reforms -- do not increase Japan's growth rate or if Japanese government bond yields rise significantly. A loss of confidence in either Abenomics or the BOJ's commitment to monetary easing would likely lead to a sharp decline in the Japanese equity market, presenting a significant challenge to profitability in the banking sector." It concludes, "We take comfort from the Japanese megabanks' strong liquidity, current excellent asset quality, improved capital levels, record net profits, strong systemic support assumptions, and improved operating environment. Despite some specific credit concerns, the trip helped confirm our conviction that investing in the Japanese banking sector is consistent with minimal credit risk."
