Asia Tea Time - Cup 77 ☕

This week I talk Japan’s weakening Yen and why we need to be aware of the T&Cs on our cashback and miles credit cards. 

Macro in Asia

Japanese Yen weakens on new Prime Minister’s comments

Japan’s new Prime Minister Shigeru Ishiba, who took over from predecessor Fumio Kishida when he stepped down in August, gave his first speech to lawmakers on Friday and suggested earlier in the week that the Japanese economy isn’t ready for another interest rate hike.

As a result, Japan’s Yen weakened against the US dollar. It closed out the week at close to the 150-to-the-dollar mark.

Why it’s happening

• Japan’s revolving door of Prime Ministers in recent years is going through another cycle as a snap election in Japan is set for 27 October.

• Current Prime Minister Ishiba – who was only sworn in on Tuesday – has been perceived as hawkish. In the campaign to replace Kishida as the leader of the ruling Liberal Democratic Party (LDP), he promoted ideas such as a higher corporate tax rate and a bigger levy on capital gains.

• However, the latest comments from Ishiba saw Japanese stocks recover some ground in the middle of the week .  

Why it matters

• There’s still optimism from global investors for Japan and its concerted push to improve corporate governance as well as encouraging companies to return more capital to shareholders in the form of buybacks and dividends.

• The latest ruffling of political feathers could upset momentum for Japanese stocks, with the benchmark TOPIX Index having advanced over 13% so far in 2024 and over 70% in the past five years.   

What’s next?

• The election at the end of the month will let investors see if all this talk is just posturing and appeasement from the leader of the ruling LDP.

Tim’s Take 

Japanese stocks have been experiencing some violent moves in recent months on the back of what the Yen is doing. 

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While the Japanese currency started the week at around 143 to the greenback, it ended up weakening significantly and finished the week down around 3.5% versus the dollar – a big move for one of the world’s largest currency pairings.

More broadly, though, it does pose questions about whether Ishiba will be as hawkish as he’s sounded (when campaigning for the LDP leadership). Japan’s TOPIX is still down close to 2% since he was confirmed as the party’s successor to Kishida.

The moves this week in Japan have also coincided with the ongoing rally in Chinese stocks, with many institutional investors now trimming their positions in Japan and India to buy into the red-hot rally on FOMO. 

While there are legitimate worries about the pace of interest rate hikes in Japan, the fact that political leaders of all stripes are talking about defeating deflation is an encouraging sign that the rhetoric is still there to see a healthy economy.

Furthermore, while rate hikes might not be immediately beneficial to stocks in Japan, it’s a healthy move and should be welcomed by investors who are buying into the long-term potential of the Japan story. 

Tim’s money tip of the week

The cashback vs. miles debate always rages when it comes to which one is better for credit card spending. Some people prefer cash in their pocket (cashback) while others prefer those plentiful miles in order to redeem flights.

Either way you’re so inclined, we should be aware that there can be “gotchas” for many of these credit cards that don’t allow you to earn the rates that are promoted to us as consumers.

A lot of 4-mile-per-dollar (4mpd) credit cards rely on spending on certain channels and some even require a minimum spend per month to get that rate. Meanwhile, for cashback, there are some sensational headlines like “Up to 20% cashback!” that are misleading. 

Indeed, the realistic cashback rate is likely in the mid-single-digit percentages since there are monthly cashback caps, quarterly cashback caps and minimum spends involved. Personally, I find the cashback hoops that you have to jump through as much more onerous than the miles ones and is one big reason why I prefer the latter.  

Regardless, we should all be ensuring we are aware of the Terms & Conditions (T&Cs) of these cards because we rarely get what we think we should be getting when it comes to credit card spending.