By William Mills
On 6 June Barclays’ share price fell heavily on the London Stock Exchange after reports that Japan based Sumitomo Mitsui Banking Corporation had made an accelerated placing of 84.5m shares at 308p raising £260m.
Was this sale made because SMBC saw bad weather ahead for the British bank, or did they need the cash in a hurry for themselves?
In a statement SMBC said they had sold half their holding in Barclays for ‘the purpose of group capital efficiency’ and they looked forward to… ‘maintain a good relationship with Barclays.’
The interest rate charged by the Bank of Japan to its domestic banks could be the key to the future of recent stock market rallies. If rates rise Japanese banks may have to sell their investments made abroad in order to prop up their own Core Tier 1 capital requirements.
Since winning the December 2012 election Prime Minister Shinzo Abe has attempted to restart Japan’s stagnant economy with three measures. The first two, boosting monetary stimulus and increasing Government spending, sent shares soaring and the yen plunging.
The third in what has become known as Abenomics is the creation of new economic enterprise zones having special status and promises of less bureaucratic red tape.
The Nikkei stock market has climbed more than 80% since last November. However there has been a sharp drop in the last three weeks, and as the stocks fell the yen strengthened.
Whether the economic zones will really attract overseas’ companies as their Government hopes remains to be seen. Japan’s top rate of corporation tax is 35% whereas economic rival Singapore’s is only 17%.
Shinzo Abe hopes to be able to cut taxes if he wins the upper house elections in July. He also has promised to restart nuclear plants which were closed in the wake of the 2011 Fukushima disaster.
After fifteen years of deflation there are concerns that a rise in inflation might trigger off interest rate rises. However to stall bond price changes the huge Government Pension Investment Fund announced it would sell bonds and buy shares instead. How this will affect the markets in forthcoming weeks remains to be seen.