Mizuho Financial Group Inc (NYSE:MFG) – in the balancing act
The Japan-based Mizuho Financial Group Inc (NYSE:MFG) is a bank holding company. It is involved in the banking business, as also provisions securities, trust, management services and asset operation. The weakening yen has been creating issues for companies such as these. There is however one way to deal with this issue Investors can consider MFG and Mitsubishi UFJ .The business models of both these companies are leveraged to raise lending and reduce NPL’s with a potentially fading-deflation.
Take a look at quantitative easing in the United States and you will see that the Federal Reserve has been performing a massive de facto carry-trade. It has been funding itself QE cash and buying bonds that yield way more than the 0.25 percent that it pays for the excess-reserve funding it provides. Nevertheless, excess reserves such as these are designed in such a way that they will not circulate within the banking system. This is done in order to avoid any undesirable inflation. In the U.S, QE is designed in such a way that it will stimulate the country’s economy via long-term interest rates that are lower. This also results in lower unemployment rates.
All Japanese insurance companies and banks have been carrying non-performing, real-estate loans, literally for years. The yen disaster in itself provides an opportunity to now take those losses. In most likeness, they will be covered by Japan’s government. Suffering losses based on the one hope that the debtor might someday make good is one thing. On the other hand, to suffer losses on mortgages that have been secured by land and buildings that exist no longer because of natural calamities or acts of God is an entirely different matter. In most cases, in numerous countries, the national government actually indemnifies mortgage holders, during peacetime.
However, U.S.-dollar based investors must keep in mind that the Nikkei 225 index is yen-based. This means that any potential upside of un-hedged buy’s of any Japanese stocks, such as the ones that have ADR’s that carry currency translation, will in a way be offset by the dipping yen. So, make your investments wisely and keep the broader global economy in the picture when you invest in non-U.S based companies.