“The ‘Twisted Parliament’ in the U.S. Bringing About an Appreciation of the Yen Against the Dollar”

12th November, 2020

Although presently the results of the U.S. presidential and parliamentary elections which took place on 3/11 have not been confirmed, the global stock market saw an acceleration of risk-on movements at once under the prediction of a “twisted parliament”, where Biden is elected and there is a majority of the Senate from the Republican Party and a majority of the House of Representatives from the Democratic Party. The Nikkei average, which saw a growing standstill at the 23,000 point level from June onwards, hit over 24,000 points on 5/11 last seen in Jan this year, and marked the 24,300 point level on 6/11 last seen in Oct 2018. With movements focusing on the 22,000 point level throughout May to Sep 2018 without exceeding close to 23,000 points, these movements appear to be a turn of events similar to the time where there was an accelerated rise in market price after exceeding 23,000 points in mid Sep up to the 24,400 point level in early Oct. We can presume that the accumulation of short positions focusing on futures within a narrow boxed market and the market exceeding the upper limit of the range could invoke a short squeeze of cutting losses and easily cause an accelerated increase in market price.     

Prior to the U.S. presidential election, if it were to result in a “blue wave” where the Democratic Party holds a majority of the Senate and the House of Representatives involving the parliament and the president, there was the likely scenario where we could expect an increase in the U.S. long term interest rate and economic expansion following increased large-scale government spending towards economic policies, in addition to the monetary easing by the Fed thus far. In contrast, the scenario where there is an increase in the U.S. long term interest rate following an expansion in the scale of government spending has become less likely due to the Republican Party holding a majority of the Senate. According to the “Mundell-Fleming model” in macroeconomics, an increase in the long term interest rate following an expansion of government spending under a floating exchange rate system is said to be a factor for high home currency due to it attracting money that demands high interest rates. In other words, while the sudden depreciation of the dollar was being held back due to the offset of the factor for a depreciation of the dollar from monetary easing by the Fed under

the blue wave by the factor for an appreciation of the dollar from increased government spending, because of the appearance of the prediction that the Republican Party would hold the majority of the Senate, it is suggested that loss of the factor for the appreciation of the dollar would easily lead to an advancement in the depreciation of the dollar in one go. This can be said to be a major factor for the advancement of the appreciation of the yen against the dollar to the 103 yen level which occurred after overseas markets on 5/11. 

This advancement in the appreciation of the yen against the dollar appears to be different from the appreciation of the yen as a form of escape to risk-free assets when there is a decrease in risk appetite. Under the Abe administration, the depreciation of the yen following unprecedented monetary easing by the Bank of Japan pushed up the earnings of Japanese export corporations and international blue-chip corporations. Perhaps this time it would be the turn to expect a similar increase in earnings in U.S. corporations through monetary easing by the Fed. On the other hand, for Japanese corporations, if they are able to enjoy lower raw material and energy costs due cheaper crude oil in addition to the appreciation of the yen against the dollar, we can presume that it would be easier than ever to raise earnings.

In the 9/11 issue, we will be covering Enigmo (3665), Maruyama Mfg. (6316), Hitachi (6501), and Yamaha Motor (7272).



  •  Enigmo Inc. (3665)              1,440 yen (6/11 closing price)

・Established in 2004. Operates the social shopping site, “BUYMA”, which enables the retail of and putting up popular items for sale locally by Japanese residing overseas and who register as a personal shopper. Sony (6758) is their principal shareholder.
・For 1H (Feb-Jul) results of FY2021/1 announced on 14/9, net sales increased by 10.0% to 2.964 billion yen compared to the same period the previous year and operating income decreased by 0.5% to 1.127 billion yen. Due to the promotion of an early switch to private international distribution services in response to temporary delivery suspensions and delays following city lockdowns in various overseas countries due to the COVID-19 catastrophe, they were able to limit the negative impact on their services to a minimum.
・Their full year plan is unannounced due to the difficulty in reasonably calculating the impact of the COVID-19 catastrophe. As a growth strategy for BUYMA, they are currently promoting a reinforcement to their selection of goods by collaborating with corporate sellers such as overseas specialty shops, and expanding the English version of BUYMA. With self-restraint in going outdoors to continue due to the COVID-19 catastrophe, there has been an expansion in their user bracket such as in overseas users, etc., who began selling due to the implementation of telecommuting. There has also been increased diversification in products, such as furniture and interior, etc. due to the demand from staying at home.


  • Maruyama Mfg. Co., Inc. (6316)           1,325 yen (6/11 closing price)

・Established in 1937. Their main businesses are the manufacture and retail of agriculture and forestry machines (pest control machines, silvicultural machines, components, etc.), industrial machines and other machines (firefighting machines and others). Their mainstay, the pest control machines for farmers, account for about 70%.
・For 9M (2019/10-2020/6) results of FY2020/9 announced on 7/8, net sales decreased by 2.9% to 24.406 billion yen compared to the same period the previous year and operating income increased by 2.4 times to 591 million yen. Although there was an increase in demand for sprayers as a measure for COVID-19, the decrease in high-performance pest control machines for farmers following a self-restraint in business influenced the decrease in revenue. In terms of profit, they succeeded in cutting expenses which lead to an increase in profit.
・Company revised their full year plan downwards. Net sales is expected to decrease by 4.6% to 34.5 billion yen compared to the previous year (original plan 37 billion yen) and operating income to increase by 38.1% to 600 million yen (original plan 700 million yen). In the general policy speech by Prime Minister Suga held after the call for the extraordinary Diet session, the export value of agricultural products from Japan (900 billion in 2019) is targeted at 2 trillion yen in 2025 and 5 trillion yen in 2030. Towards achieving the target, here would be a need for increased efficiency in agricultural production, and we can likely expect an increase in demand to introduce machines for farmers.


  •  Hitachi, Ltd. (6501)              3,564 yen (6/11 closing price)

・A comprehensive appliance manufacturer established in 1910. Their 5 main segments are “IT”, “energy”, “industry”, “mobility” and “life”. Has a wide product lineup, such as information and electronics, as well as power and industrial machines.
・For 1H (Apr-Sep) results of FY2021/3 announced on 28/10, sales revenue decreased by 10.9% to 3.7605 trillion yen compared to the same period the previous year and operating income after adjustment decreased by 39.2% to 180.7 billion yen. The sale of Hitachi Chemical and a worsening of the market condition impacted the decrease in revenue. For operating income after adjustment, although it was limited to a 1% decrease in the IT segment, the profit decrease in Hitachi Construction Machinery (6305) and Hitachi Metals (5486) had affected.
・For its full year plan, sales revenue is expected to decrease by 9.4% to 7.94 trillion yen compared to the previous year and operating income after adjustment to decrease by 39.6% to 400 billion yen. Sales revenue for businesses related to “Lumada”, which is the base of IoT services, is expected to increase by 6%. Also, with mention of a nuclear power policy in relation to the target for zero greenhouse gases by 2050 at Prime Minister Suga’s general policy speech, the company is working on the commercialisation of a next-gen nuclear power plant technology, the “small modular reactor (SMR)”, via a joint venture with the American GE.


  • Yamaha Motor Co., Ltd. (7272)         1,530 yen (6/11 closing price)

・Dissolved and went independent from Nippon Gakki (present Yamaha) in 1963. Manages the land mobility business, such as two-wheeled vehicles, the marine business, such as outboard motors, the robotics business, such as surface mounters, and the financial services business.
・For 1H (Jan-Jun) results of FY2020/12 announced on 6/8, net sales decreased by 19.9% to 685.499 billion yen compared to the same period the previous year and operating income decreased by 72.3% to 19.087 billion yen. Due to the impact of the COVID-19 catastrophe, there was a revenue decrease except for the robotics business and the financial services business. Businesses in developed countries and two-wheeled vehicles in China and Vietnam, etc. hit bottom in April and is showing a recovering trend, however, there was a profit decrease across all businesses.
・Company revised their full year plan downwards. Net sales is expected to decrease by 17.7% to 1.37 trillion yen compared to the previous year (original plan 1.76 trillion yen) and operating income to decrease by 82.7% to 20 billion yen (original plan 123 billion yen). In the Philippines, where the company’s two-wheeled vehicles has a share of over 30%, there has been an increase in demand for two-wheeled vehicles as a result of securing social distancing and the suspension of the operation of public transport institutions from the city lockdown that was put in place due to the COVID-19 catastrophe, and units sold in August grew with a 17.4% increase compared to the same period the previous year.


【Disclaimer and Notes relating to this report】

Issuer of this report:  Phillip Securities Japan, Ltd.    4-2 Nihonbashi Kabutocho, Chuo-ku, Tokyo 103-0026

TEL: 03-3666-2101 URL: http://www.phillip.co.jp/


Authors of this report:

Phillip Securities Research Department 

Kazuhiro Sasaki, Certified International Investment Analyst(CIIA®), Chartered Member of The Securities Analysts Association of Japan (CMA®)


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