Global economic recovery unfolding without rise in leverage – Nomura

The ongoing rise in asset prices, including Japanese equities, is attributable not only to a robust global economy and rising corporate earnings but also to the fact that sluggish private-sector demand for funds has forced private-sector savings into such assets as equities and real estate, according to Richard Koo, chief economist at Nomura.

Key Quotes

“Interestingly, the economic improvements observed in Japan and many other countries are occurring without a major increase in leverage in the private sector.”

“In countries such as Spain, Portugal and Ireland, said to be experiencing relatively strong recoveries, the private sector continues to run a large financial surplus in spite of negative interest rates as noted in this September’s edition of this report. The same is true of Japan.”

“In the US, too, the private sector continues to post a financial surplus, albeit a smaller one than in the past. This is reflected in the fact that the Financial Conditions Index is pointing to more accommodative financial conditions in spite of four Fed rate hikes, as noted in my last report.”