Monday 03 March 2008

Japanese market gloom will change

So the current excessive pessimism concerning the Japanese market could most certainly be considered a look for possible long-term gains.

Japan’s GDP rose by 2.1% in 2007 and accelerated by 0.9% in the fourth quarter, a 3.7 annualised rate, helped by exports and capital spending. The latest data suggest that “as long as the whole world doesn’t go over the edge”, Bank of Japan governor Toshihiko Fukui’s expectation of continued, modest growth is still valid, David Cohen of Action Economics.

Residential investment has been hampered by the botched introduction of a new building code, but is now recovering; it could add cover of up 0.6% growth during 2008, helping to offset a smaller contribution from external trade as the global economy slows, says Capital Economics.

Business confidence is still relatively high, confirming that “corporate (and financial) Japan is in good shape to weather a global downturn”.

Employment also continues to rise, although this has yet to fuel an increase in wages and hence consumption. But inflation is now positive yet low, and inflation ought to encourage consumption as households have hitherto postponed spending in anticipation of falling prices.

Yet “traders appear to assume the imminent return” of stagnation, rather than recognizing that Japan is now five years into recovery, says Martin Hutchinson on Breakingviews.com.

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