Could This Be The Reason?

As noted in the last post, there has been a noteable movement of foreign investors out of Japan in the last week. Today we have news of a draconian report from the Japanese government Council on Economic and Fiscal Policy which indicates the country either needs major spending cuts or a sharp rise in taxes. When you couple this with the possibility of a steady rise in interest rates and the fact that wages are ticking up above productivity due to the kind of labour shortage an ageing economy will naturally produce, then you have to wonder whether some people haven't look at this report, put two and two together, and decided it's time to up-tent.

Japan’s government would need to cut more than the equivalent of its defence, education and public works budgets combined in order to balance its books by 2011, Junichiro Koizumi’s main policymaking body was told on Wednesday night.

The effort to prove the necessity of a tax rise to close the budget deficit – about 4 per cent of gross domestic product before interest payments – comes as the cabinet’s so-called fiscal hawks are losing ground.

Japan's Growth Spurt

Well the Japanese economy is certainly ticking along at a very lively clip: an annualised rate of 5.5% in the last quarter of last year. Quite something when you compare it to the somewhat meagre showing of the US economy ver the same period (1.1%). So should we draw the conclusion that the Japanese economy is in better underlying shape than the US one? I doubt it.

First of all, there is the nice old English expression that one swallow doesn't make a summer: 2005 growth for Japan was 2.8% compared to what - 3.6% or so for the US.

Secondly, we have been here before. In the last quarter of 2003 to be precise, when Japan registered in the unrevised numbers a rate of approximately 7%.

The big question is: is this sustainable? I still doubt it, and it seems the international investment set for once agree with me:


The Nikkei 225 fell 2.1 per cent to a three-week low of 15,713.45 on Friday, despite being pushed up briefly by strong gross domestic product figures. The fall was led by real estate stocks, which plummeted as foreigners – big buyers within the sector - continued to exit the Japanese market...........

Japan, Japan, Wherefore Art Thou?

Hi everyone. Just to say that I have been a bit erratic recently since I have had a lot of work on my plate, and a lot of concentration to be doing. I hope sometime soon I will have some results from this to show here.

Meanwhile the Japanese economy has been far from idle. Japans labour market continues to tighten:

The closely watched jobs-to-applicants ratio rose to 1.00 in December - meaning there were as many jobs as applicants - from November’s 0.99. It’s the first time the figure had reached this level since September 1992.

The number underlined the recent improvement in Japan’s labour market, as companies respond to expectations of higher demand by increasing hiring.

Is this labour market tightening good news in Japan's case though? Aha! That is the question. Claus Vistessen has a very much to the point post which touches on all the principal issues.

Tokyo Stock Exchange Temporarily Closed

Gosh, I certainly hope this isn't anything too serious:

Japanese stocks plunged on Wednesday after the Tokyo Stock Exchange announced that it would suspend trading of all stocks because volumes were too high. The news panicked investors, who had already sent the Nikkei down heavily in the wake of Monday evening’s government raid on Livedoor, the internet services company, over possible violation of security laws.


As Bloomberg points out, this has been a bad week for Japanese shares:

A rout in Japanese stocks deepened before trading was halted prematurely for the second time in the Tokyo Stock Exchange's history, helping to wipe away more than $300 billion in value from the world's second-largest equity market this week.

I certainly hope that all this will stop where it is.

But it does highlight the way in which people have been irresponsible (Economist please note!) with the Japan sustained-recovery story. Much of the investment in Japan stocks has been from overseas investors of late (the Jpanese have rather been buying US assets), people (especially it seems Middle East oil producers) are over-extended and if there isn't a sustained recovery soon then there will be a correction. I just hope the correction won't be too sharp, but after Italy this is clearly the number 2 global danger-spot where we could anticipate trouble at some stage.

OTOH it is hard to blame this particular one on central bankers and their "excessively low interest rates", indeed my argument would be quite the contrary: all the BoJ spin on 'the imminent end to deflation' and the 'ending of monetary easing' is part of what has been fueling the excessive optimism, an excessive optimism which is reflected in over-priced share values.

Meantime the latest European news from the FT reads: European stocks set for sharp sell-off.