Everything’s looking good in Japan, says the FT. In the fourth quarter of last year, the country, once thought of as irredeemably mired in recession, closed up annualised GDP growth of 5.5% – cementing full-year growth of 2.8%, which is twice that of the eurozone. At the same time, property prices appear to have bottomed out, deflation is over (the core consumer price index (CPI) has finally moved above zero), and domestic consumption is on the up.
But if the economy is so hot, what’s up with the market? Last Monday, the benchmark Nikkei 225 index rounded off nine straight days of losses with a four-week low. Then, on Tuesday, it jumped a huge 3%.
The answer is all about interest rates, says AFX News. The good economic news suggests that there is a possibility that the Bank of Japan (BOJ) might tighten up its currently very relaxed monetary policy, with some thinking that interest rates may be on the up by April.
This, say the pessimists, could hit growth: there is no guarantee that the domestic economy is strong enough to cope with rising rates, particularly given that much of the rise in the CPI at the end of last year appears to have been more down to rising oil prices than anything else.
So should we be getting out of Japan? Not according to Credit Suisse. There, analysts point out that after a seven-month boom the Japanese market is vulnerable to profit taking and hence to ‘corrections’, but that this has no bearing on its long-term potential.
The labour market is improving, the export market is strong, there is a “positive environment of structural reform” and, best of all in terms of demand for equities, 2006 should see “increased buying from domestic investors”.
Traditionally, says Credit Suisse, the Japanese investor tends to want to see three years of a bull market “before having the confidence to invest”. And notwithstanding the volatility of the past few weeks, the market has “been on an upward trend for exactly three years now”.
Published in Stock markets
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by
Annunziata Rees-Mogg
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