Japan’s recovery this time it’s for real – MoneyWeek

TheJapanesestockmarkethasalonghistoryofflatteringonlytodeceive。

Justlookatitsbehaviouroverthelastdecade:everycoupleofyearsitstagesasplendidrally(up53%in1995/6and41%in1999,forexample),thenitcollapsesjustasdramatically(down34%in1997and40%in2001)。

Itseemstobeuptothesametricksthisyear。

BackinApril,amidaflurryofoptimism,thebenchmarkNikkeiindexsoaredabout18%to12,195。

66。

Thistime,saidthetraders,it’sdifferent。

Butitseemsitwasn’t。

Nowtheindexis,onceagain,miredbelowthepsychologicallyimportant11,000markanddoesn’tlooklikeitisgoingtobreakoutagainanytimesoon。

TherearemanywhothinkthattheNikkeideservestostayexactlywhereitis。

TakeGaryDuncan,writinginTheTimes。

ItmayhavelookedlikeJapanhadtwoconsecutivequartersofpotentexpansionearlierthisyear,saysDuncan,butrecentdataprovesthatthatgrowthwasaredherring。

Lastweek,theauthoritiespublishedrevisedGDPfigures,showingameagreexpansionof0。

1%inthefirstquarter,followinga“relapse”inthesecond,whentheeconomyshrankby0。

1%。

Takentogether,thesenumbersleftJapanoncemoreonthebrinkoftechnicalrecessiontwoconsecutivequartersoffallingoutput。

It’sa“worryinglyfamiliar”scenario,reminiscentof1995,whenrecoverywasscupperedasaslumpinthedollarsenttheyensoaring。

Twoyearslater,theAsianfinancialcrisis,anda“startlinglyill-judged”increaseinJapan’ssalestax,putanendtoanotherupturn。

AndJapan’sluckwasnobetterin2001,whenaUSrecessionandanotherpolicymistake(theprematureendofJapan’szerointerestrates)onceagain“throttled”revival。

Thistime,it’sclearthatsuchupturnastherehasbeenisreliantonexports。

Now,asdemandhasfizzledinthefaceofweakerglobalactivityandarisingyen,sotherecoveryhasstalled。

ButDuncanismissingsomething。

Thefactisthatthistimeitisgenuinelydifferent。

Wecan,forstarters,prettymuchignoretheGDPnumbers。

AsMacquarieJapananalystRichardJerrampointsout,thewaythefiguresarecalculatedhasrecentlybeenchanged,makingithardtomakea“sensiblecomment”onthem。

Andothernumbers,suchasbusinessconfidence,labourdemand,profitsandexportsallpointtonothingmorethana“moderate”slowdown。

ThebearsalsoneedtobearinmindthatJapanhasachievedagreatdealoverthepastdecade。

Ithasforceddrasticcorporaterestructuringandallbuteliminatedtheoverhangofbaddebtsplaguingitsbanks。

Thatgivesitastrongerfoundationforexpansionthanithashadforsometime。

TheeconomyisalsogettingconsiderableassistancefromtheBankofJapan。

AsHeatherStewartpointsoutinTheObserver,thebankhaspromisedtomaintainitscurrentzerointerest-ratepolicyuntilthereissustainedpositiveinflation。

ButthebestreasonforbelievingthisrecoveryisforrealisthatJapaneseconsumersarebeginningtoventurebacktotheshops。

Inthe40-49agegroupinparticular,bothincomesandspendingarerising。

AsJapan’sconfidenceinitseconomicstrengthrises,thatvirtuouscircleshouldbecome“self-fulfilling”。

JapanhaseveryreasontobeconfidentaboutitseconomicstrengththankstoChina。

Japanhas,asJonathanAllumofKBCputsit“byluck,judgmentorjustplaininertia”founditselfproducingmuchofwhatChinaneedstogrow(fromsteelbeamstofactoryequipment)。

Addtothatthegeneralfactthatanylongperiodofminimalinvestmentshouldbefollowedbyoneofexpansion,saysAllum,andJapanlookslikeitisintheearlystagesofarealrecovery。

Andthatisusuallythetimetobuy。

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