In the last couple of weeks it has become sort of popular to start looking at Japan for an economic and equity market turnaround.
I think equity strategists have predicted 14 out of the last one stock market recoveries, if you know what I mean.
Perhaps this is finally when it happens. There are a couple of things about this current wave of optimism that leave me uncertain. The US imports about 60% of its oil. Japan imports all of its oil. Alan Greenspan was quoted as saying that higher oil will take about 75 basis points out of our GDP, he said this when oil was a little cheaper. Feel free to comment with the actual specifics of Greenspan's comments if you know them.
The only way, as I see it, that Japan can avoid a worse fate, due to oil, would be if the yen gets stronger against the dollar. Since oil is denominated in dollars a stronger yen makes oil cheaper in Japan.
But then a stronger yen hurts Japan's exporting of all sorts of things to the US. A strong yen makes Japanese products more expensive in the US, a big customer of Japan.
I may have this wrong but I haven't yet heard any of the current Japan bulls address this point.
Wikinvest Wire
6 comments:
Gee, a couple of days ago I had wondered the same exact thing: Still waiting for someone besides you to mention Japanese dependency on oil. Granted their cars are small. LOL
Hi Roger,
With China finally letting its currency appreciate some I don't know that stronger yen (to the dollar) will hurt Japanese exports like it has in the past. Oil could be come relatively cheaper for all of Asia if their currencies appreciate together while their shares in the export market don't change too much.
Its a long term view because the currencies are not appreciating nearly as quickly as oil is but I think it is the correct one.
Japan is probably the most energy efficient country on the planet measured as oil vs. GDP. They produce roughly seven times the GDP per barrel of oil as China.
Koizumi has called for elections in September. This is a fight over economic reforms. If Koizumi wins then reforms of the banking system go forward.
So, this time it's different.
Roger,
No matter which way the Japanese economy/markets my go I think there are some attractive Japanese stocks.
Toyota for example has the most complete lineup of well engineered and manufactured vehicles sold in every major market in the world. It has a strong balace sheet, a reasonable PE, and a rising yield. (full disclosure - I own it and a couple of others)
Jim in LV
thanks for all the comments on this one.
Michael makes a great point, but I think there is an element of the unknown in relying on the yuan to help the yen.
The comment about Koizumi hold some water, it could be different this time but I think the comment relies on the market to percieve things differently than it has it the last 15 years.
Jim talking about the TM product is obviously a bottom up comment. He is right about the cars (we own one)but again will the golbal market see it this way. I just don't know.
Well, one more thing. If you're bearish on the US economy then take into account how much Japan is dependant on exports to the US (over 2% of GDP).
If the US slips, Japan will be soon to follow.
It's a shame too. Those guys have had just the worst economy for the last 10+ years.
-Mike
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