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Investing in Japan

Article Index

Bank of Japan Policy is Doomed to Failure

By , Money Morning -

The Bank of Japan (BOJ), Japan's central bank, bowed to government pressure this week by adopting a 2% inflation target and accepting responsibility for achieving that goal "as early as possible."

The BOJ announced today (Tuesday) that it will begin a program of "unlimited easing" beginning in January 2014 following the end of the central bank's current asset-purchasing program in December.

In a statement announcing the results of Tuesday's Monetary Policy Committee meeting, the Bank of Japan said it anticipates purchasing 10 trillion yen in Treasury notes and 3 trillion yen in Japanese government bonds (JGBs) each month beginning in January 2014.

The statement also indicated the central bank's balance sheet will expand by about 10 trillion yen by the end of 2014 as a result of the purchases. No further expansion of the BOJ balance sheet is anticipated thereafter.

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Can the Japanese Economy End Deflation With These Steps?

By , Money Morning -

Japan's newly elected Prime Minister Shinzo Abe is taking aggressive measures in an attempt to end the deflationary spiral that has plagued the Japanese economy for more than twenty years.

The return of Abe's Liberal Democratic Party (LDP) to power in a landslide election victory last month is seen as a mandate to do whatever it takes to revive the flagging Japanese economy.

One of the first policies likely to be put into place is the passage of a massive supplementary budget for fiscal 2012 (the year ending March 31, 2013). Depending upon how you count it, the budget ranges from 10 trillion yen ($112 billion) to 20 trillion yen ($224 billion).

Observers have expressed concern over the size of the stimulus and what impact it might have on Japan's sovereign credit rating and on the Japanese government bond (JGB) market, plus what it could do to the U.S. economy.

Let's take a look.

Arm Twisting the Bank of Japan

The supplementary budget is nothing but good, old-fashioned pork barrel spending; the kind of money politics the LDP was known for when they governed Japan for more than 50 years.

What is new and different about Prime Minister Abe's approach to reviving the Japanese economy is his strong arm tactics against the Bank of Japan (BoJ), Japan's central bank.

BoJ independence was enshrined in law only in 1999. Abe has run roughshod over the intent of the law by demanding that retiring BoJ Governor Masaaki Shirakawa sign a written document agreeing to do whatever is necessary-generally considered to be "unlimited easing"-to achieve an inflation target of 2% over the medium-term.

At its last Monetary Policy Committee (the equivalent of the Federal Reserve's Open Market Committee) meeting, which took place just after Abe's landslide election victory, the BoJ agreed to review its policy goals and come back in January with updated policy recommendations. The next Monetary Policy Committee meeting takes place over two days on Jan. 21 and 22.

Press reports indicate that the BoJ will roll over and do pretty much whatever Abe wants - and here's why.

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These Three Iconic Japanese Brand Names Are On My "Short List"

By , Chief Investment Strategist, Money Map Report -

[Kyoto, Japan] - Many investors have piled into Japan lately reasoning that somehow this will be "the year" Japan turns around and there will be lots of money to be made.

I don't disagree - only the big profits are on the short side, especially when it comes to these three iconic Japanese tech brands.

As I quipped earlier in the year, it's more likely that Godzilla will walk out of Tokyo Bay again than it is that Japan will suddenly rebound.

I am well aware that's not a popular thought and that it will likely earn me my share of wrath on the Internet. Save your breath and your keystrokes. Having spent more than 20 years in country, I am intimately familiar with the arguments.

For example, value-oriented investors consistently remind me that the Nikkei is "dramatically undervalued." I am also well aware of the "construction boom" that was supposed to follow the tsunami and nuclear crisis.

And I still continually hear from the statistically motivated that the Japanese economy just "has to turn around" because it's exceedingly rare that an economy remains in the doldrums after 20 years.

Let's review.

The Nikkei remains 75.5% off its December 29, 1989 peak for a reason. That means it's going to take a 308.19% gain just to get to break-even based on where it's trading as of this writing.

If you think that's a sure thing, I'm happy for you but wish to point out that business conditions now are hardly conducive to the kind of growth that got the Nikkei there in the first place. The entire society is deleveraging. Consumers are tapped out and the government is a wreck.

As for the construction boom, that's a misconception. As I noted in a flurry of interviews following the terrible events of March 11, 2011, only a few companies are going to enjoy any sort of revenue expansion whatsoever. Sure, there might be a short-term pop, but the majority would experience significant drops in revenue and exports resulting from production losses and a post-quake strengthening of the yen that will compound the efforts to regain lost ground.

And finally, as for the notion that markets simply don't stay down for this long...says who?

It was inconceivable in 1990 that Japan would lose a decade -- let alone three. Nine failed stimulus programs and 22 years later, the Japanese economy has just lurched into another technical recession this week. The rules of the game have changed.

Clearly, the markets can, as the old saying goes, remain illogical far longer than investors can remain solvent.

Here's the Reader's Digest version of my thinking:

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Investing in Japan: Is There Light at the End of the Tunnel?

By , Global Investing Specialist, Money Morning -

Most people have given up on investing in Japan.

With an aging population and far too much government debt, the conventional wisdom is that Japan will never again see the vigorous economic growth it once enjoyed.

The earthquake and tsunami of March 2011 only reinforced this view. However, that tragic episode did have another side.

It showed the resilience and discipline of Japanese society.

There was almost no looting, for example -- and recent economic data suggest that the Japanese economy is not as dead as it seemed.

First quarter Japanese gross domestic product (GDP) came in at an annual growth rate of 4.1% --far higher than the United States, Canada, Australia, or anywhere in the Eurozone.

Given that Japan has been in perpetual near-recession for 21 years, with no surges of productivity like the U.S. enjoyed in the late 1990s, it's really not a bad performance.

You can also see Japan's true strength from its exchange rate, which is currently 79 yen to the dollar, up from around 120 five years ago. That makes visiting Tokyo very expensive.

However, it's also sign of a highly competitive economy.

Investing in Japan: What You Need to Know

It's notable that observers in the United States, a country which perpetually runs payment deficits of $500 billion-$600 billion annually, sneer at the economies of Japan and Germany, which are almost always in surplus.

Before 1995, I lived in another economy that was similar. Britain ran deficits much like the U.S. does.

So believe me when I tell you, deficits are not exactly a sign of superior economic health.

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