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Bank of Japan Called "Single Biggest Danger to Global Markets Today"

The Bank of Japan is sticking to its policy of fiscal stimulus to try to stoke inflation, and that's rattled markets worldwide.

There are short-term signs of economic recovery such as an increase in consumer spending and in manufacturing.

But longer-term, Money Morning Chief Investment Strategist Keith Fitz-Gerald told CCTV, "there has never been an instance in history where stimulus has worked. So the question really is when, not if, this will break down."

Check out the accompanying video to learn why Keith considers the Bank of Japan "the single biggest danger to global markets today."

How to Profit From Japan's New Lost Decade

An old Japanese proverb notes "ura niwa ura ga aru" which means the reverse side has a reverse side.
Japanese markets have come a long way in the past 8 months rising an additional 4.94% in wild trading on Monday alone. Yet there are real long-term dangers to all this volatility.
First and foremost, when (not if) Japan collapses it will affect every investor, in every major market, regardless of your exposure to Japan.
Click here to find out what you can do to profit from the maelstrom...

That 7.3% Japanese Stock Market Plunge Was Just a Warning

Wall Street woke up to grim news on Thursday morning (today) - overnight the Japanese stock market, as measured by the Nikkei index, lost a stunning 7.3%.

The sudden drop caught many investors by surprise, as the Japanese stock market had risen 50% - 5,277 points - so far in 2013. The Nikkei plummeted 1,143 points Thursday to close at 14,483.98.

The shock waves were felt in stock markets throughout Asia and Europe, and caused the Dow Jones Industrial Average to shed 100 points in early trading.

Analysts blamed a combination of poor Chinese manufacturing data and mixed messages from the U.S Federal Reserve Wednesday about when it might slow its monetary easing, which caused Japanese 10-year bonds to briefly rise above 1% for the first time in a year.

But those factors "just added fuel to the fire," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, explaining that there's far more lurking behind this plunge in the Japanese stock market.

"The rise in the Japanese stock market was unsustainable," Fitz-Gerald said. "It was a bug in search of a windshield."

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Investors Who Own Japanese Stocks are About to Get a Nasty Surprise

[Kyoto]-September's anti-Japanese protests in China over the disputed Senkaku/Daioyu Islands may have come and gone in the Western press, but the real damage is only just beginning for investors who have piled into Japan in recent years.

With their focus on the U.S. fiscal cliff and ongoing EU banking problems, many investors just don't understand how interlinked trade between China and Japan has become, nor the breadth of the damage this strained relationship can do to their portfolios.

But they're about to.

The breaking news here in Japan is that Honda cut its full-year net profit forecast by 20% following a 40% drop in September sales. That marked a 16-month low in sales that is directly related to nationalistic friction between the two nations.

That's adds up to a 95 billion Yen hit. To put this into perspective, Honda's net profit last year was only 211.4 billion Yen, so we're talking about a nearly 50% drop in the company's bottom line.

Under the circumstances, I would be very surprised if Nissan and Toyota, both of which also have significant operations in China, don't follow with similar results when they report next week. While I haven't seen estimates from Nissan yet, Forbes reports that Toyota sales are off a staggering 49% over the same time frame.

That's the biggest drop in a decade.

That's not inconsequential considering that Chinese-Japanese trade accounted for more than $340 billion USD in 2011. Japan is China's fourth-largest trading partner after the EU, the U.S. and the ASEAN nations respectively. It accounts for approximately 10% of China's total annual gross trade volume according to Xinhua.

On the other hand, China is Japan's largest trading partner and has been since 2007 when Japanese corporations dropped the U.S. market like a hot potato. China is also Japan's single largest export destination, accounting for nearly 25% of total export volume as well as the single-biggest source of its imported goods.

The damage won't be limited.

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Godzilla Will Come Out of Tokyo Bay Before Japan Rebounds

Let's talk Japan.

Every year some analyst comes out with a variation of the story that Japan is about to rebound.

Usually the argument goes something like this: Japanese markets are impossibly cheap and the central bank will be there to prevent a catastrophe.

Or sometimes there is another variation of the Cinderella story.

Either way, don't hold your breath. Japan posted its first trade deficit since 1980 last year and the big trade surpluses needed to drive the Nikkei back to its glory days are over.

At best, Japan is going to see balanced trade figures or a small surplus in the years ahead. It won't be enough.

If you're not familiar with what a trade deficit is, here's what you need to know: Japan imported $32 billion worth of stuff more than it exported for the first time in 31 years.

Fighting the Demographic Tide

Critics say there are mitigating factors behind the figures and they're right.

Against the backdrop of one of the world's fastest aging populations, one of the lowest birth rates on the planet, a renewed reliance on foreign energy, and a yen that is so expensive that Japanese corporations are offshoring production, it won't be long before the country eventually plows through its savings.

So $32 billion is just the beginning...

In fact, we are more likely to see Godzilla walk out of Tokyo Bay than we are to witness a return to Japan's halcyon days.

Worse, I believe that within the next five years, Japan will long for the good old days when the trade deficit was merely $32 billion, instead of $100 billion, $200 billion or worse.

Not one of the things I've just mentioned - that the critics cite as short-term influences - are anything but continuations of much longer-term trends. Nearly all of them are being driven by Japan's declining population.

You may not know this, but Japan's population is projected to shrink by 30% by 2060. That means the total population will go from 128 million people today to only 87 million people in less than 50 years.

That's hard to imagine since Japan is one of the most densely populated countries on the planet. But the effects are already visible.

In my neighborhood in Kyoto, for example, we see abandoned houses that fall in on themselves after people die and there are no longer any other family members to live there. We see schools that are shut down in the region because there are no kids to attend them.

We're also seeing companies shuttered because there are no markets for their products, including my wife's family kimono business, which closed after 300 years in existence.

Simply put, you just can't grow a population or its stock markets without people.

Japan also has no immigration policy to speak of, so there is no means of replacing the "silvers," or senior workers, who are leaving their productive years behind them.

By 2060 the number of people who are 65 or older is going to double. At the same time, the number of people in the workforce between 15 and 65 is going to shrink to less than 50% of the total population.

By 2050, there will be 75 retirees for every 100 workers. By comparison, in the United States in 2050 there will be about 32 retirees per 100 workers.

You'd think Japan could get "busy" and produce more children but even that's problematic. The country has one of the lowest birthrates on the planet. Many young Japanese simply don't want romance -- let alone children.

In fact, many Japanese don't even want sex.

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Ignore the "Experts": 7 Reasons Not to Invest in Japan

Now that Japan's Nikkei 225 is half the relative price of the S&P 500 - and the cheapest it's been in three decades, investors are flocking to invest in Japan. But, Money Morning Contributing Editor Keith Fitz-Gerald isn't "buying" it. Find out why the "experts" are wrong in this free report...

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"Experts" Grow Bullish on Japan ...But We See Reasons For Caution

KYOTO, Japan - Japan's Nikkei 225 is half the relative price of the U.S. Standard & Poor's 500 and is the cheapest that it's been in nearly three decades. This has led many Western analysts to conclude once again that it's "time to invest" in Japan.

I don't "buy" it - and you shouldn't, either.



To understand the obstacles Japan still faces - as well as better profit plays to make - read on...

Investment News Briefs

With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. Nikkei Hits Three-Month High; Obama to Small Banks: Step Up the Lending; Tax Credit Fuels 7.4% Gain in November Home Sales; OPEC Leaves Oil Output Unchanged; WSJ: Apple Approaches CBS, Disney About Internet Television Service; Report: Computer Hackers Stole Millions of Dollars from Citi; Federal Court Upholds Ruling on Patent Infringement by Microsoft; Buffett Adds Comcast COO to Berkshire Board A weaker yen and strong technology stocks helped Japan's Nikkei 225 finish 1.9% higher at 10,378.03 yesterday (Tuesday), the highest level in three months. Most shares of tech companies gained after Barclays Capital (NYSE ADR: BCS) upgraded its rating on Intel Corp. (Nasdaq: INTC) from overweight to market weight on Monday. "The U.S. dollar strength is undoubtedly helping out the Nikkei," Cameron Peacock, an analyst at IG Markets told MarketWatch.com. "With Japan being such an export-focused economy, the weaker yen is a real positive for Japanese companies' earnings." The White House will seek to remove bureaucratic barriers that prevent community banks from lending so they can help businesses seize "enormous opportunities" for growth, U.S. President Barack Obama told the heads of a dozen small lenders yesterday (Tuesday). The president encouraged the bankers to keep the nascent recovery of the U.S. economy going by increasing their lending to small businesses and supporting the financial reform measures being proposed on Capitol Hill.

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