Japan's Deflationary Recovery Is In Jeopardy
Japan is an amazing country and Tokyo is one of if not the most amazing cities on earth. While I realize it may sound absolutely ridiculous, Japan's economic dominance in Asia will likely not be threatened any time soon. While economic development in China may or may not continue at a frenetic pace for decades to come, that does not necessarily translate into economic leadership. Overpopulation does not guarantee anything other than tremendous socio-economic challenges which have likely contributed to China's economic hibernation for centuries. I guess one could argue the massive corruption and stagnation caused by communism and before that the exploitation of colonial powers but that's best covered in a book by subject matter experts.
There are some troubling signs out of Japan. First off, the recovery from deflation has been highly suspect and too early to call yet we've heard many confidently make this statement. I guess if viewed in a vacuum, I'd be more confident. Monetary conditions are still very restrictive and I believe the BOJ made a big mistake raising rates. I'm sure there was some international pressure on that move. If you follow the GICS indices, you would see that Japan's economic recovery is tracking quite similarly to the US. Base materials, energy and construction oriented export engines of growth have fueled the Nikkei. Domestic and consumer centric indices have suffered. The prediction is that the consumer centric economy will pick up the pace. That assumption is predicated on the higher order capital goods experiencing a slow down or recession and/or significant wage growth and is steeped in theory yet to translate into quantifiable data.
Bloomberg reports tonight that the Japanese service sector unexpectedly contracted by a significant 0.6%. This is just one of a handful of poor economic releases recently. While Japan is far and away the most stable major economy in Asia, I believe the global dynamics are going to present a serious challenge to Japan's economy going forward. That said, if I were to invest anywhere in Asia, it would be Japanese high yielding stocks. Investing in Japan would also provide a mild currency hedge should the politicos in Washington find it convenient to devalue the dollar against Asian currencies as they did under Reagan. Wisdomtree has a few such funds which appear mildly interesting.
There are some troubling signs out of Japan. First off, the recovery from deflation has been highly suspect and too early to call yet we've heard many confidently make this statement. I guess if viewed in a vacuum, I'd be more confident. Monetary conditions are still very restrictive and I believe the BOJ made a big mistake raising rates. I'm sure there was some international pressure on that move. If you follow the GICS indices, you would see that Japan's economic recovery is tracking quite similarly to the US. Base materials, energy and construction oriented export engines of growth have fueled the Nikkei. Domestic and consumer centric indices have suffered. The prediction is that the consumer centric economy will pick up the pace. That assumption is predicated on the higher order capital goods experiencing a slow down or recession and/or significant wage growth and is steeped in theory yet to translate into quantifiable data.
Bloomberg reports tonight that the Japanese service sector unexpectedly contracted by a significant 0.6%. This is just one of a handful of poor economic releases recently. While Japan is far and away the most stable major economy in Asia, I believe the global dynamics are going to present a serious challenge to Japan's economy going forward. That said, if I were to invest anywhere in Asia, it would be Japanese high yielding stocks. Investing in Japan would also provide a mild currency hedge should the politicos in Washington find it convenient to devalue the dollar against Asian currencies as they did under Reagan. Wisdomtree has a few such funds which appear mildly interesting.
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