The country has been mired in not one but at least two "lost decades" since its own credit bubble collapsed in the late 1980s. Data out Friday are likely to show another drop in core consumer prices in August, according to J.P. Morgan, despite the Japanese central bank's longtime battle against deflation. And it doesn't help that Japan now has one of the lowest potential growth rates in the world, thanks to an aging and declining population.
On top of all this, Japan has one of the world's highest sovereign-debt loads, which might seem likely to send investors fleeing in today's environment. Instead, they are piling in. Flows into Japanese stock and bond funds, including exchange-traded funds, have totaled about $7.4 billion this year, up more than 25% from all of 2010 and a sea change from the outflows of the prior two years, according to EPFR Global.
Foreigners are now the largest owners of Japanese shares traded on the Tokyo Stock Exchange, notes brokerage firm Brockhouse Cooper. The yen, meanwhile, continues to climb despite the central bank's repeated efforts to push it lower; it is up more than 5% against the dollar year to date.
What gives? For one, Japan has become more attractive because the rest of the world has gotten less so. With the U.S., U.K. and Europe all easing or likely to ease monetary policy, the yen by comparison looks more stable. Moreover, Japan also seems to be nearing the end of its private-sector deleveraging process, while these other regions are closer to the start of theirs. That, plus a posttsunami rebound in economic activity, helps explain why Morgan Stanley's Stephen Roach has gone so far as calling Japan "Asia's sleeping giant."
Investors shouldn't be complacent, however. A recent drop in exports, which account for more than 15% of Japan's gross domestic product, could deepen amid slowing global growth. To lower its sovereign-debt burden, Japan ultimately needs to expand, inflate or devalue. Yet all three are proving elusive.
The nation still is in a tough spot. That investors nonetheless see it as one of the safest places to invest right now speaks volumes about prospects everywhere else.
The country has been mired in not one but at least two "lost decades" since its own credit bubble collapsed in the late 1980s. Data out Friday are likely to show another drop in core consumer prices in August, according to J.P. Morgan, despite the Japanese central bank's longtime battle against deflation. And it doesn't help that Japan now has one of the lowest potential growth rates in the world, thanks to an aging and declining population.
ReplyDeleteOn top of all this, Japan has one of the world's highest sovereign-debt loads, which might seem likely to send investors fleeing in today's environment. Instead, they are piling in. Flows into Japanese stock and bond funds, including exchange-traded funds, have totaled about $7.4 billion this year, up more than 25% from all of 2010 and a sea change from the outflows of the prior two years, according to EPFR Global.
Foreigners are now the largest owners of Japanese shares traded on the Tokyo Stock Exchange, notes brokerage firm Brockhouse Cooper. The yen, meanwhile, continues to climb despite the central bank's repeated efforts to push it lower; it is up more than 5% against the dollar year to date.
What gives? For one, Japan has become more attractive because the rest of the world has gotten less so. With the U.S., U.K. and Europe all easing or likely to ease monetary policy, the yen by comparison looks more stable. Moreover, Japan also seems to be nearing the end of its private-sector deleveraging process, while these other regions are closer to the start of theirs. That, plus a posttsunami rebound in economic activity, helps explain why Morgan Stanley's Stephen Roach has gone so far as calling Japan "Asia's sleeping giant."
Investors shouldn't be complacent, however. A recent drop in exports, which account for more than 15% of Japan's gross domestic product, could deepen amid slowing global growth. To lower its sovereign-debt burden, Japan ultimately needs to expand, inflate or devalue. Yet all three are proving elusive.
The nation still is in a tough spot. That investors nonetheless see it as one of the safest places to invest right now speaks volumes about prospects everywhere else.