Negative news continues to pour out of Japan. A report compiled by the OECD forecast growth of -0.75...
Negative news continues to pour out of Japan. A report compiled by the OECD forecast growth of -0.75% in 2001 and -1% in 2002, with modest positive growth only returning in 2003.
Companies also continue to go bankrupt, with the demise of Aoki bringing the total number of bankruptcies of listed companies to 13. High unemployment (5.6%) and the prospect of more bankruptcies to come add to the gloom, according to Steve Adams, investment manager at Clerical Medical.
While inventories have already been affected by the slowdown in international and domestic demand, Tetsufumi Yamakawa, chief economist at Goldman Sachs argues that further deflation and deceleration in economic activity cannot be avoided. He says the impact of structural reform measures is causing the tightening in the economy and argues that the government's focus is now on how to deal with deflationary pressure arising from this reform.
Nick Reid, senior fund manager at Gartmore, believes that the bad news is already built into the market. He says that, while the Topix index recently reached its lowest level for 17 years, even a spate of bankruptcies would not worry the market much as these have already been factored in.
Yamakawa says the position of the Japanese economy now differs from the situation in 1997-1998, where there was a financial crisis. He says inventories have already been run down so there is not the same need as there was then to cut production further.
Reid points out that sections of the market are well positioned and have been performing strongly. He says companies less reliant on the domestic economy have performed well, pointing to auto manufacturers as being particularly strong.
The Honda share price has been at an all- time high recently and Reid says Nissan is improving there while Toyota recorded record profits last year.
Reid adds that the US car market has been resilient and Japanese producers have been able to take advantage of it.
He says: 'The Japanese seem to have a better product and better marketing. They have not been offering the same interest free loans as their domestic rivals and they are maintaining market share. They have been getting around import restrictions by building plants in the States.'
He points out that the Nissan Altima won the US car of the year award last year, the first time a Japanese car has taken the title.
Reid is also positive on consumer electronics manufacturers again overseas demand for these products remains strong. He points to the Playstation 2 and the Vaio laptop PC from Sony as strong sellers, despite global market gloom.
These exports have benefited from a weak yen but Reid doubts whether it will fall much further as he thinks Japanese companies may start to sell some of their huge assets overseas, putting upward pressure on the currency and he points out that it had rallied last week.
Yamakawa also argues that the weakening of the yen could slow down and the position of equities could be strengthened if policy announcements related to fiscal easing are made.
Auto sector strong thanks to US demand.
Weak yen pushing up profit margins for exports.
Strong global sales benefiting electronics.
Unemployment high and rising.
Bankruptcies have damaged confidence.
Negative growth predicted for 2002.
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