Absence of reform driving weakness

Japanese equity market weakness continues to be driven by the absence of meaningful structural reform to tackle bank's bad loans in the face of deflation, coupled with the poor demand-supply situation for Japanese equities. The underlying economy has held up surprisingly well over the past year, despite geopolitical risk and sub-par global growth. However, internal Japanese politics and the back-tracking on banking reform has damaged investor sentiment recently. The Japanese economy struggled in the face of a resurgent yen, relative to the US dollar, until the middle of 2002, despi...