The resignation of Prime Minister Fukuda on 1 September after only a year in office attracted little...
The resignation of Prime Minister Fukuda on 1 September after only a year in office attracted little attention outside of Japan.
His decision to quit was surprising because not only did he reshuffle his cabinet a month before, but he had also announced a Yen11.7trn ($105bn) economic stimulus package.
The stimulus package is designed to kick-start the economy, which contracted in the second quarter, although the measures may not take effect for some time and are far less aggressive than actions in the US and elsewhere.
Real GDP declined 2.4% quarter-on-quarter, after strong growth of 3.2% quarter-on-quarter in the first quarter. Furthermore, the Ministry of Finance's Q2 corporate survey showed a large contraction in total capital expenditure, which declined 6.5% over a year ago. Corporate sales and profits also declined, although both declines were smaller than in the first quarter. In addition, the consumer sentiment survey fell to 31.4 in July - in 2007 it averaged 44.7.
It is not all bad news, however, and recent economic data has been relatively firm. Consumer spending held up well in July, with an improvement in the Cabinet Office's real private consumption index; there was also a solid increase in exports in July, and oil prices have fallen significantly from their peak in early July. While this is good news, future export performance is dependent on continued demand from emerging markets, particularly China, and the lagging effects of high oil prices and other commodities will take a while to dissipate, limiting near-term benefits to household real incomes.
Many investors remain wary of the Japanese stockmarket, which enjoyed its last sustained rally in 2005. And last year Japanese stocks fell more than other markets with the onset of the credit crunch, despite their negligible exposure to US sub-prime losses. However, the Japanese Topix index has outperformed other major stockmarkets in the first half of this year.
Japanese companies have lots of capital, and are using their enviable cash levels to acquire foreign companies and gain a foothold in new markets - for example, Toshiba's purchase of Westinghouse, Nippon Sheet Glass's acquisition of Pilkington (Europe), and Daiichi Sankyo's purchase of Ranbaxy (emerging markets generic drugs manufacturer). In all of these cases, Japanese companies have acquired well-established foreign companies with a strong brand at attractive valuations.
Japanese banks also have much healthier balance sheets than their US and European counterparts and only had a fraction of the exposure to sub-prime debt. They have also seen growth in their overseas lending, not just to the US and Europe but to Asia as well. For example, India's Tata part-financed its purchase of Jaguar and Land Rover via a Japanese syndicated loan. Japanese valuations are also at historically cheap levels, which compare favourably with their regional peers.
- Japan is experiencing political upheaval;
- Recent economic data in Japan has been relatively firm;
- Japanese companies are cash-rich and are benefiting from acquisitions.
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