Early in the Decade Still, Yet Japan's Growth Continues

For Daily Reckoning founder Bill Bonner, the new “Trade of the Decade” was clear. No asset had been more overbought than US Treasuries, nor any asset more oversold, unloved, and despised than the Japanese market. Looking at the complex markets from this basic perspective he recommended shorting Treasuries and going long Japan this new decade. Today, the long side of trade is showing some healthy momentum.

From The New York Times:

“The expansion from the previous quarter marked the economy’s fourth quarterly gain in a row; it expanded by 1 percent in the last three months of 2009. Economic recovery in Japan has been bolstered by a rebound in the nation’s mainstay exports of cars and electronics, which posted the fourth year-on-year rise in March. The rebound finally appears to be filtering through to domestic production and wages.

“The Greek debt crisis, which has roiled global markets and caused the yen to surge against the euro, has raised some concerns that Japanese exports might suffer. A strong yen hurts Japanese exporters because it makes their products more expensive overseas, and their foreign-currency earnings are worth less when converted into yen.

“Japan will “continue to experience an upward momentum for the time being,” Hirokata Kusaba, senior economist at the Mizuho Research Institute in Tokyo, said in a note Thursday after the economic growth figures were released.

“However, idled production facilities and still-sluggish employment meant that “should overseas demand run out of steam, we cannot necessarily be optimistic that private demand will support a self-sustaining recovery,” Mr. Kusaba said. The 1.2 percent quarterly growth rate in the January through March period translates into an annualized growth rate of 4.9 percent. The latest numbers exceeded an annualized 3.2 percent growth rate in the U.S.”

Japan’s benefitting, at least partly, from a return to more fiscal discipline. According to the article, its Prime Minister Yukio Hatoyama has a new strategy in mind to bring down its exorbitant gross public debt, which is already greater than twice its GDP.

If Japan manages to demonstrate fiscal responsibility in addition to its newly humming economy the improvements may continue. You can read more in the New York Times coverage of Japan’s recovery gaining strength.


Rocky Vega,
The Daily Reckoning