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Sunday, Jan. 16, 2011

BIG IN JAPAN

Almost time for Japan to break out the bubbly for bubble 2.0


Remember the bubble? In case you don't, Shukan Gendai (Dec. 20) reminds us that the economic bubble of the late 1980s was an era of rocketing salaries, stock prices and property values, yet accompanied by little inflation. Wealth was seen everywhere. Catching a cab downtown at night required flashing a ¥10,000 bribe at the driver just to get him to stop.

Over 20 years later, the bubble era seems like a wonderful, distant dream. However, 2011 could well be different. According to the weekly, Japan is now on the verge of a new economic bubble for the 21st century.

Some of the major economic indicators already are showing strong promise as we begin the new year. As this story was going to print, the stock markets were climbing, the dollar strengthening, and the price of gold, a favorite asset in bad times, falling.

While the 1980s bubble was a homegrown development, bubble 2.0 is expected to be inflated by factors at home and abroad.

On the home front, more money will flow into the equity markets, nudging stock prices higher. That would be thanks in part to a likely 5 percent cut in the corporate tax rate, leaving Japanese companies with more money to invest, Nobuyuki Fujimoto, an executive at Traders Securities Co., Ltd., tells the magazine.

As for the overseas factors, the U.S. Federal Reserve has already been playing the central role. Through its quantitative easing, the Fed is flooding the world with dollars. All that money has to go somewhere, and one favorite spot is Japan, thanks to its relative stability.

"Since the Lehman Shock, a huge amount of quantitative easing has been under way in order to restore the U.S. economy. The global economy is in a state of 'excessive money.' That money has been circulating, including flowing into Japan," says an executive at a major brokerage that the magazine does not identify.

The inflows are already happening, with foreign investors reportedly returning to Japan in search of decent returns after a long absence.

"Data tells us that from November, overseas investors suddenly started buying Japanese stocks. The world is paying attention to Japan's stock markets," the brokerage executive says.

Fujimoto is optimistic that the trend will continue for a while. The Nikkei, which sank below the 9,000 mark in late 2010, "is expected to exceed 13,000 by June, and I think Japan's share prices are going to climb steadily," he says. "It's even possible it will rise to the 18,000 mark, which was last touched in June 2007."

Ryosuke Okazaki, a fund manager and author of books on investment, is more guarded in his optimism. However, he also sees a possible revival in Japan's property market, one of the original bubble's biggest victims.

"There's more interest in Japanese property now, due to the low interests rates here," he says in Diamond Zai (February), a magazine for individual investors.

Shukan Gendai isn't the only one dishing up rosy economic predictions. In the United States as well, some pundits are convinced that 2011 will be the year when the private sector starts to gain traction from all that stimulus spending by Washington.

Some of the indicators look robust right now, but will the trend be sustained?

Diamond Online isn't so sure. While noting the renewed sense of optimism over share prices in Japan, it warns that several short-term factors stand to spoil the party. These include weakened domestic demand, thanks to the imminent expiration of the government's "eco points" incentive program and a likely hike in the consumption tax.

And, of course, we can't ignore the long-term factors either — Japan's shrinking population along with that other effect of the Fed's massive quantitative easing: making the yen stronger against the dollar, thereby harming Japan's exports.

The magazine's sober assessment: "There are some long-term factors that make it difficult to foresee improvement at an early stage."

Shukan Economist (Jan. 11), usually a buttoned-down, rational publication, begins its issue by turning to the Chinese zodiac as a guide for how Tokyo stocks will perform this year.

Its article is titled, "A good omen for Japanese stock prices through the zodiac's leaping year of the rabbit." Astrology portends a profitable year ahead, the magazine says. This is the year of the rabbit, after all, and rabbits like to jump. The magazine figures stock prices will jump as well. A data chart purports to show a strong correlation between the animals of the year since 1949 and the historical performance of the Tokyo Stock Market.

Maybe it's too early to bring out the vintage champagne, gold-flake sake and other iconic treats of the late '80s. But after a couple of decades of economic stagnation, even modest signs of growth are worth getting excited about.



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