Is Japan's economy facing another ‘lost decade’ or is it ready to boom?
By Alan P. Weiss, CFP®, CPA
Published in the April 1, 2012 New Haven Register
For some time now, I have avoided the Japanese equity market. Like many, I have had concerns about a Yen that is too strong, a government that is too weak, demographics going off a cliff, a debt situation worse in some ways than America's, and a savings rate that is deeply ingrained in the psyche of Japan's people.
Major investment houses have many times – probably too many times –called for the start of a new bull market in equities. Instead, Japan's government bond market has gone nowhere but up in price, and equities are languishing after a 22- year bear market. The Japanese economy is not in good shape.
In its most recent report on gross national product (GNP), the Japanese government announced a nasty 2.3 percent annual rate of contraction in the fourth quarter of 2011. Nominal Gross Domestic Product growth was even weaker, contracting at a 3 percent annual rate.
However, according to a report by John Makin, chief economist for Caxton Associates, the Japanese economy may finally be set to boom or at least enter a period of sustained growth with a sharply rising stock market. Many will have their doubts, especially in view of the recent weak performance by the Japanese economy. With Japan’s economy entering what could be its third decade of weak or negative growth and falling prices, a decisive policy response is required.
But, for the first time in decades, the Bank of Japan is finally undertaking some innovative measures that may lead to real GDP growth in Japan. Based on those promising signs, the hope is that a surge in Japanese growth will provide a big boost to Japanese stocks and the global economy.
Considerable pressure from corporate leaders and government has finally caused the Bank of Japan to turn around. Japanese GDP deflator has been seen declining by more than 1 percent per year for more than a decade. The Bank of Japan has now committed to a 1 percent inflation target. It is joining the ranks of other major central banks in the game of global “reflation.”
Time will tell if Japan’s economy is ready to boom.
(Alan P. Weiss is the president of Regent Wealth Management Group in Woodbridge. He is also a CERTIFIED FINANCIAL PLANNER™ and a certified public accountant. Readers are reminded that certain investments and investment strategies may not be appropriate for them and that all investments involve risks and uncertainties. Consult an expert of your choosing if you have questions about investments. More information is available at www.regentwealth.com.)