As the concrete and iron of Tokyo starts to melt into the summer haze it’s the bulls that are coming out of hibernation. They didn’t quite make spring, but we are starting to see some now. After six months of doomsday proclamations, the chief economists of some banks, and their brethren who watch from the relative safety of academia, are starting to hint that we may be able to see some improvement soon. The median average of a survey by Bloomberg of 10 economists indicated that the economy may grow at an annualized pace of 1.2 percent in the second quarter of this year. Also, Hosei University professor Takao Komine was quoted by Bloomberg as saying, “The worst is over… we’ll probably see the beginning of recovery at the end of this year.” This was all followed by improved sentiment from the country’s manufacturers as indicated on the Tankan Survey. It improved 7 points to minus 69.
Now, the opinion of Komine is not to be taken lightly—he’s one of the 11 economists responsible for marking the nation’s recession and recovery cycles— and the Tankan survey bodes well, even if many saw the improvement in sentiment coming. And I’m an optimist at heart. And yet, I can’t get overly excited. The first quarter of this year saw the biggest contraction of GDP since the government began compiling statistics in 1955. The economy shrank at an annualized pace of 15.2 percent or 4 percent in one quarter. This means that as of March, the economy was no bigger than it had been in 2003, in real terms. Unemployment was at 4.8 percent in April which, compared to the United States and Europe (8.9 percent), is relatively good. However, there were a lot of temporary workers fired and sometimes I tend to wonder about the real number of unemployed in Japan. But still, things are definitely better here than in a lot of places overseas.
So the bulls are coming out. GDP may start to pick up over the next six to 12 months but it will be a long time before consumers overseas start going out and buying cars again. And according to most commentators, unemployment will continue to rise long past the point when the economy starts to recover. But one thing is starting to become clear: this isn’t the Great Depression. Most media outlets would have liked it to have been, no doubt. I lost track of the number of “worst evers” and “record lows” I read. The panic that we have seen in the headlines has long gone past numbing, but now at least a lot of reporters are looking for a new story. And cautious optimism is warranted. Japanese stocks are low but the markets actually rallied after the GDP news and when measured on a price-to-book value basis, Japanese shares are among the world’s cheapest, meaning that there is a lot of potential to make money as things pick up. Japanese stocks may now be among some of the most attractive in the world at the moment—they are trading on a one year prospective price-earnings ratio of around 30. And for businesses as well as individual investors that remain in strong positions, there have been, and will continue to be, plenty of purchases to be made.
So will we see more bulls during the summer? If there are no more nasty surprises around the corner, I would say so. JI
Prepress by Sagawa Insatsu KK
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