J@pan Inc Magazine Presents:
M O N E Y W A T C H
Weekly Financial Commentary from Tokyo
Issue No. 88
Tuesday, August 10, 2004
@@ VIEWPOINT: The Bull Backs Off
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@@ VIEWPOINT: The Bull Backs Off
Last week, on the back of some pretty disappointing economic numbers,
we were forced to admit that it was no longer reasonable to maintain
our unabashedly bullish view on the Japanese economy. That said, from
the very beginning we said there would be many twists and turns in
the road. So as we head towards the O-bon holidays, amid the various
firework displays before factories close for the week, I thought it
would be appropriate to have a look at the bigger picture.
Japan has enjoyed a two-year expansion, one that has not involved
pork barrel spending and has generally been driven by Japan's
competitive export-oriented sectors. These sectors have been driven
by demand from China and the rest of Asia as Japan provides the high
value-added components that are required for the assembly work
in the lower-cost Asian countries.
During that period the export sector has provided sufficient time for
the banks to take some serious steps toward resolving their
outstanding problems. The current fracas over UFJ is proof positive
that we have entered a new phase for the larger Japanese banks;
I think the regional ones still have a bit more struggling to
With the upturn in the export sector and restructuring working
through the economy, employment started to rise.
A number of these jobs have been of a "lower quality" (i.e.,
they tended to be part-time or fixed-contract, reducing benefits
to the employee.) This is part of the adjustment that must work
through the system.
The same adjustment that happened in the UK in the 80s and is
currently happening in Germany and France needs to happen here.
In many cases, these new jobs have tended to be more productive.
And in general, the jobs market has been loosening up and the
burden on employers has eased, creating a more flexible
The third leg of this hypothesis is that the increased activity
from the corporate sector and the increase in employment would
filter through into corporate and consumer spending -- the latter
spending being the more important of the two, as it is the basis
of the whole domestic economy.
Evidently this hypothesis faced a number of challenges over the last
week. It started with last week's statistics on unemployment (up 380,
000) and consumer spending (down 3.5 percent). These figures should
have been stronger if our hypothesis were holding up. But the real
nail in the coffin was the wage data, which showed a continual
decline. As the week moved on, strengths in the US economy
became more questionable, with rises in oil prices topped off
by very disappointing US jobs figures on Friday.
So what are we to do now? These numbers bring into question our
bullish view, but still do not confirm that we are heading into
a bearish phase -- although we could be in for a lull in growth as
more structural changes affect the system.
I propose a good holiday, a few weeks of not thinking, and
returning in September to see the lay of the land. After our holiday
next week, we will be looking at taxes -- and seeing what effect
Japanese politics could have on the developments in the last quarter
-- John Charles-Decourcy
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Written by John Charles-Decourcy (firstname.lastname@example.org)
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