Japan’s long-term malaise could finally be over

Everyone loved Japan in November. Towards the end of the month, the benchmark Nikkei index neared 15,000, a five-year high, as more signs emerged that the country is coming out of the end of its lost decade of deflation.

Everyone loved Japan in November. Towards the end of the month, the benchmark Nikkei index neared 15,000, a five-year high, as more signs emerged that the country is coming out of the end of its lost decade of deflation.

Property prices look like they are at least stabilising and consumer prices did not fall in October for the third month in a row. Other good news comes in the fact that Japanese firms are finally getting the hang of being nice to shareholders: the interim dividends of listed companies are expected to rise 28% this year.

This is the kind of news that foreign investors who have been burnt by so many false dawns in the Japanese market in the past really like to hear. Indeed, they are pouring in to the market, says David Turner in the FT. Overseas investors poured a net £46bn into the market in the year to November.

So is the bull market set to continue? Very probably, says Christopher Wood of CSLA in the Greed & Fear newsletter. The market is vulnerable to a sell off, but only for the same reason every other market in the world is; namely, concerns that the US consumer will cut back on spending and that global growth will be hit as a result.

But if this happens, says Wood, it will be time to buy. The Japanese recovery is not dependent on the behaviour of the Americans: trouble there may slow it down, but it cannot erase it. Why? Because Japan's long-term malaise has been driven by its own banking problems (the big banks have been carrying huge bad loans as a result of the collapse of the property market in the 1990s) and these problems are well on the way to being solved.

The drivers of the recent rally in Japanese equities have not been the exporters, but banks, property companies and real-estate investment trusts. This trend has nothing to do with what is happening in America, or, indeed, in China.

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