Japan. We've written on it a million times. We've stayed relentlessly bullish on it despite the opportunity cost and the loneliness of the position. We've put up with mockery and endless accusations of blind-spottery.
Why? Because the yen has been too strong and Japanese stocks too cheap for too long (they are "priced for technical insolvency", one analyst told the FT this week). And, being long term investors, we decided just to take a position and wait (it worked with gold after all). It hasn't gone that well.
US stock markets have doubled since their post-Lehman lows. But over the same period, Japan has seen a pretty extreme upturn in the yen and a total market gain of a mere 10% or so. MoneyWeek readers will have been protected to a degree by the rise in the currency value of their holdings (up 50% against the won and 30% against the dollar and the euro since 2007). But nonetheless, I dare say most of you wish you'd been holding almost anything but Japan since the financial crisis began.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Good news then that this might - just might - be the year it all works out. Investors have already embraced what the FT is calling the "Abe Trade" and the market is up by 20% or so since ex-premier Yoshihiko Noda called an election back in November.
The idea is that major money printing in Japan, prompted by a new inflation target or just by a general desire to be in the currency wars for real will push the yen down and the market up. Will it happen? It is already happening.
Japan's monetary base rose by 5% in November and nearly 12% in December, and by last week the yen had weakened against the dollar for eight consecutive weeks (that hasn't happened since 1989). New PM Shinzu Abe has made it absolutely clear that he intends to do all he can to weaken the yen to the extent that if the central bank doesn't go along with his (pretty feisty) plan for a 2% inflation target at its next policy meeting (20 January) he says he will consider revising the Bank of Japan Act.
He is also planning an emergency economic stimulus package (due to be approved tomorrow) that is to chuck something in the region of $230bn into the economy via various tax breaks and credits. Add it all up, says Halkin's Robert Brooke, and it all shows a "buzz to policy that has long been absent in Japan."
There is also a tempting theory doing the rounds that some of this is about geopolitics. With China appearing to get stronger and stronger, the Americans need Japan strong too, says Tokyo-based Ryoji Musha of Musha Research. That might mean there is no opposition from the US to a weak yen policy (Musha believes that Japan has been under heavy pressure from the US over the last 20 years or so to "stop the bottle" of its economy and keep the yen strong in order to protect US industry).
Either way, if the yen is allowed to keep weakening- or is strongly pushed to do so - this will be an event of "historic proportions" which "may well signify" the end of Japan's 22 year deflation. That would be nice (for investors if not Japanese pensioners).
You can read Bill Bonner's take on what's going on in Japan here.
-
Thousands of Neil Woodford investors sue Hargreaves LansdownMore than 5,000 people who invested in Woodford's collapsed equity income product are taking Hargreaves Lansdown to court
-
Is now a good time to invest in gold?In the current market conditions, is gold a good investment? We explore the reasons why now might be a good time to put some money into gold.
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
