Japan Stagnates in Stock Market Recovery Unlike Worldwide – Why?

Osaka – Sunday, November 7, 2010




Nikkei, Japanese leading newspaper specialized in business and economy reported on November 6 that 70% of the worldwide stock market/share price (14 among 20 major markets including the U.S.) has recovered to the level of the pre-worldwide economic crisis of 2008 driven by additional credit ease by FRB (Federal Reserve Bank), while that of Japan stagnates. The worldwide recovery attributes to investment money generated by the easy money flowing into the stock market. Average share price of Japan stock market is still minus 20% from the level of the pre-worldwide economic crisis and its slow recovery stands out.



1. Which countries have been recovering the most?



It is the emerging markets, whose growth expectation is high. As shown in the table below, no.1 is Argentina (+103% from the level before the worldwide economic crisis), which is followed by China (+50%) and India (49%). These countries are all in upward trend.



Worldwide Main Stock Index Compared to the Level of Pre-Worldwide Economic Crisis


(Source: Nikkei, translated by the author)

Country / Advance/Decline Ratio vs Pre-Worldwide Crisis (%)

Argentina / 102.7

China / 50.5

India / 49.2

Brazil / 39.3

Taiwan / 33.9

South Korea / 31.2

Hong Kong / 28.5

Singapore / 26.0

Russia / 19.4

South Africa / 16.4

The U.K. / 8.2

Germany / 8.0

Canada / 0.9

The U.S. / 0.1

Australia / -1.7

Spain / -7.1

Switzerland / -8.6

France / -9.6

Japan / -21.6

Italy / -24.3



Majority of developed countries also recovered with capital inflow into their stock market. Dow index has recovered to the level of pre-worldwide crisis on November 4. Recovery rate of the U.K. and Germany is especially large with +8%. The reason is said to be the fact that with easy interest rate of the U.S. and Japan, yield of government bonds went down and therefore comparatively the stocks of the developed countries became attractive to investors.



2. Which countries stagnate in recovery?



It is the countries with structural problems, such as Italy, Spain and Japan. The amount of government bond of such countries is large but high growth cannot be expected; therefore, only limited capital has been flowing into their stock market. Average share price of Japan is -21.2 from the pre-worldwide crisis level, which is above only Italy i.e. second from the bottom of the 20 countries.



3. Why Japan’s recovery stagnates?



It is because the revenue recovery of Japanese companies is much slower than their overseas counterparts, due to the following.



1) High yen that seems to continue



Yen has been hovering around 80 yen per USD, the same level as the previous high yen level of around 1995 when Japanese companies suffered so much from high yen. The high yen trend seems to continue for some time, and some experts say it could reach as high as 75 yen per USD.



This is the contrary of South Korea and German companies, whose recovery have been accelerated, leveraging their low their currency. Ratio of net profit for July-Sep of Posco (South Korea) has recovered to 86% of July-Sep of 2008 while that of Nippon Steel (Japan) is only 56%. Net profit of for July-Sep of Volkswagen (Germany) is almost twice of July-Sep of 2008, when that of Toyota (Japan) is only 70%.



2) Unclear policy of the government unable to support recovery of the companies



As experts point out, with politics in chaos, the government has not been able to support improvement of global competitiveness of Japanese companies. This is another obstacle for money inflow into the Japan stock market.



Bank of Japan has started to take comprehensive easing measures including purchasing of risk assets such as ETF (Exchange Trade Fund) but many experts view that such measures are behind those of FRB.





In the upcoming article, the author would like to focus on the effects on high yen on Japan.