Is Japan Headed for a Recovery?

John de Boer (Research Associate, GLOCOM)

The press has been trying to come to grips with the state of the Japanese economy after stock prices rose 27 percent over the past three months and 6 percent since the beginning of July. It was the symbolic puncturing of the Nikkei's 10,000 yen mark that sparked notions of recovery in the media. Although, the market took a significant dip on 11 July (3.2 percent), an optimistic Bank of Japan Tankan survey measuring executive business sentiment and the six or so percent rise in machine purchases over the last quarter has promoted an understanding that Japan may have turned the corner and will continue on an upswing. This analysis comes despite statements made by Japanese officials, including Keizo Takenaka (Financial Services and Economic Minister), that the Japanese economy remains "flat" and that it is "not in a healthy condition" ("Japan: Takenaka Vows Action", AFP, 14 July).

Takenaka's sober assessment did not dim the bright forecasts portrayed in papers such as The Daily Express (Malaysia), which encouraged its readers to buy stocks in Japan. Quoting analysts this paper claimed that, "the time is ripe to buy Japanese shares because a strong rally that briefly pushed the Nikkei index above 10,000 points last week could be extended to the 12,000 points or higher this year" (14 July). On the same day The Scotsman (UK) featured an article entitled, "Economists bullish on prospects for 2003 GDP growth in Japan" and explicitly mentioned that the Japanese economy was on course to grow faster than the Eurozone in 2003.

The analysis brought forward by these two papers agreed with Barney Jopson of the Financial Times and Ken Belson writing for the International Herald Tribune. They argued that the upswing in Japanese stocks was largely the result of a global upturn, particularly that of the US economy, and foreign investors. The Daily Express, agreed, indicating that foreign investors have pumped $21.2 billion US into the Japanese stock market since April. According to the Financial Times, foreign investors are trying to "hedge their bets on world economic growth" (13 July).

The analyst featured in the New York Times had a much more upbeat interpretation. According to Stephen Mitchell, a Japanese equity specialist with J.P. Morgan Fleming Asset Management in London, the rise in stock prices reflected successful restructuring that has taken place in Japan. He indicated that many sectors had managed to "sort themselves out", further claiming both new and some of the old industries are doing well (Kenneth Gilpin, NYT, 12 July).

Leo Lewis of The Times (UK), mentioned a separate indicator: the Hanshin Tigers baseball team. Reminding his readers of the superstition that believes that the Japanese economy soars when the Tigers win the championship, Lewis reported on the hype in Japan after the Tigers took a 15 game league in the central division. Heizo Takenaka added impetus to this thesis when he said last week that the "Tiger's championship would change the economic landscape in Japan" (Lewis, 14 July).

While most market analysts and investors have not pinned their hopes on the Hanshin Tigers winning the championship, they have taken notice of recent bright spots in the Japanese economy and agree with Takenaka that, "better times lay ahead" (13 July). Nevertheless, the consensus is that much depends on overseas recovery and the health of the US economy is thought to be particularly important.