New dawn for Japan's market
Economic outlook appears brighter than at any time since 1995
By Vikram Khanna
Excerpts:
So far this year, Tokyo has been far and away the best performing major
market in the world, with the Nikkei soaring 18.3 per cent, compared
with just under 8 per cent for the Dow and 7 per cent for the Paris
bourse -- the top gainer in Europe.
To be sure, there are a couple of wild cards still in
play. One relates to monetary policy. It is possible
that a sharp run-up in stocks will lead to a big sell-off in bonds. If
this happens and there is no offsetting increase in purchases by the
Japanese Ministry of Finance (via its special Trust Fund, which buys
bonds) or the Bank of Japan, bond yields could soar. This would mean
higher long-term interest rates, which in turn could end hopes of a
sustained stock rally or an economic recovery.
The second wild card is the value of the yen. Never before have the
forecasts of currency experts been so divergent, ranging from 105 to 170
against the US dollar on a 12-month view.
The weight of opinion is that a weaker yen would be more
recovery-friendly, but that any near-vertical movement -- especially a
strengthening -- would be bad news. So would a dramatic decline in the
Dow, which could herald a sharp slowdown in the US economy and hit
confidence everywhere.
But these contingencies aside, the outlook for Japan looks brighter than
at any time since 1995. Even just three months ago, any Japanese
official would have been laughed off the podium if he had suggested that
Japan will be out of recession by May. Well, on Friday, Japanese Finance
Minister Kiichi Miyazawa said just that.
Copyright Singapore Press Holdings Ltd, 1999. All rights reserved.
