Report from Japan

Henry C.K. Liu hliu at
Mon Mar 22 08:01:14 PST 1999

New dawn for Japan's market

Economic outlook appears brighter than at any time since 1995

By Vikram Khanna


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.

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