Международная студенческая научно-практическая конференция «Инновационное развитие государства: проблемы и перспективы глазам молодых ученых». Том 2

Pankov S.V., Mudrenko A.A., Turochkin R.О.

Oles Honchar Dnipropetrovsk National University, Ukraine


A note from the Himeji Fund in January summed up a new wave of positive thinking. "Industrial production is rising, corporate earnings are on a strong uptrend, and businesses are beginning to indulge in M&A and share buy-backs. This is indeed the right time in the cycle for Japan."

It went on to praise the "genuinely impressive" sales and profit numbers being churned out by Japan's firms – "no mean feat, given the strength of the yen." Add in a bit of inflation as a catalyst, said Himeji, and the market "could easily move 20-30% higher over the next 12 months."

When the data were collected pre-earthquake Japan was the world's second-most favored equity market after the US. Short-term equity judgments are hard to make with a smoking reactor in the background, so it might make sense for custodians of other people's money to take the "better safe than sorry" route. At the same time it makes sense forJapan's battered insurers to sell equities to cover their immediate claims.

According to Goldman Sachs, the damage comes to about $198bn. But it wasn’t total destruction of the economy. The worst earthquake in over 100 years could also offer some impetus to get the government debt side of things sorted out, by printing money to cover it if nothing else. The other big worry, next to ongoing power cuts, is the supply chain. Japanese factories were much underused before the crisis: manufacturing capacity utilization in January was 7.5% below the 1974-2007 average.

Construction activity has also been weak. It is far from ideal that companies and the government will now have to spend to replace destroyed wealth. However it is true that reconstruction spending, regardless of its cause, will boost demand and profits for many companies.

The aftermath of the disaster:

1) A budget deficit that is now 56% larger than revenues.

2) Total debt standing at a whopping 235% of GDP.

3) A recession shrinking Japan's economy at an annual rate of 2.3%.

4) The total shutdown of all 54 nuclear plants, leading to an energy insufficiency Japan's trade deficit in negative territory for the first time in decades, driven largely by energy imports.

5) A recession shrinking Japan's economy at an annual rate of 2.3%.

6) Renewed efforts underway to debase the yen.

Efforts to weaken the currency are unlikely to be successful because in particular the USA is pursuing the same strategy.

 Martenson (Vice President of Pfizer and forecaster in economic macro trending) supports the thesis: "Last spring the global flow of funds – the massive tide of liquidity sloshing back and forth – involved Japan to a large degree. Japan was the hub of a massive carry trade, was buying huge amounts of US Treasury and, in general, was a vast emitter of liquidity flows to the world. With its reconstruction costs and now with its trade deficit, Japan becomes a net consumer of funds.

If you were bullish on Japan before the disaster, this probably makes now, as Dumas puts it, "one of those classic opportunities" to buy. It is worth remembering John Templeton's words. "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Japan was beginning to knock around the skepticism stage in March 2011.

Top investment trust analyst Alan Brierley said: “I am already very invested in Japan, but those looking for new long-term exposure should consider either some of the currency-hedged or the very well-run”.

Many investors believe that investing in Japan's recovery is a sure shot to riches. That's not true today any more than it was true immediately after the disaster. Its population is literally dying off as the nation struggles to bear the burden of one of the world's oldest populations. The birth rate is 0%; there is no immigration policy to speak of. Debt is at 259% of GDP. And the economy is basically flat.

Despite optimistic thinking, Japan's economic machine is unlikely to ever regain the prominence nor the speed or momentum it enjoyed from 1945 to 1991. But certain Japanese-related investments and Japanese companies will prosper as a function of the role Japan plays in the world around it.

Here are three choices worth considering:

Currency. As riskier assets come into vogue, the yen will decline as traders shuffle their bets into other assets instead of parking their money in yen. At the same time, it's highly likely Japan will have to turn to external debt financing no later than 2015 as a means of compensating for an aging population and fewer workers to support the 90%+ of debt purchased by its own citizens.

Consider the ProShares UltraShort Yen. It's an inverse ETF designed to appreciate as the yen falls. It's already moved up 17.06% off its 52-week lows and could really be a great trade if you've got the perspective necessary to stick with it.

Machinery. Japan's machinery industry remains largely overlooked at this stage. Still, economists see an increase of about 2% this year, which is widely interpreted as a leading indicator for additional capital investment. The most recent data from Tokyo shows a 3.5% increase to 757.8 billion yen in January, the most recent month for which there is reporting. Electrical machinery makers are leading the charge with a 31.1% expansion. The carmakers everybody thinks are so crucial turned in only 12.4% growth.

A falling yen is going to drag on Japan's stock market and if you're buying the broader indices as opposed to specific stocks, you're going to get a lot of trash with the trinkets. It's better to concentrate on specific companies, especially if the broader markets are not likely to go along for the ride.


1. Fitz-Gerald K. Investing in Japan: Three Choices One Year after the Disaster / K. Fitz-Gerald // Money Morning. – 2012.

2. Webb M. S. Japan: classic investment opportunity or too dangerous to touch? / Webb M. S. // MoneyWeek. – 2011.

3. C. Martenson “Japan Is Now Another Spinning Plate in the Global Economy Circus” [Електронний ресурс]. – Режим доступу: http://www.chrismartenson.com