Japan: Buy - SAMPLE REPORT
Summary
The Economic Clock™ for Japan is still o k, but sector selection is getting sparse. So be alert when buying.
The Economic Time™
Monetary Economy:
Inflation stopped contracting last November. At 0.5%, food inflation is rising marginally "faster" than non-food inflation. Because of slow inflation, the Bank of Japan has allowed the monetary aggregates to keep expanding. Growth in reserve money is still increasing, albeit at 1%. Growth in M1 is the strongest of all the aggregates, while growth in M2 and in M3 is petering out. Lending is "racing along" at an annual 0.8%: banks are still nervous. Consumer lending is still contracting by over 30%, while housing credit is rising by around 6% and loans for equipment are growing by around 34% - all during Q405. Interest rates remain very low, although the yield curve is steepening because the long rates have nearly quadrupled since May 2003's 0.5%. The yen's exchange rate will hover around the current range. On a three month monetary policy view, tribal policy making will remain: the Bank of Japan may be worried about inflation, but the government is worried about growth and the Ministry of Finance is worried about servicing the public debt equating to 150% of GDP. So the tribe will keep rates low for a long time.
Real Economy:
Because growth keeps looking better, the policy mix is neutral. The Bank of Japan is maintaining its easy monetary policy, and huge public debts imply no impetus from fiscal policy. GDP keeps rising due to stronger private consumption (reflected in stronger retail sales), fixed capital formation and exports. Industrial production keeps rising, driven especially by the output of electrical machinery, non-ferrous metals, cars and general machinery. On a three month macro profits view, we remain optimists: stronger domestic demand and solid exports are reflected in a steeper yield curve. Besides, productivity has been rising since last July and wages are steady, so unit labour costs are waning.
Sectors
Strong Buy Sectors
Buy Sectors
- Pulp & Paper
- Pharmaceuticals
- Metal Products
- Communication
Strong Sell Sectors
- Wholesale Trade
- Transportation & Logistics
- Textiles, Clothing & Footwear
- Services
- Retail Trade
- Real Estate
- Precision Instruments
- Other Financing Business
- Oil & Coal Products
- Non-ferrous metals
- Machinery & Equipment
- Iron & Steel
- Insurance
- Glass & Ceramics
- Foods & Beverages
- Finance & Securities
- Energy
- Electrical Products & Computer
- Chemicals
- Banking
Sell Sectors
- Air Transportation
