The weak yen helps the Asian portfolio plus the Jyske Invest Japanese Equity mutual fund has performed very well.
The message I’ll send to my regular readers tomorrow outlines how Japan became the second largest economy in the world. In the 1980s Japanese real estate prices soared and banks made loans against these new higher real estate values.
When the Bank of Japan raised interest rates in 1989 disaster occurred. The Japanese market collapsed and led to a serious recession that lasted for a decade and a half.
Now the Japanese market is awake again.
I personally invested in the Jyske Invest Japanese equity fund in late August 2005 when a unit was worth 7,888 JPY. Now just a little over four months later the unit price is already 10,068, an increase of 27%.
The Tokyo market’s recent strength reflects investor optimism about growing Japanese corporate earnings, not only for the next fiscal year starting in April 2006, but also for the following year.
These expectations are prompting more expectations and this upwards drift is likely to stay solid for the time being because there are no factors to dash these hopes.
This has led Japanese fund managers to raise the weighting of equities in their global portfolios to the highest level in seven months in December, going overweight in domestic shares, a Reuters poll showed.
Falling oil prices also reduced perceived risks in the Japanese equities market.
Japan ‘s recovery has been led by domestic demand and an increase of local and foreign investors. This trend is also likely to grow for some time because Japan ’s Nikkei average shot up 40 percent in 2005 compared to the U.S. Standard and Poor’s 500 Index, which rose about 4 percent.
Yet there are plenty of reasons why we should not be surprised if the yen remains weak against the US dollar.
On the strength side, Japan has a current account surplus that is a very high, 3.3% of GDP compared to the US deficit at 6.5% of GDP.
Stock market moves in 2005 also favored Japan over the US . Japan ’s main index was up 25.5% versus a 5.1% rise in the S&P and 4% NASDAQ growth.
There are plenty of downwards pressures on the yen though.
First Japan along with all of Asia wants a strong dollar. They want their products to remain cheap in America . Thus we can expect intervention from time to time by these governments to keep the dollar strong.
Second the US budget deficit, as bad as it is at 3.7% of GDP, is much better than Japan ’s horrible –6.5% of GDP.
Third, Japan ’s government deficit is government debt is terrible at a whopping 144% of GDP, double that of the US !
In addition, Japan ‘s unemployment 4.6% is about the same as in the US (4.9%).
A weak yen is good for the Asian MultiCurrency portfolio. The best profits will be made if the Japanese stock market rises and the yen falls versus the US dollar, assuming other Asian currencies maintain their dollar parity or rise against the greenback.
You can learn more about the yen and Japanese market from Thomas Fischer at Jyske bank. His address is FISCHER@jyskebank.dk