Ben Baden
The Japanese economy is expected to rebound sharply in the second half of 2011 and 2012
Earlier this year images from the devastating earthquake and tsunami in Japan captured the world's attention. The destruction caused by the tsunami badly damaged a nuclear power plant, and parts of Japan have been suffering from intermittent blackouts ever since. That damage also took its toll on economic growth. In the first quarter of 2011, the Japanese economy shrunk by 3.5 percent. Projections for the second quarter also call for further contraction, but experts are expecting a sharp pickup in growth in the second half of the year and in 2012 as the country rebuilds.
"We're forecasting a very V-shaped recovery in Japan," says Paul Sheard, global chief economist and head of economic research at Nomura Securities in New York. "It's pretty much a done deal that Japan is going to have a short to medium term strong bounce in growth. ... The longer term question is, 'Will this bounce in Japan prove to be the catalyst to put the Japanese economy on a much better growth path?'"
The disaster triggered an immediate selloff in Japanese stock markets. The Tokyo Stock Price Index (TOPIX) fell almost 20 percent in the days following the tsunami. During periods of extreme uncertainty, investors generally overreact and sell -- and this time was no different. "In the panic after the earthquake and the tsunami, it wasn't clear exactly who was most impacted, so investors just headed for the hills and sold pretty indiscriminately," says Martin Jansen, head of international equities at ING Investment Management in New York. "They basically dumped everything and ran for the hills."
Year-to-date, the TOPIX is still in the red, but after the initial selloff, it has actually outperformed the broader indexes in the United States and Europe. Since March 18 -- exactly a week after the devastating tsunami -- the TOPIX is up about 1 percent. Meanwhile, the Bloomberg European 500 Index (a broad measure of European stocks) is down almost 5 percent, and the S&P 500 Index has also lost about 1 percent. That's in part due to the strength of the yen this year. It has gained 5 percent against the dollar and about 7 percent against the struggling euro in the past month as European nations remain mired in a sovereign debt crisis.
The appreciation of the yen has caught the attention of Japanese leaders. On Thursday and Friday, the Bank of Japan meets, and Sheard says he expects the central bank to pursue more monetary easing, similar to what the Federal Reserve has done in the United States through its two quantitative easing programs, in which it would buy up securities to help push the yen lower. "What Japan really needs is a weaker yen, not a stronger yen," Sheard says. Many of Japan's largest and most successful companies depend on exports (think Honda and Toyota), and a stronger currency makes their goods more expensive abroad, which cuts into the companies' profits.
So what's an investor to make of all this?
Japanese stocks remain cheap, says Audrey Kaplan, comanager of the Federated InterContinental Fund (symbol RIMAX). Currently, Kaplan has about 15 percent of the fund's overall portfolio invested in Japanese stocks. "We went to that 15 percent weight [in Japan] right after the earthquake," Kaplan says. "Obviously it was a catastrophe, but in terms of stock markets those are usually very good buying opportunities for long-term investors. In our portfolios, we're thinking a minimum of three to five years forward, and that was a good opportunity to add weight to an attractive part of the world."
Kaplan believes Japanese stocks are attractive compared to other parts of the world. For instance, one valuation metric she uses is the price-to-cash-flow ratio. Stocks in Japan are trading about 6 times their cash flow, and in the U.S. it's closer to 9 times. Using that measure, Japanese stocks are trading at a discount of 30 percent versus U.S. ones. One stock in particular that Kaplan likes is global auto-parts supplier Sumitomo Electric Industries. "We're particularly looking for Japanese stocks that are positioned for growth throughout the rest of Asia," she says.
Twitter: @ihavenet
- Global Economic Downturn: A Crisis of Political Economy
- Crisis of Confidence: Debt Debate Erodes US Global Standing
- United States Debt Downgrade Won't Have Much Short-Term Effect on Foreign Policy
- The Empathy Deficit
- Stiglitz Upbeat About China and Latin America
- China Trade Surplus Rises
- China Sees Inflation Rate Hit 6.5%
- Latin America Not Immune to U.S. Debt Deal
- Is Japan Now a Good Bet?
- Is Germany the New Safe Haven?
- Islam and Arab Political Change
- Iran Reshaping Persian Gulf Politics
- Diplomatic Pressure on Al-Assad Gaining Momentum
- Arab Nations Join Call For Al-Assad To Stop Civilian Attacks
- Bahrain and Kuwait recall Syria envoys
- Clinton Says Syrian Government has Lost Legitimacy
- September Looms Large in Israeli-Palestinian Conflict
- Israel's Growing Wealth Gap Fuels Economic Anger
- Israel and Cyprus Forging Ahead on Gas Bonanza
- Major Israeli Defense Merger Dropped
- Israel Approves 1,600 Settler Homes in East Jerusalem
- Mini UAV Chopper For Urban Warfare Revealed
- Roman-era Sword Uncovered in Ancient Ditch in Jerusalem
- Hamas: Palestinian Authority is Clamping Down On Our Preachers
- Warnings of 'Somalization' And All Out Civil War in Yemen
- Missing Out on Vital Medicines Because of Economic Crisis
- Jordanians Lash Out Against Planned Nuclear Reactor
- Jordanian Mosque Named After Jesus
- Troop Withdrawal Rests on Decision From Iraq
- Somali Forces and African Union Peacekeepers Gradually Expand Control In Mogadishu
- Somali President: Combat Operations Against Al-Shabaab Will Continue
- Al-Shabab Pullout: The Beginning Of The End in Somalia?
- Africa: Tough Choices As Food Prices Continue To Rise
- Nigeria: Jail Threat for Polio Vaccination Refuseniks
- Congo: Implement Anti-Discrimination Law, Urge Indigenous Peoples
- Congo: High-Tech Measures To Curb Illegal Fishing In Congo
- Raw Sewage Kills in Madagascar
- Tanzania: Violence Against Children Rampant
- Maternal Deaths Quadruple In South Africa
- United States and Pakistan Navigate New Tensions in Fraught Relationship
- Pakistan's Forgotten 2005 Quake Victims Still Need Help
- China Announces Sea Trial Of Its First Aircraft Carrier
- Indonesia's Global Significance
- Seoul Blasts Pyongyang For Fabricating Shelling Incident
- North Korea Planned Assassination of South Korean Defense Minister
- Calls For End To Torture and Extrajudicial Killings By Bangladeshi Police
- Muslim Rebels Seek Substate In Philippines
- DOJ Places Former Philippine President On Immigration Watchlist
- Britain Sticks With Austerity Plan
- Cameron Announces Crackdown On Facemasks
- Norway: The Sky Is Weeping
- Norway Attacks a Tragic Result of Failed Immigration Policies
- Norway: Blaming the Muslims
- Norway: Breivik's Real Enemy: Himself
- Brazil Joins Race for Globalized Students
- OAS Is a Basket Case - but a Needed One
- African Horn Migrants Heading South 'Pushed Backwards'
- Drought and HIV: A Dangerous Combination
- Drought Has Kenyans Running on Empty
- Security Risks Overshadow Aid Delivery Efforts in Kenya
- Drought Exacerbates Conflict in Turkana
- Kenyan Farmers Reap Rewards of Switching to Maize
- Uganda War Crimes Trial May Affect LRA Defections
- Egypt Taking on the Hepatitis C Virus
- Egypt - You Tweet You Want a Revolution
- Cleric Signals Egyptian Fears About Iran
- No NATO Ceasefire in Libya Despite Ramadan
- Ship Sinks Off Southern Philippine Province - 178 Passengers Saved
- Over 600 War Children Still Missing
- Saudis Assume Role as Banker of Counter-Revolution
- Israel Orders Illegal Jewish Outpost to be Vacated
- Bedouin Face Opportunity Gulf in Negev
- Netanyahu May Be Reversing Economic Course
- Israel's Arabs Debate National Service
- Israel Readies for Rocket Barrage
- Arabs Take Credit for 'Israeli Spring'
- Port Crisis Brings Iraq - Kuwait Relations to New Low
- Over 130 Dead in Latest Syrian Protest Crackdown
- As Protests Grow, Syrian Regime Gets Religion
- Iraq Dusts Off F-16 Order
- Foreign Investors Flock to Iraq
- Arab Spring on Your Ramadan TV Screen
- Greece's 2nd bailout: Debt Restructuring with No Debt Reduction?
- Eurozone Crisis: Greek Tragedy
- Turkey Grows Nervous Over Economy
- Istanbul's Greek Schools Struggle Amid Funding Shortage
- Turkey: Military Resignation Strategy Misfires
- Brazil and IBSA: Blueprint for Future Cooperation?
- Afghanistan: Rethinking the Way Forward
- And, in the Background ... Our Numbers Still Grow
- War Fatigue and the Un-Critical Critics of War
- Obama's Expanded Militarism
- Obama's Bush-League World
- China Eclipsing United States in Global Reach
- Debt Fight Reinforces China's Negative Views of America
- Military-Industrial Journalism
- Slapstick and Denial Highlight News International's London Testimony
- Rupert Murdoch's Legacy -- Greater Press Controls
- Decline of the English Scandal
- Another Blow to Journalism's Image
- On Journalistic Credibility
- Is Italy on the Brink of Debacle?
- European Debt Crisis: Could Italy Be Next?
- Italy: Barbarians -- in Suits -- at the Gates
- Looking at Greece in the Argentinean Mirror
- The Rise of Turkey in the Balkans
- Bosnia and Herzegovina, Serbia, Croatia Agree to Help Each Other on Road to EU
- Turkey's Kurds Announce Plan For Democratic Autonomy
- A Cyprus Solution By The End of The Year?
- Some Albanians Consider Changing Nationality for Profit
- Democracy in Mexico: The Past, Present, and Future
- Making Room for Brazil's Growing Clout
- Brazil's Deforestation Quagmire
- Obama MIA in Latin America
- The Other South Asia
- The 2011 Mumbai Serial Blasts and India's 'Resilience'
- Japan's Decline as a Robotics Superpower
- Will Fukushima Survivors Be Doubly Victimized?
- Why Palestinians Have Been Sitting Out the Arab Spring
- Qadhafi's Days in Libya Are Numbered
- How to Secure Peace in South Sudan
- Handling Big Contradictions
- Tax Havens: Shady Deals
- Environment: Worlds of Water
- Environment: Rebuilding Sandcastles
- Economic Cost in Yemen
- Egypt and Palestine: Internecine Alliance
- In New Egypt Old Conspiracies Live On
- Show Stolen From Egyptian Superstar in Anti-Mubarak Drive
- Russia Has Syrian Blood on Its Hands
- Syrian Revolution Gets Islamic Seal of Approval
- Muslim Brotherhood Challenges Jordan's King
- A Dumb and Dumber War in Libya
- Libya and the Problem with The Hague
- Are Palestinians Getting Cold Feet on Independence?
- Tent Camp Rises in Tel Aviv To Protest Home Costs
- Open Air Market at Heart of Jerusalem's Downtown Revival
- Rwanda: A New Rwanda?
- Somalia's Pirates: Ransom Cash 'Easy Come Easy Go'
- Al-Shabaab Offer Somalis Kinder and Gentler Face
- Mogadishu Hospitals Running Out of Medicine
- Kenya Feels the Strain as Somali Refugee Numbers Soar
- Ethiopia: Floods Pose New Threat to Food Security
- Understanding Nigeria's Boko Haram Radicals
- Turkey: Constitutional Overhaul?
- European Action Service: Europe Eats Its Young
- Spain: Playing at Revolution
- Spain May Change Tone on Latin America
- Britain's Tabloid Scandal Sounds Familiar
- Britain's Metropolitan Police Commissioner Quits Over News Corp Phone Hacking Scandal
- News of the World Editor Brooks Arrested
- Headed to Europe This Summer? It's Going to Be a Riot
- Europe This Summer: Go, But Carefully
- South Korea's School Tablets -- a Test for All
- Bombs Before Bread in North Korea
- 'Unprecedented' Drug Trafficking Heightens Risk To Youth
- Never-Say-Die Attitude Propels Japan to Victory Over USA In Women's FIFA World Cup Finals
- Three Venezuelan Scenarios -- None of Them Good
- Mexican President Congratulates Troops for Huge Marijuana Discovery
- On Humanitarianism: Is Helping Others Charity or Duty or Both?
- Financial Rebalancing Act: Stop Worrying About Global Flow of Capital
- Globalization and Unemployment
- The Divided States of Europe
- The Secrets of Germany's Economic Success
- Russia's Evolving Leadership
- Does Obama Have a Grand Strategy?
- The Crisis in Clean Energy
- Why Middle East Studies Missed the Arab Spring
- Egypt's Military and Upcoming Elections
- Taliban Hotel Attack: Low Death Toll, High Psychological Value
- Bin Laden's Re-branding of al-Qaida
- Perfidious Pakistan
- Effects of the American Drone Program in Pakistan
- NATO After Libya: The Atlantic Alliance in Austere Times
- South Africa's Land Reform Crisis
- Defending Democracy in Cote d'Ivoire
Available at Amazon.com:
Aftermath: Following the Bloodshed of America's Wars in the Muslim World
Displacement and Dispossession in the Modern Middle East (The Contemporary Middle East)
The End of History and the Last Man
The Clash of Civilizations and the Remaking of World Order
The Tragedy of Great Power Politics
Copyright 2011, U.S. News & World Report