Japan’s 2019 could be better than it looks
14/12/2018 03:17
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Pete Sweeney
HONG KONG, Dec 14 (Reuters Breakingviews) - The outlook for
the Land of the Rising Sun may be brighter than it looks. An
ugly contraction in third-quarter growth, plus signs that
companies are slashing spending, raise doubts over Japan's
ability to weather a global correction. But this $5 trillion
economy has been underestimated before. If that’s the case
again, its stock market looks cheap.
Certainly, this week’s downward revision to economic growth
in the July to September period was grim – gross domestic
product shrank at an annualised rate of 2.5 percent, the worst
slide in four years, while capital expenditure fell by 2.8
percent. Worse, the central bank's "tankan" survey on Friday
showed businesses expect conditions to worsen in the next three
months.
For a country so dependent on global trade, it's
unsurprising that executives are worried about increasing
tensions. But there is a risk of overreaction. Blaming nature
might sound facile, but Japan has cause to complain. In
September, it was hit by the strongest typhoon in 25 years, and
a 6.7 magnitude earthquake rocked the northern island of
Hokkaido the same month. Over the summer it battled a record
heatwave, but anything short of catastrophe - namely U.S.
President Donald Trump applying 25 percent duties on Japanese
autos – should prove manageable. In which case, Bank of Japan
chief Haruhiko Kuroda could even allow interest rates to rise
into positive territory.
That would be great for suffering Japanese banks, and would
help the yen strengthen. Together with warmer economic data,
they might revive flows into Japan's battered equities. Topix
index constituents trade at an average of around 12 times
forward earnings - the lowest since Prime Minister Shinzo Abe
launched "Abenomics" in 2012 – compared to over 16 times for the
S&P 500.
There are other positive signs too. In 2017 Japanese
companies filed 200,370 overseas patents, second only to the
United States. And this year, it listed its first significant
new generation startup, flea market app Mercari 4385.T , which
raised $1.2 billion in June. Immigration reform is underway, and
that, plus automation, should finally start easing the burden of
an ageing population. While gloom over global storms remains,
Japan could yet prove more clement in 2019.
On Twitter https://twitter.com/petesweeneypro
CONTEXT NEWS
- Japanese business confidence and capital expenditure plans
held steady compared to three months ago, the Bank of Japan’s
closely watched “tankan” survey showed on Dec. 14. However,
firms expect conditions to worsen in the three months ahead.
- Japan's economy shrank at an annualized rate of 2.5
percent in the third quarter, the worst downturn since the
second quarter of 2014, according to revised data from the
Cabinet Office published on Dec. 10. Capital expenditure fell
2.8 percent in the same period, compared to a preliminary
reading of a 0.2 percent drop. It was the sharpest decrease
since the third quarter of 2009.
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Japan's business mood, capex steady but outlook sours - BOJ
tankan urn:newsml:reuters.com:*:nL3N1YI1SO
BREAKINGVIEWS-Japan Post tries overseas diversification at home
urn:newsml:reuters.com:*:nL1N1YI0YG
BREAKINGVIEWS-Japan bends without breaking on U.S. trade
urn:newsml:reuters.com:*:nL4N1WD0FS
BREAKINGVIEWS-Bank of Japan tries cheap way of imposing will
urn:newsml:reuters.com:*:nL4N1UR1I2
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(Editing by Clara Ferreira Marques and Sharon Lam)
((pete.sweeney@thomsonreuters.com; Reuters Messaging:
pete.sweeney.thomsonreuters.com@reuters.net))