Despite good results, Japan is still struggling
GIVEN that the country has been languishing for much of the past 15 years, it came as something of a surprise to hear that Japan’s economy grew by a healthy 1.2 per cent in the third quarter of 2009, as exports and business investment rebounded.
The stronger-than-expected data cheered the country’s Nikkei index, which rose 0.2 per cent following the GDP data release. The index has shed 1.7 per cent since the end of June on investor fears about the prospects for the world’s second largest economy, especially in light of the growing likelihood of renewed deflation and a spike in Japanese government bond yields.
But analysts were firmly sceptical about the Japanese growth data, pointing to one-off effects from the fiscal stimulus package. Lombard Street Research’s Michael Taylor reckons that some of the resilience in consumer spending over the last two quarters has in effect been “stolen” from future quarters as fiscal incentives have encouraged consumers to bring forward spending on some durables.
SHARP FALL
He adds: “This points to a potentially sharp fall back in consumption as the effect of these measures fades. Hence the economy will remain heavily dependent on exports for growth; exports that are likely to falter as the global recovery flattens, leaving Japan struggling to reach even its modest potential growth rate next year.”
This will make life difficult for Japanese exporters such as Sony and Mitsubishi, which have already had to contend with a strong yen. This should continue to weigh on the Japanese benchmark index over the coming months and contracts for difference (CFDs) traders may want to take advantage of this.
Most providers will offer CFDs on individual Japanese stocks at competitive prices – IG Markets, for example, offers a margin of between 10 and 25 per cent on individual Japanese companies.
But trading individual stocks has the downside of exposing you to firm-specific risks as well as a less liquid market. Given the time difference, investors might be better off to trade the broader benchmark, which is less risky but which nonetheless sees plenty of sharp daily moves.