Japan (And Its ETF): Continued Weakness

Japan has notched up five sequential quarters of decline. This is due to more than slipping demand from overseas. Orders from manufacturers, which tend to focus on exports, rose in May from the previous month. By contrast, orders from sectors such as construction and telecommunications which are a good proxy for domestic demand, fell 7 percent. This suggests continued significant excess capacity, the culprit of Japan’s economic dilemma. The world’s second-biggest economy has an output gap, on the government’s reckoning, in excess of 8 percent.

Light order books are a reflection of weak capital expenditure plans, as recently highlighted in Japan’s quarterly Tankan survey of business sentiment Government spending cannot fill the gap given Japan’s huge debt burden equal to 185% of GDP. Public sector orders dropped 11 percent month on month in May, although this followed a 22 percent increase in April.

Japanese equity markets and EWJ had fallen by midweek six consecutive days. Japanese loan growth is also decelerating, in part as companies and households grow more reluctant to borrow and spend. Corporate bankruptcies, meanwhile, continue to soar: more than 1,400 companies went bust last month, up 7 percent from a year ago.

Comments

[willydo:]

Carl,
Good information; thanks for telling it like it is. I can't count how many articles I've seen in the past 3 months saying how hot Japan is going to be. Based on what?? Every indicator is falling.

Just 'cause something is cheap doesn't mean it's ready for a rebound.
Thanks,
Willydo

Jul 11 04:36 PM