Contributors to Seeking Alpha such as Edward Hugh (Japan: Recession-Bound as Exports Slow?) and Claus Vistesan (How Much Longer Can Japan Fight Off Recession?), who are suggesting Japan could slip into recession, mirror the sentiments of Bank of Japan Board member Atsushi Mizuno who stated that Japan's economy could slip into a "light" recession at a July 24 news conference.
Japan's Financial Services Agency [FSA] is recently taking (with justification) quite a bit of heat for exacerbating Japan's economic woes with poorly timed stricter regulation. Tough bank examinations are forcing banks to tighten loan standards for real estate, stricter restrictions on consumer finance money lenders has all but killed the independents, new financial product and service regulations are blamed for a sharp drop-off in sales of investment trusts by banks, and stricter requirements for internal controls are adding costs and confusion about the agency's policies.
Technically, it’s still a bear market for stocks, and it doesn't look like Japan will get much help from the US stock market. The Nikkei 225’s failure to break up through its weekly (13-week and 26-week) moving averages is not a good sign. We are going to re-test support at 12,000. Japan’s JASDAQ has also collapsed below 6,000. As individual investors have all but abandoned Japan’s junior markets, there are serious structural issues that need to be addressed.
How much international stock markets react to the US market depends on the content of US rallies/sell-offs, i.e., which sectors are leading the trend. The correlation between EAFE (EFE), Japan and the Emerging Markets (EEM) with the S&P 500 financials sector SPDR (XLF) is actually quite diverse, at between 0.67 for the China ETF (FXI) to -0.14 for the Brazil ETF (EWZ). Not surprisingly, resource-heavy emerging markets like Brazil have the
