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  • Merrill Lynch's Jesper Koll, "Japan is Back, For Real This Time" [View article]

    You're right, Koll is one among many economists and analysts (including myself) that recognize the current recovery in Japan; and this one being a sustainable one unlike previous false starts.

    The U.S. real estate market is potentially the bubble equivalent of the tech run-up in the 90's and disaster post-March '00. Anticipating the threat of a real estate crash the Fed has been warning of "frothy" markets but the consensus seems to be there will be a "soft-landing."

    That being said, in response to your question, I would say the impact on Japan of a U.S. economic slump will depend on the severity and timing of the slump. Japan is becoming less dependent on the U.S. but a high level of dependence still exists, and especially in areas such as autos.

    I personally don't foresee a national real estate crisis -- which is said to be the catalyst that will most adversely impact the U.S. economy -- rather there are certain over-valued pockets such as Miami, Portland, and San Diego that will ultimately experience price corrections.

    Therefore, I don't necessarily expect an imminent U.S. economic slump. Instead, I look at strong corporate earnings and solid Q3 economic performance in the wake of natural disasters. I think robust U.S. economic growth continues into '06 and possibly '07. After that, if the U.S. economy were to slow then we would have to evaluate how much Japan has recovered and its ability to grow against a weakening U.S. economy.
    Nov 2 10:48 AM | Likes Like |Link to Comment
  • After Tuesday Morning System Glitch, Tokyo Stock Exchange Finishes Afternoon Up Big (TDK, MTU, KUB, SNE, CAJ, NIPNY, DCM) [View article]
    See this link to a Yomiuri Shimbun article providing further coverage of the snafu yesterday morning on the Tokyo Stock Exchange that delayed the start of trading until the afternoon.
    Nov 1 08:09 PM | Likes Like |Link to Comment
  • Merrill Lynch's Jesper Koll, "Japan is Back, For Real This Time" [View article]

    I agree that those are two areas that should have been addressed more. See my reply directly above to comments by scott146. It's lengthy but definitely addresses your first factor.

    Neither Koll nor I really got into consumer spending but I think the stage is being set for increased spending going forward. I agree with you re. leisure expenditures will rise. At the same time as market sentiment improves and consumer confidence rises, the average consumer should begin spending more freely as the prolonged recession is officially pronounced over. Economic research and data show that over-saving and/or under-spending both have been found to be harmful to a national economy. In the U.S. it is dangerously under-saving and over-use of consumer debt financing that are problematic.
    Nov 1 09:34 AM | Likes Like |Link to Comment
  • Merrill Lynch's Jesper Koll, "Japan is Back, For Real This Time" [View article]

    I appreciate your comments. I do tend to be more optimistic than you. So here are some of my thoughts in reply. Similar to the U.S., healthcare is obviously a major issue in Japan and especially given its age demographics which resemble an inverted pyramid. I am not so sure spending in this area will spur economic growth because of the national health care system in place, hence government subsidies.

    I think one of the most important points mentioned in Koll's piece was how companies are seeking to lock in to record low debt funding now in order to make new investments such as in upgrading equipment and plants. This type of investment will certainly improve productivity. You are right in saying that companies won't have these low rates forever, but they will continue to have cheaper access to capital at least for the short-term.

    Your point on postal reform and expected cash outflows from JGBs into higher yielding assets is a concern and therefore, we have already witnessed a much more aggressive Bank of Japan marketing JGBs internationally so as to attract more foreign holders. Also, Japan Post is supposed to have begun offering mutual fund investments from October. Nomura will offer two funds, one a mixed or diversified fund consisting of multiple asset classes and the other a Nikkei 225 index fund. Goldman Sachs will offer an enhanced index fund. These fund offerings will fuel domestic investment in domestic securities, a serious stimulus. U.S. treasuries and corporate debt may have higher yields but an interesting fact in Japan is that there is healthy demand for high dividend yielding equity funds and Japanese corporations are aware of this and have responded so far. Dividend payouts are expected to further increase following strong earnings and will gradually close the gap between the payout ratios found in the U.S. and E.U.

    Overcapacity is a valid concern and one that's taken very seriously in Japan. Nonetheless, I see autos leading the way for Japan as its big-3 continue to gain market share abroad with increased profits. In consumer electronics I see new and sustainable growth coming from cutting edge technologies such as the new DVD formats, 3G mobile telephony, SLR technology in digital cameras, and alternative power systems such as fuel-cell powered laptops and cell phones. Japan is also the global leader in solar cell production, a high growth sector.

    On that note, and in closing remarks to your last point about where productivity will come from, I want to bring up the importance of Japan's ability to develop low-energy consuming products and its leadership in hybrid auto technology and solar cell technology. Despite Japan being completely dependent on oil imports, it holds advantages over competitors in energy saving technologies and processes. For human resources, an aging population will hurt Japan but I see it being largely offset by Japan's implementation of robotics (of which it has the largest capacity and is the largest producer of in the world) and hopefully in coming years its opening up to allowing more foreign workers in the country. Also, corporate restructuring and industry consolidation in addition to increased domestic and global competition will necessitate increased productivity if in fact Japan's economic recovery is for real this time. I believe it is. I look forward to any comments you have.
    Nov 1 09:13 AM | Likes Like |Link to Comment
  • Merrill Lynch's Jesper Koll, "Japan is Back, For Real This Time" [View article]

    Thank you for your comments. I understand that you remain skeptical and bearish but it's good to hear you recognize the significant fundamental changes. Koll is not the only long-time Japan analyst calling the current recovery a real one. Robert Alan Feldman of Morgan Stanley Japan has also been increasingly optimistic especially after Koizumi's (and the LDP's) decisive victory in September.

    The business culture has undergone profound changes with such legacies as lifetime employment and seniority giving way to merit-based compensation and a rise in the use of headhunters at the top and contracted employees in support positions (although full-time hires are said to be on the increase now). The more powerful and aggressive role of shareholders is also worth noting. Such things as the keiretsu and distribution system still need work but with cross-share holding fading and global competition forcing companies to reconsider their value chains, I believe the informal workings will have less of a restrictive impact on business operations than in the past.
    Oct 26 03:26 AM | Likes Like |Link to Comment
  • DVD Format Battle Development: Toshiba to License HD-DVD Technology to China (HPQ, MC, SNE, DELL, DIS, NWS, LGF, NIPNY, SANYY, MSFT, INTC) [View article]
    Update: Warner Bros. is the second major studio to announce its support of both next -generation DVD formats. It made the announcement yesterday following Paramount Pictures' decision earlier this month to release films in both HD-DVD and Blu-ray disc format. That means NBC Universal is the only studio that will release films solely on HD-DVD format. Warner Bros. is said to have made the decision to support both formats because it doesn't see an end to the format war. (Source: AP) * Warner Bros. is owned by Time Warner Inc. (ticker: TWX), Paramount Pictures is owned by Viacom (ticker: VIA-B), and NBC Universal is owned by GE (ticker: GE).
    Oct 21 12:55 PM | Likes Like |Link to Comment