Tokyo is this years winner among the major stock markets. Extremely negative sentiment at the beginning of year 2002 set the stage for a rebound. A financial collapse at the end of the fiscal year on March 31st was averted and the probability of needed reforms being realized by prime minister Koizumi appears to increase.
Investor sentiment
Many global asset allocators have upgraded their forecast for Japan during the last two month, maybe looking for an alternative when most other stock markets have turned back down toward their September lows. From a relative performance perspective, Tokyo also has been tempting for those who see US equities as overvalued.
But after 12 years of deterioration, the long term "Japanese miracle" story has few believers. Economic growth
was just over 1 per cent during the first quarter and company profits are forecasted to remain weak. Instead it is the political game, between Koizumi and the anti-reformers that dominate the leading LDP, that is the focus of investor anxiety.
Outlook
Even after this years impressive revival, MSCI Japan is still only up 18 per cent (in yen) from its 16-year low on February 6th, so optimists who believe in Koizumi expect much more. And with long-term sentiment still depressed, there is no doubt still much upside potential. But beware, the decade-old economic problems of Japan are yet to be solved.
