Markets here will ignore them, but the results of yesterday’s upper house elections in Japan will be important not only for our second largest export market, but also for Australian exporters, if only they can focus on them.
The win could, hopefully, change Japan by allowing a significant boost to the government’s freedom to introduce the changes necessary to save the economy from being slowly strangled by deflation and low growth.
Some of the changes will be tough – a possible tax hike – but they will be necessary if the country t is avoid a slow death, strangled by deflation, rising debt and a dying population.
The results will allow the government to start bringing in policies to improve competition, free up imports and make other changes to help Japan break free of its deflationary rut and start growing the economy more strongly.
The Japanese stock market has banked many of those foreseen gains in a price surge from last November to May of this year, when share prices started falling.
The market fell on Friday after a lot of selling ahead of the election because of fears the Government will have the power to introduce a GST increase next year and make other changes to help repair the country’s fraying fiscal position.
Much of that selling would have been by nervous foreign hedge funds and speculators looking to take their profits ahead of the election.
The question is now will the market resume rising with more certainty back in Japanese politics (meaning less of a chance of a Prime Minister being ousted in the next three years), then this should improve Japan as an investment destination.
Nikkei YTD – More gains for Japanese shares after poll results?
But there have been changes; exports seem to be rising as a result of the cheaper yen, inflation is rising, retail sales seem to be growing, import costs are rising, business investment may have turned around, along with confidence and expectations of an improvement.
All this is good news for the economy and share prices.
So what happened to markets last week in the US and Europe should have little impact on Japan (and much of Asia) going forward.
Australian investors will not notice events in Japan very much, China is their major influence on our market and it will get another run this week with the early report on one of the two surveys of monthly activity in that country’s huge manufacturing sector.
That’s despite the sell-off late Friday in Tokyo ahead of yesterday’s election took everyone by surprise. The NIkkei fell 1.5% last Friday, but is still up 40% for the year so far.
And the yen has fallen 8% since April, when the Bank of Japan revealed its big spending plans, and the currency is down more than 20% since the LDP government and Prime Minister Abe came to power last November.
For the likes of BHP Billiton, Rio Tinto, farming groups and our service companies, it is good news because a faster growing, higher consuming Japan will want more of our exports. The fall in the Aussie dollar has helped make them more competitive.
The markets though will concentrate on what happened in New York on Saturday morning – a weak finish, a small gain for the week and yet our share price index futures contract was up 21 points.
Gold rose to just under $US1,300 an ounce ($US1,296 close in New York), oil jumped to more than $US108 a barrel in New York ($US108.47) and wiping out the ‘Brent premium’ for the first time in three year.
The Aussie dollar though ended at 91.72 USc, hardly booming and nowhere near the 93 USc it briefly flirted with on Thursday after Ben Bernanke’s soothing comments on the Fed’s quantitative easing program.
The chances remain that the currency will fall further rather then rebound towards parity with the greenback.
The Australian market ended with the ASX200 index down 21.3 points, or 0.4%, at 4,972.1. The All Ordinaries index was down 17.5 points, or 0.3%, at 4,959.4.
The market rose above 5,000 points in early trade, but selling from late morning as other markets in the region lost ground.
In New York, the Dow rose 0.5% last week, the S&P added 0.7% and the Nasdaq fell 0.3% as more and more weak results emerged from tech firms like Intel and Microsoft. Apple’s results Wednesday morning, our time, will test the US market’s fortitude. The S&P is up 18.6% for the year so far.
