The Nikkei 225 ended November as the world's best-performing major market index, sporting a 8 per cent gain in local-currency terms. Light at the end of the tunnel for ever-patient Nippon bulls? Not quite: it finished the month on a downer, knocked back below 10,000 by a combination of local and global economic data.
First there was news of (another) rise in unemployment in October, from 5 to 5.1 per cent, along with a 1.8 per cent decline in industrial production. Strong inflation numbers from China have sparked fears that attempts to curb price growth there would hit Japanese exporters, who have been among Japan’s stock market stars of late.
But even those who would point to yet another disappointment at the hands of the world's most consistently disappointing market, cannot deny that Japan is finally cheap. This was the central plank of the bullish argument we recently articulated (see ): trading in aggregate at about book value, Japanese stocks have completed a 20-year derating, yet remain closely linked to a global economic cycle now on the up.
And there are other reasons to warm up the sake: intervention in the currency markets to preserve competitiveness, a rare display of political backbone, and the possibility of more stimulus. Third-quarter GDP numbers were good and first-half corporate earnings (almost all Japanese companies have fiscal years to end-March) were strong.
