Active Investing in Japan

What to watch: Monday, 3/31: February Industrial Production; Tuesday, 4/1: Tankan (watch capex spending outlook and yen/dollar predictions — the FY07 second-half ¥/$ prediction for the December survey was 113.79 compared to 114.23-33 in the Sept. and Mar. surveys and a most recent quote of about ¥99). continue reading…

Aside from comparatively low valuations (pe, pbr, etc) and high yields, two other positives supporting Japanese stocks at current levels are share buybacks and retiring of treasury stock. By way of an article published by the Nikkei on Sunday, the WSJ reports Tokyo-listed companies are expected to have canceled more than 1.11 billion shares worth sum ¥2.5 trillion ($25B), up 30% from the prior peak in fiscal 2006. Make no mistake, the timing couldn’t be better for firms to buyback and retire stock. Two companies mentioned in the article are Toyota (JP:7203) (TM: 76.94 +0.76%), which plans to retire the equivalent of 4.5% of shares outstanding and NTT DoCoMo (JP: 9437) (DCM: 15.37 +0.85%), which by our calculations plans to retire about 2% of shares outstanding.

What to watch: Monday, 3/24: Business Outlook Survey; Land Prices; Friday, 3/28: CPI

Ongoing: BoJ disarray (Nikkei reports results of a poll showing 41% of respondents blame LDP for chief-seat vacancy vs. 27% for DPJ); Pointless speculation of rate cut (next BoJ rate decision meeting April 8-9); Fukuda Cabinet support rate drops 9 points m-o-m to 31%; Subprime fallout again delays Mizuho Securities-Shinko Securities merger

Markets: Volatility likely to continue as external factors to weigh heavy; Stocks paying a year-end dividend go ex-dividend on Thursday, 3/25; Possible testing of 13,000-level for Nikkei 225 with month and fiscal-year end window-dressing expected, but likely to be challenged by profit-taking

Weekly recap: 2% weekly gain to 12,482; 7% weekly fluctuation, breaking the 12,000-level intra-week to a 2-year 7-month low; Foreign investors were heavy net-sellers two-weeks ago (highest since Black Monday) and net-sellers again last week despite Friday’s net-buying on a broad rally

Global central bank rates (Brazil, South Africa, New Zealand, Australia, Mexico, UK, ECB, Canada, Switzerland, USA, Japan) as of March 21, 2008. continue reading…

Top foreign holders of U.S. Treasuries as of January 2008. Table (and chart) below shows respective % of total and y-o-y changes. continue reading…

It’s no big secret that growth in real demand for commodities is nowhere near as much as the growth in daily trading of derivative contracts. Still, UBS Global Asset Management’s Tom Digenan (by way of USAA Financial Newsletters) has a chart showing actual oil demand grew to 85.9 million bpd in 2007 from 74.6 million bpd a decade earlier. During the same period, oil futures trading volume skyrocketed to 1.2 billion contracts per day compared to 200 million in 1997. That’s an annualized growth difference of around 20:1! continue reading…

Japanese stocks rallied Wednesday, but not quite as high as may have been expected after the big gains in the states and in Chicago Nikkei 225 futures. Japanese ADRs gave back a lot of their prior day gains Wednesday. A number of ADRs had declines of more than 5%: FUJIFILM (FUJI: 0.00 0.00%), Mitsui & Co. (MITSY: 346.10 +2.91%), Nidec (NJ: 25.56 +2.28%), NTT DoCoMo (DCM: 15.37 +0.85%) and Wacoal (WACLY: 62.32 +0.81%). The lone advancer was long-time favorite Internet Initiative Japan (IIJI: 5.39 0.00%). There’s no escaping the volatility. And that’s why we’re not so certain we’ve seen a bottom yet for the N225. The matter of yen repatriation prior to fiscal year-end is one issue, while Q4 results and uncertainty of new FY outlooks due out from late April are another. continue reading…

Thought the Dow’s 3.5% rally and the Nasdaq and S&P 500’s 4.2% gains were big? Take a look at the 5.5% surge in N225 futures in Chicago. The last quote was at 12,460. A late $/¥ quote shows a recovery of the 100-level. A quick review of Investing in Japan’s listing of Japanese ADRs shows real estate and leasing firm ORIX (IX: 39.46 +1.67%) led the charge and chip equipment and diagnostics-maker Advantest (ATE: 24.32 +0.58%) put up the second-best daily performance — granted the two have severely depressed stock prices! continue reading…

One argument against the negative bias (for Japanese companies) of a strong yen goes something like this: a stronger yen reduces the impact of high commodity prices, such as oil, which particularly helps the likes of consumers and smaller companies. I said as much, stating the obvious, last November (see here). At that time, Chief Cabinet Sec Machimura commented that it is “wrong to think that a high yen is something bad for the Japanese economy.”

That was then, when the yen was safely above ¥100/$1. Now, at ¥99, there’s the reality that corporate profits aren’t going to come in — just consider all the ¥110+ corporate forecasts. continue reading…

The Nikkei 225 has been a marked laggard compared to regional and global benchmarks over the past year. To make matters worse, the Nikkei fails to sustain rallies and faces ongoing sell pressure resulting in new multi-year lows of late (now at 2 years and 7 months). As of Friday’s (3/14) close of 12,241, the Nikkei is off nearly 17% in 2008 and that’s after a 12% loss in 2007.

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