First, no wonder there are no domestic buyers of stocks — not only is there widespread fear and distrust of capital markets, but also, after years of experiencing deflation, there’s unfortunately no urgency to buy something that may only become cheaper. That said, someone needs to set a floor on prices. The spread between the 10yr JGB at 1.4% and Topix-1 issues at 2.6% is compelling enough for institutional investors. No doubt hedgies have to sell amidst the great unwind, but that’s no reason for national masochism.
After Monday’s close in Tokyo, Morningstar Japan published a piece with comments from a Nikko/Citi strategist who said the price-to-book ratio of the Nikkei 225 is now lower than it was when the market bottomed at 7,603 in late April 2003 (as of Wednesday’s N225 close of 9,203 (-9.4%) the P/B stood at 1.07).
On Tuesday, Morgan Stanley’s chief Japan economist Takehiro Sato warned of a forecast for five consecutive quarters of zero or negative growth. Meantime, yen appreciation is exacerbating the deteriorating conditions for exporters. And in the background looms musical chair politics in the Cabinet Office, which further erodes confidence.