Tokyo stockmarket goes forward to the past

The Nikkei 225 stockmarket index closed above 9,600 today compared with a recent low of about 7,600 in late April. But it should not be forgotten that even after its recent surge the market is at about the same level as 20 years ago.

Jonas Lindmark 3 July, 2003 | 3:05PM
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Meanwhile, Japanese government bond yields have risen sharply; probably on the hope that the authorities are about to implement effective measures against the country’s persistent deflation. Still Japanese bond yields remain substantially below those available in America or Europe.

The recent stockmarket rebound should therefore be seen as a sign of hope rather than reliable evidence of an imminent recovery. It should not be forgotten that over three, six and 12 months the Tokyo market is the worst performer among leading world stockmarkets.

Investors are currently waiting for the presidential election in the ruling Liberal Demo

cratic Party (LDP) in September since the winner also becomes prime minister. Some say Junichiro Koizumi, the incumbent, may be forced compromise with the anti-reform forces inside the LDP to win, which probably would be negative for Japanese shares. But with enough support from the public and an increasing sense of crisis he could win both the election and a stronger position to speed up the reform process.

Ever since Mr Koizumi was elected in the spring of 2001 he has argued that economic reforms are necessary. But progress has been slow during his first two years in power. Foreign economists agree that Japan cannot return to high growth without substantial changes in both the financial sector and the rest of the economy. However, during the spring of 2003 both the new leadership of the Bank of Japan and the effective nationalisation of Resona, Japan’s fifth largest bank, are signs that the will to reform is still alive.

Political developments are critical for the Tokyo market. The present market level, still at about the same level as in 1983, shows that there are still relatively few optimists around. Investors who expect Mr Koizumi to finally begin the implementation of substantial reforms after the election this autumn are likely to see this as a good buying opportunity.


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About Author

Jonas Lindmark

Jonas Lindmark  has been editor and head of fund analysis at Morningstar Sweden since August 2000. Before that he was personal finance editor and designed fund ratings during 9 years at the weekly business magazine Affärsvärlden.

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