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Japan has been a huge disappointment this year and failed to launch. But the future looks rosy for 2008 and a bounce could be strongly on the cards because
(i) Its banks do not appear to be caught up in the whole subprime mess
(ii) Tokyo office space an indicator of the economy is tightening at 2% and yields for class A office space in the central 5 wards has increased by 26% Ytd - commercial appreciation will follow
(iii) Prices are rising and deflation is at an end according to the Mac Fac.
(iv) Unemployment is now 3.6% and job offers ratio is increasing and wages are slowly on the move.
(v) Japanese S/market P/E is at an all time low of 15 which is unheard of anywhere else in the Far East
(vi)Although US exports have slowed, trade with BRIC has pushed total exports values above previous levels
(vii) The Yen to Stg is up 6% YTD and further appreciation is expected.
(viii) Most importantly the Topix rather than the narrow Nikkei has moved dividend yield higher than Japanese government bonds. On every occasion previously that this happened the market bounced 30% to 40%. Last time in 2005, 2002 and 1998. Expect same of the large grey funds storing billions of $ to switch from bonds to equity.
Based on dividend yield and P/E according to Goldman Sachs in the terms of world rating etc, Japan is the cheapest it's been for 33 years. Expect a big bounce in this market, failure to launch in the past is understanding but in the last 3 years the Nikkei has performed extremely well.
pm for advise