Asia and Pacific Markets Summary

Testing Times for the Japanese Stock Market

The encouraging turn of the Japanese economy from disturbing years of deflation, makes no sense of recent trends in its stock market. One would have expected the Nikkei to focus on the creditable improvement of its home environment, rather than ape international stock market trends, but the week beginning June 12 2006 has belied such expectations.

Funds have begun to flow from stocks in to the comparatively low yield but secure harbors of government bonds. That does not say much for investor confidence about the local conditions. The Bank of Japan has a tough call with respect to interest rates: it may be tempting at this juncture to follow the U.S. and European leads and turn the screws on liquidity, but Japanese industry surely deserves better treatment and more encouragement at this time.

Productive collaboration between government and business was a hallmark of Japan during its halcyon years of the post World War II 20th century. The current situation is ripe to revisit the core elements of this glory because the country needs to pivot some key high-technology areas in which it is under attack from traditional rivals, not excluding South Korea.

Regardless of what the Bank the Japan does in response to its delicate position, stock market investors can take heart from the steady recovery of the local economic scene, with strong prospects on the horizon. Prospects for the most professionally managed and technologically advanced entities in the Land of the Rising Sun are elevating indeed!