Shorting the japanese stock market

Shorting the japanese stock market

Posted: A2O4V6Z5E4D6D-1 On: 18.06.2017

As international investors begin to come back to the Japanese Stock Market one wonders if the country is economically truly on the mend? On July 28 th the Nikkei Stock Average hit another 6 month high.

shorting the japanese stock market

The increase was backed by solid earnings from a number of leading industrial companies. There are an number of investors that are encouraged by this despite the growing deviation between the performance of the stock market and the domestic economy of Japan.

What is happening in Japan?

Time For Investors To Short The Japanese Stock Market? - Investing & Day Trading Education: Day Trading Academy

The domestic economy is not in reality doing that well. Yet a number of Japanese companies are doing well in the international arena. This is because these companies conduct business and make sales that are not dependent on the health of the domestic economy. The Japanese based company Honda for example, is a case in point. At the end of July the company lifted its full year sales and profit forecasts. The optimism of the corporate leaders are based on the hope that new models would allow the company the ability to do well in North America.

This area is their largest market. This was a result of increased sales in North America , Europe and China. Inside Japan itself auto sales from the company actually declined during this period.

The company was able to report an increase in earnings of 4. Sales in the once hot emerging markets of South America and Southeast Asia have slowed considerably.

Again the growth will comes from demand in Asia and Europe not domestically.

The question investors are asking is can this growth continue as the Japanese yen stops falling in value? Although Japanese manufacturers had made gains in a number of industries due to sales in the first quarter how long will this continue. Economic expansion in the developed world has not been impressive in The Japanese government is continuing reforms that are meant to assist companies that are following an aggressive growth strategy.

Prime Minister Shinzo Abe is attempting to restore business confidence that was somewhat diminished with the introduction of the new national sales tax rate. He has announced new measures that will hopefully help corporate organization and performance.

The Third Arrow as labeled by the government is a move towards extensive structural reform.

shorting the japanese stock market

The negative effects of the higher tax have not been as drastic as feared but they are still significant. It is important to note that wages in Japan after adjusted for inflation have continued to fall. It is also true that inflation is also slowing despite governmental efforts to expand the money supply.

Exports , the main engine of growth in Japan today is still struggling, despite the recent bout of good news. Investors should consider despite the recent gains in Japanese stocks that Japan itself is not a good environment for opening and growing a business.

One therefore must question how much can the Nikkei rise when there is no real wage growth and there is an absence of new business openings. The domestic market is continue to stagnate.

Without a return of strong domestic demand, the growth in the Japanese stock market cannot continue to rise.

Growth dependent on exports alone, will not be possible in the present international economic environment. However, it can be said that the stock market in Japan remains one of the cheapest markets in the world.

The demand for Japanese equities in the domestic market has increased which will provide some support to the Japanese stock market. This alone though, will not be enough to keep the expansion going.

The main buyers so far have been companies buying back their own shares and public pension funds. Retirement funds are increasing their exposure in a desperate attempt to raise returns for the rapidly aging Japanese population.

Although there has been a small bounce in retail sales overall, construction in new housing is still falling. One policy change that may actually make a difference is the government plan to cut the corporate tax rate to a level that more closely resembles the rate in other parts of Asia and Europe. Lower corporate tax rates will stimulate investment and growth. This is the rate that exists in South Korea and many nations in Europe.

That is short sighted. A lower tax rate will make a difference in future investment decisions. It is also the way Japan will be able to ramp up much needed foreign investments. The reform might also be helpful in working to eliminate the many impairments in the current corporate tax code.

The government has used exemptions, deductions, credits and other loop holes to favor certain industries over others. Having the government pick winners and users often ends to economic distortions and inefficient allocation of financial resources. The present Japanese tax code favors larger corporations because they are more effective in the lobbying of government officials. These companies are not in favor of tax reform but would support an overall rate cut. Smaller companies end up paying a disproportionate burden of the corporate tax because they are less able to influence government officials.

They want rate cuts along side reforms, to better equalize the business playing field. Tax reforms and corporate rate cuts may be the best way to encourage more investment as it seems other reforms towards free trade, immigration and labor improvements have become bogged down in the usual manner of Japanese politics. It is clear something must be done to move the domestic Japanese economy forward. The results are yet to be determined.

The expansive monetary policy is a bold, although financially dangerous move.

How to Go Long or Short Japan via ETFs (EWJ,DX) | Investopedia

It is attempting to return the economy to growth and combat the deflation that has gripped the Japanese economy for a decade and more.

The policy will devalue the yen which will help Japanese exports. But it will of course slow imports overall, and make needed energy importations more expensive.

Given that Japanese industry is quite dependent on energy imports and other commodities from abroad, this will impact the business world in Japan along with consumers there.

The GDP Gross Domestic Product of Japan tells the story. The economy contracted Since then, the Japanese economy has stagnated. In the economy contracted again by The rate for was only 1. This writer suggests that selective investments can be made in some sectors of the Japanese economy that deal mostly with the export market.

However, slowing growth elsewhere in the developed world will eventually limit the growth in these markets. An investor might be better served in shorting stocks in the Japanese markets. Although stocks may seem undervalued it is because the economy at large is showing little real growth. This is unlikely to change in the near term, and possibly the long term as well. Rising entitlement and medical costs associated with these demographic changes will hamper efforts to jump start the economy as consumer demand for new products and services decline outside the medical sector.

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Travelers and tourists to Japan will soon notice the changes to the population of this island nation. Japan will continue to remain a difficult place to make a long term investment unless drastic reforms are enacted.

Despite the claims of the government there has been a slowdown in the movement to reform and restructure the economy. Rhetoric alone will not achieve the desired outcomes in Japan.

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