The Fall of Japan as a Safe-Haven: Fastest Contracting GDP in 35 Years
Global Emerging Markets (GEMs)



Emerginvest is a global finance portal connecting investors worldwide with high-quality investment research, data, and tools covering 125 stock markets globally.

In the wake of the current global financial crisis, not all markets have been affected the same way. Emerginvest points you to the international markets and sectors that have already begun growing, so that you can build a strong, globally diversified portfolio.

Japan has been seen since September as one of the few bastions of relative stability in the global economic climate. It "only" fell approximately 30% during the September crash, compared to the approx. 40-60% of the US and China respectively, and has weathered the global economic storm much better than most. This is evidenced by the following Emerginvest performance charts of Japan, China, and the US - note the relatively shallow decline in September for Japan compared to its counterparts:

Japan's Market Performance over the last year.

China's 12-Month Market Performance

And the US's 12-Month Market Performance.

To date, the extremely high savings rate of Japan has helped bring a measure of relative stability to their market, and has prompted such articles as this Washington Post article from November, 2008 entitled: "Individual Japanese Investors Rush Into Stocks." It stated that because of the high savings rate, retail investors were "armed with $7 trillion in bank deposits," and how some of the lowest stock market valuations of the last 20 years induced a rush into the stock market from retail investors. That high savings rate, the comparative stability of the Tokyo Stock exchange to date, and the relative solvency of the Japanese banking system, has granted Japan an investor's "safe-haven" status since September - especially when compared to the volatility of most other markets around the world.

However, that image has come crashing down as the Japanese government has announced that the fourth quarter of 2008 was the fastest contracting period for the economy (in terms of GDP) in 35 years. A NYTimes article entitled: "Japan's Economy Plunges at Fastest Pace Since '74," describes how the Japanese economy, which is heavily reliant on exports, is suffering heavily now that the effects of plummeting global demand are taking hold. In response the article states that:

"'There's no question that this is the worst recession in the postwar period,' Japan's economic minister, Kaoru Yosano, said after the results were released.

The dismal figures also place Japan firmly among the worst-hit in the global crisis, dwarfing economic declines in the United States and Europe."

Suffering from a strong yen which makes Japanese exports more costly, and the lagging global demand across nearly the entire spectrum of goods, but especially electronics, has suddenly thrown Japan into the financial maelstrom with full force.

Unfortunately, the contraction is just the first of a series of effects, with unemployment following shortly thereafter. So far, Japan's unemployment has remained relatively low: rising to 4.4% in December. , which is still quite mild compared to Germany's current unemployment of 7.8% to the US's unemployment of 7.6%. Given that the economy contracted so significantly in such a short amount of time, companies are inexorably going to be cutting jobs - in large quantities and quickly, just as Sony Corporation recently had. Of course, this will be reflected back into the stock market.

In no way does this mean that Japan is down and out for the count - it has simply taken longer to fall from grace than most other world markets, and subsequently is losing its special "safe-haven" status for many investors.

Disclosure: Emerginvest is an international finance portal, providing analysis and data on 120+ world markets to help individuals find investments from around the world. The author, Jonathan O'Shaughnessy, does not have any holdings in Japan or in Sony Corporation.

Posted 02-18-2009 4:31 PM by EmergInvest