Aberration in Japan's Market Decline?
02/10/2014 12:01 am EST
MoneyShow's Jim Jubak points out that investors should realize some unique factors may be pushing the Japanese market down, which have little to do with the economic outlook.
Let's talk about the other New Year problem. There's been a lot of conversations about the effect of the Lunar New Year data from China and on whether Chinese economy is slowing or speeding up—well, no one's saying it's speeding up; slowing or slower, slowing, slowest, and how it's hard to tell because of the distorting affects of the Lunar New Year. There's another New Year, though, it's a Fiscal New Year, and it's in Japan. The Japanese fiscal year ends on March 31, which means that companies have to square their books by the end of the month. It means that the kind of profit taking, selling to preserve your balance sheet, selling to really make things look better in the United States happens in the period from October to December and Japan happens up until March 31, so you get banks that have a lot of profit, for example, selling. Pension funds selling. Insurance companies selling. Everyone right now is locking in profits for 2013, or for the 2014 fiscal year that ends in March. A lot of the selling you're seeing in Japan right now has much to do with the end of that fiscal year, with that bookkeeping period, and very little to do with the people's convictions for the economy as a whole.
This is important because the yen right now is a major driver of the global financial system. The yen is the safe haven currency of choice at the moment. It's the currency that people borrow in when they want to buy other things, so the fact that the yen has been getting more expensive against the dollar really has been, sort of, a downward push on all of the global financial system. If you're looking for a place where the Japanese stock market, the Japanese money supply, Japanese interest rates, and all that might turn, really it's not so much a question of what's going on with the real Japanese economy, as what's going on with the fiscal calendar of Japan, and it means that downward pressure on Japanese equities and upwards pressure on the yen is likely to last through the end of March.
This is Jim Jubak for the MoneyShow.com Video Network.