Japan, rising

Buttonwood, the economist and other asian watchers are getting hyped about japan. bad debts with the banks are going down, profits are going up, and china is driving growth. good stuff.

the outcome? rising japanese markets. while much of china remains off limits for normal investors, the way to capture this market is to buy japanese. we'll see how it all plays out, but japan is looking better and better. the feeling is that not all of the necessary reforms will be needed to bolster the economy.

my own feeling is, that in good times, they won't care about reform....or maybe it will be easier for the banks to deal with bad debts when they are flush. here's buttonwood's column...the money shot:

Japan is, moreover, a recognisably capitalist country with a wealth of world-class companies. In the mid-1990s, China was seen as Japan’s nemesis: an exporter of deflation and an importer of jobs. The talk was of Japan’s “hollowing-out”. Now China is seen as an opportunity, largely because the things that China needs—steel, capital equipment, construction machinery and so on—are, as it happens, just the sort of stuff that Japanese companies are good at making. And as Jonathan Allum, a Japan strategist at KBC Financial Products, points out, it makes no sense for China to build much of this stuff since its competitive advantage is cheap labour, not cheap-to-run, depreciated blast furnaces like those in Japan.

Japanese exports to China are soaring. Although Japan’s overall exports have risen by some ¥3 trillion ($25 billion) since 2000, the rise excluding exports to China would have been zero, points out Andy Xie, Morgan Stanley’s chief China economist. In the year to January, Japanese exports to China rose by a third, whereas its exports to the United States shrank by 5.5%. And it seems fairly clear what is going on when “metals” account for 4.5 percentage points of that one-third rise in exports to China, “chemicals” for 5.3 points, “electrical machinery” for 6.2 points and “machinery” for 9.0 points.