Is the Japanese Locomotive Ready to Again Carry its Load?

Business/Government/Assisgnment/Editors

NEW YORK - Dec. 5, 2005 - The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting recent strength and trends in the Japanese economy. It can be viewed at:

http://kwrintl.com/library/2005/focus42.html

A summary is presented below:

• Revisiting the Tale of the Three Locomotives

During the 1980-90s, there was a lot of talk about the US, European, and Japanese locomotives and the cyclicality by which these economies took turns pulling the weight of the global economy. When the Asian financial crisis hit in 1997, Japan was in the midst of an economic recession. Europe was also going through a weak phase. As a result, there was real concern about how long the US would be able to carry the load. Today, however, some analysts have begun to believe a reinvigorated Japan may contribute to autonomous demand that is independent of US economic activity for the first time since 1991.

• Japanese Economy Continues to Demonstrate Strength and Momentum

Continuing a positive trend that started in 2003, the Japanese economy grew at an extremely healthy rate in the second quarter. Government statistics reveal Japan’s annual growth between April and June was 3.3%. This was triple initial estimates -- and followed on the heels of an excellent first quarter performance of 5.3%. Moreover, in the first half of the year, the Japanese economy expanded at 4.6% -- its fastest rate in 15 years.

• Japan Moving to Address a Wide Range of Economic Challenges

While there are numerous positive trends giving strength to Japan’s economic recovery, there are also important challenges that need to be resolved. High raw material prices, particularly those related to energy, present a potential obstacle to Japan’s economic recovery. This is especially important, given that the nation is so dependent on outside raw materials. That said, Japan is one of the most energy efficient developed countries, producing more GDP per ton of oil equivalent than any other G -7 country.

Purchases of consumer goods and services have been critical to Japan’s recent economic success and give further credence to the belief a sustainable recovery is underway. This is also helping to support export-oriented Asian economies and other emerging markets. As a result, it is very encouraging that Japanese imports of goods and services as a percent of GDP has been rising quite dramatically in recent years. Growth in Japan’s consumer market creates a number of exciting opportunities for sellers of such goods. There is also great potential for retailers in various niches such as the luxury sector. While Japan has a population roughly half the size of the U.S., it has a luxury market that is twice the size. Many believe services -- which accounts for 60% of the country’s output – offers even more attractive opportunities for investors.

• Foreign & Domestic Investors are Becoming More Enthusiastic about Japan

Over the past year, there has been growing excitement among asset managers about current trends and the performance of Japan’s capital markets. In fact, last week the Nikkei 225 index rose to its highest level in five years. What is also catching the attention of analysts are signs that Japanese investors are finally joining the foreign investors who have been the primary buyers in recent years. Investor interest is also demonstrated by rising inward FDI flows, which have reached new highs and, for the first time, exceeded outward FDI flows in 2004.

• As Japanese Locomotive Leaves Station, Investors Wise to Come Onboard

While it is difficult to see around the bend or to determine how long the journey will last, it is fair to say the Japanese locomotive has left the station. As a result, corporate and portfolio investors would be wise to seriously consider coming on board.

Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly- released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.

For additional information on economic and financial trends in Japan, please contact:

JETRO New York
Akihiro Tada
Executive Director
email: akihiro_tada@jetro.go.jp
tel./fax +1-212-997-0416/+1-212-997-0464

This material is published and disseminated by JETRO New York, in coordination with KWR International, Inc., New York, NY 10016, Tel: 212-532-3005, Fax: 212-685-2413, E-mail: kwrintl@kwrintl.com. JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration statement is available for public viewing.