Conclusion: We covered our Japan short earlier this afternoon, as it is immediate-term TRADE oversold. The intermediate and long-term issues facing the Japanese economy remain, however.
Position: Covered our Japanese equities short (EWJ).
Today, Keith covered our short-Japanese equities position with the Virtual Portfolio for a gain. The position – perhaps aided by the global equity market selloff – continues to be one of our core theses in Asia over the intermediate and long term. From an intermediate-term perspective, the bearish catalysts remain:
- ZERO interest rate policy continues to depress confidence and growth;
- Burgeoning debt/deficits is setting up a likely a growth-negative fiscal adjustment;
- Regulatory uncertainty surrounding the timing of leadership changes and nuclear power regulation is depressing industrial production and both consumer and business confidence;
- Sharp yen appreciation is weighing on corporate profits and (subsequently) job creation via declining business investment; and
- Slowing sequential growth momentum bumping up against increasingly tough YoY economic growth comparisons.
See our 8/1 note titled, “Things Are About to Get a lot Worse In Japan” and our 5/16 note titled, “Time to Press?: Revisiting Japan From a Secular Perspective” for more details.
Contrary to the consensus belief that quake/tsunami reconstruction is just what Japan needs to revive growth, we remain bearish on Japanese growth over the intermediate and long term. Despite Japan being very “cheap”, valuation, as consensus is finding out, remains no catalyst.
The economic grip around Japan’s Jugular is about to get incrementally tighter…