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The reaction to today’s production data release by the Ministry of Trade was an exercise in the spin process as the glass-half-full crowd took heart from a modest month-over-month sequential improvement to -9.37%  coupled with a 4.2% decline in inventory levels –the thesis being that this was signaling a potential bottom.

We are unconvinced. Although declining inventories are clearly a positive signal for the drowning exporters, the data breakout showed little relief for the beleaguered automotive and consumer electronics sector as production declines in those spaces exceeded 50% on a year-over-year basis.

Our investment thesis in Japan remains unchanged: we still see Yen devaluation as the only potential driver for any near term recovery. Our short position in EWJ was initially caught flat footed as we put on the first leg in the face of the BOJ stimulus measures, which drove the Yen lower than we had anticipated. After selling a second leg into strength last week we are now close to flat on the position.

We continue to remain negative on Japan, and view it as a debt laden hostage to external demand. We will continue to adjust are portfolio opportunistically based on tactical factors, but our long term view remains decidedly glass-half-empty.

Andrew Barber
Director

 BAD OR WORSE? - Picture 5

BAD OR WORSE? - abche