By Myra P. Saefong
Japan isn't completely immune to the debt concerns surrounding
Europe but recent economic data may support the argument that the
nation's a bit more resilient than others in Asia.
"It is correct that Japanese exports are quite well at the
moment, mainly due to the fact that Japan's main export destination
is China and China's economy is the strongest in the world," said
Martin Hennecke, an associate director at Tyche Group Ltd. in Hong
Kong.
"So we would prefer seeking opportunities in Japanese stocks
compared with Europe or the United States," he said.
Last week, government data showed that Japan's trade account
continued to improve in April, with the surplus and export growth
beating market expectations.
On Monday, data showed that Japan's industrial output rose 1.3%
in April from the previous month in seasonally-adjusted terms,
marking a second-straight monthly gain and suggesting that Japan's
rising exports are still powering the manufacturing sector.
But traders in Tokyo didn't appear to be very optimistic
following a debt rating downgrade on Spain last week. Late Monday
morning, the Nikkei Stock Average was down 0.2% while the broader
Topix index traded nearly unchanged.
Major exporters were among the decliners, with Renesas
Electronics Corp. (RNECY) losing 4%, Tokyo Electron Ltd. (8035.TO)
down 2.2% and Kawasaki Heavy Industries Ltd. (KWHIF) down 1.5%.
Sony Corp. (SNE) fell 0.7% and Toshiba Corp. (TOSYY) was down
0.6%.
In broader regional trading, Australia's S&P/ASX 200 was off
0.4% and China's Shanghai Composite fell 0.2% but Hong Kong's Hang
Seng climbed 0.2%, South Korea's Kospi added 0.3% and New Zealand's
NZX-50 was up 0.4%.
Not so perfect
Hennecke points out that while he would prefer to seek
opportunities in Japanese stocks rather than Europe or the U.S.,
"it is wrong to say that there are no problems."
"In fact, Japan has got the highest national debt as a
percentage of GDP among all 'developed' countries in the world," he
said.
That remains a problem for Japan.
"It means that it is very well possible that we may see the
European sovereign debt crisis one day also affecting Japanese
sovereign bonds -- which may even get into a crisis just only of
their own making, given Japan's debt figures," Hennecke said.
"Therefore investors should stay well clear of any medium- or
longer-term Japanese sovereign debt," he said. "If anything
investments should focus on stocks, ideally those related to
inter-Asian trade and consumption."
Japan's key price gauge showed Friday that the country remained
in deflation's grip in April as other data showed spending remained
weak and employment conditions worsened, suggesting the effects of
the export-power recovery have yet to fully permeate the domestic
economy.
"There is some skepticism about whether exports will hold their
ground," analysts at Barclays Capital Research said in a note to
clients last week. "As a main scenario, we believe they will."
"The [European Union] does not figure prominently in overall
Japanese exports, nor does the [euro] play a major role as a
settlement currency," they said.
Even so, the "damage to exports to Europe is clear," said
Richard Jerram, chief economist at Macquarie, in a research note.
"There is also the loss of competitiveness against European
exporters in third markets to consider."
So over all, strength in the yen remains a major concern for
major Japanese exporters.
"Export growth is gradually slowing from extremely high levels,
with most of the demand coming from Asia," said Jerram. "Yen
strength threatens to squeeze Japanese firms' competitiveness."
The trade-weighed exchange rate has appreciated 8.1% over the
past month, driven by the 12.2% rise against the euro, he said in
the Friday note.
Appreciation in the yen took a break on Monday, however. In
recent dealings, against the Japanese yen, the euro (CUR_EURYEN)
was at ¥112.58, up from ¥111.87 in late North American
trading Friday, while the dollar (CUR_USDYEN) bought ¥91.45,
up from ¥90.91.