 | Japan equitiesSeptember 2008 (covering the month of August 2008)
- Economic growth turns negative in the second quarter
- Prime Minister Fukuda resigns shortly after announcing a fiscal stimulus package
- Core price inflation exceeds 2% for the first time in a decade
Japanese equities fell over the month, with the majority of economic and corporate news reflecting the wider downturn in global growth. The Nikkei 225 index closed 2.3% lower at 13,072.87, while the broad-based Topix index ended August down by 3.8%.The Osaka Hercules index recorded a fall of 6.3% and the TSE Mothers index, which also measures new high-growth companies, fell by 8.9%. The more technology-biased Jasdaq index closed 2.9% lower.
The Japanese economy contracted by 0.6% over the second quarter of the year (2.4% when annualised), with falls in exports, private consumption and public capital investment being the main contributors to the fall. However, although the decline was the sharpest seen in seven years (first-quarter GDP growth was a positive 0.8%) it was in line with expectations, and the only real surprise was a fall in housing investment. The Bank of Japan (BoJ) was forced to cut its economic assessment of the economy to ‘sluggish’, which was its most negative statement on the economy for 10 years. The real year-on-year (y-o-y) GDP growth rate has now slowed to 1.0%, from 1.2% in the first quarter. The BoJ kept its key interest rate on hold at 0.5%, unchanged since February 2007.
The slowdown in economic growth prompted Prime Minister Yasuo Fukuda to announce the introduction of a 1.8 trillion yen stimulus package of income tax and fuel subsidies to aid hard-pressed Japanese consumers, and a further 10 trillion yen of loans and credit guarantees to small businesses. The impact of the initiative, spread over the rest of the year, was not thought to be very significant according to analysts. Earlier in the month, Prime Minister Fukuda brought in a new economic team to aid him, but he resigned at the end of August after less than a year in office marked by political deadlock and falling approval ratings.
In other economic news, Japan’s CPI inflation rate climbed by 2.3% over the year to July. It rose from 1.9% over the year to June to stand at the highest rate seen for a decade. Higher commodity and energy costs also pushed the prices of corporate goods higher, rising to 7.1% y-o-y to July, from 5.7% y-o-y to June. High inflation and slow wage growth weighed on consumer sentiment, and the seasonally adjusted quarterly confidence measure fell to its lowest level in 26 years. Labour news was contradictory. The jobless rate fell from 4.1% in June to 4.0% in July and demand for labour remains close to its highest level in 16 years. However, the ratio of jobs available per applicant fell for the sixth successive month. Industrial production unexpectedly rose in July on strong Asian demand. Mainland China overtook the US as Japan’s major export market. Export growth to China was especially strong, and has risen for 38 consecutive months to July. In contrast, exports to the US fell for the eleventh successive month.
The property sector in Japan, although having generally avoided losses directly attributable to US subprime mortgage investment, is suffering due to the resultant credit crunch. A lack of access to funds contributed to 43 developers filing for bankruptcy in July, and a third of the 9,000 or so companies filing for bankruptcy in Japan this year have been in the real estate or construction sectors. Sebon Corporation, a major Tokyo-based real estate developer became the latest casualty in late August, and its demise sent the share price of Asahi Homes plummeting as Sebon was the major shareholder of Asahi Homes. In other company news, Toyota cut its 2009 global sales forecast by 7% to 9.7 million vehicles, amid the biggest monthly drop in domestic vehicle sales in 10 years in August. It also announced that it would raise domestic car and truck prices by 3%, the first such price rise in 16 years. Nissan Motors announced a 43% drop in fiscal first-quarter profits but, more positively, Nintendo raised its profit forecast and NTT DoCoMo was boosted by a 41% increase in net profits over the same period.
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