China Economy Key to Japan Recovery, Mitsubishi UFJ’s Saji Says
China’s government holds the key to recovery in Japan’s economy and stock market, said Nobuyuki Saji, chief economist and strategist at Mitsubishi UFJ Securities Co.
Japan’s gross national product shrank last quarter at the fastest pace since 1974 and may contract at a similar rate in the current period, if China’s stimulus measures don’t spur demand for the nation’s goods, said Saji, who was named Japan’s best economist in 2008 by Institutional Investor magazine and Nihon Keizai Shimbun Inc. The Nikkei 225 Average dropped to 7,054.98 on March 10, its lowest level since October 1982.
China’s Shanghai Composite Index is the world’s best performer with an 18 percent gain and the country’s economy grew 6.8 percent last quarter, according to Bloomberg data. While the expansion was the slowest in seven years, it is the only growth story among Japan’s three largest trading partners. The other two, the U.S. and Europe, are in recession.
“If China’s economy worsens and its domestic demand remains low, support for Japanese stocks will evaporate,” Saji said.
Japan’s annualized 12.1 percent contraction last quarter was the steepest decline among Group of Seven Nations. The Nikkei 225 Average has fallen 12 percent this year and the Topix has dropped 13 percent, making them the two worst performers among Asian benchmark indexes, Bloomberg data show.
“We cannot be optimistic,” said Saji credit scores. “GDP figures show Japan is the nation most affected by the world economy and this vulnerability shifted foreign investors’ views on Japanese stocks.”
Rising Inventories
China, Japan’s second biggest trading partner, is spending 4 trillion yuan ($585 billion) to bolster its economy, the world’s third largest. Whether that commitment will succeed may be evident as early as the end of this month or April, as recent indications are mixed, Saji said.
Rising inventories of steel products and iron ore are a sign China’s recovery will be slow, Saji said. Since Feb. 13, which marked about a 12-month low, iron ore stockpiles have risen 4 percent to 60.6 million tons and an adjustment may be needed next month, he said.
“An increase in the amount of new loans would be a positive indication that funds are flowing to public works projects,” said Saji. In February, China’s banks issued 1,070 billion yuan worth of new loans after offering a record 1,620 billion in January.
Even if China’s economy revives, Japan may not benefit as it has in the past five years, Saji said.
Japan’s share of China’s imports dropped the past two years to 13.3 percent in 2008 from 14.6 percent in 2006, according to Daiichi-Life Research Institute.