It's been a great week for Japanese equities, thanks largely to the stellar performance of the U.S. markets.
On Thursday, the benchmark Nikkei-225 average reached its highest level for the year, rising to 9,110.51, up from 8,979.86 reached the previous week. The gains reflected in part the solid gains of both the Dow Jones Industrial Average and Nasdaq earlier this week, the former having peaked to its highest levels in nearly a year.
Analysts said that demand was particularly high for blue-chips, both from domestic and overseas institutional investors who were eager to get back into the market. Still, demand for shares in smaller corporations was relatively high too, with the Topix reaching 895.65 whilst Jasdaq reached 48.72.
A rush of shareholders' meetings will be taking place later this week, which could sway individual stocks, looking forward. So far, the meetings have been largely well-received, with electronics giant NEC announcing Thursday that it hoped to resume paying out dividends again soon, having cut their dividend payout to zero.
But the biggest announcement amongst all the shareholders' meetings that have thus taken place came from auto manufacturer Nissan. Proving that faith in corporate leaders that perform and lead to solid results was strong, the announcement that Nissan's chief executive officer that he would remain in his current position after 2005 was greeted warmly by attendees.
"In 2005, I am not leaving Nissan," said Carlos Ghosn before nearly 1,000 investors. "I am still going to be president and chief executive officer of the company...I will be in charge of the strategy and I will be in charge and accountable for the results," he added.
Ghosn will be the president of French car maker Renault in 2005, which is a 44 percent shareholder of Nissan, and the announcement has made investors speculate that he would depart from Nissan as a result. That, however, rattled the markets, given Ghosn's track record of turning the ailing can manufacturer around to a fairly profitable one in spite of the sluggish economy since he took over the helm of Nissan in 1999.
Nissan shares rose 2.47 percent Thursday to close at 1,119, having hit a 13-year high on Wednesday, as confidence in the manufacturer increased following the shareholders' meeting.
Such positive factors managed to outweigh the negatives that have been circulating in the markets these past few days, especially with the Cabinet Office reporting Tuesday that prospects for the Japanese economy remain "largely flat," whilst admitting that there "have been some sectors that have been weak." It was the first time in four months that the government actually downwardly revised the tone of its forecast.
Economic Minister Heizo Takenaka also said that capital expenditure, exports, and corporate profitability were some of the areas that have been hurt in recent weeks.
Meanwhile, concerns about the severe acute respiratory syndrome outbreak in neighboring Asian countries remains of concern to most Japanese businessmen, particularly as most blue-chips are heavily invested in both China and Taiwan as well as Singapore and Hong Kong.
Japan has had no outbreak of SARS yet, but so concerned is the Japanese public about the disease that the Japanese consulate in Shanghai conducted a survey of how the epidemic has hurt Japanese companies doing business in China.
Of the 124 companies surveyed, 53 percent responded that they have completely stopped employees from going to China until conditions improve. Granted, that is a marked improvement from the 70 percent that responded it would avoid China in the previous survey conducted in May. Nevertheless, the report indicates that SARS continues to hamper Japanese businesses, and government concern about the impact the disease has had on the overall economy remains high.
At the same time, fundamental issues remain unsolved in Japan's economy, namely addressing the problem of non-performing loans and tackling the deflationary spiral. Granted, Tokyo was voted once again as the world's most expensive city earlier this week, topping both New York and London, as well as Hong Kong, the previous holder of the title. But the fact is that the prices overall continue to fall, including real estate, and expectations of falling prices is keeping consumers from spending.
But in the minutes from the Bank of Japan's policy meeting held late last month, which were released earlier this week, it became clear that at least two of the nine board members are in favor of inflation targeting. Kazumasa Iwata in particular has been especially vocal in his call for encouraging inflation by setting a goal for price increases to be achieved within a specific time period.
Inflation targeting has been seen by many private sector analysts as a key means to get the Japanese economy back on track, even though former BOJ Governor Masaru Hayami made quite clear that he was against the idea. His successor, Toshihko Fukui, who took over as the top central banker in March, is seen by some analysts as more open to the idea, thereby giving more hope to investors that the economy could indeed pick up in the long run.
