The gloom is lifting a bit from the Japanese economy, as sharp growth from China and other Asian neighbors is lifting exports and spurring more capital spending by the nation's manufacturers.
While the spotlight in recent weeks has been on the travails of two corporate icons—quality problems at Toyota Motor Corp. and the bankruptcy of Japan Airlines Corp.—profits for most Japanese companies surged at the end of 2009, while the economy grew faster than a 4% annualized pace for the three months ended Dec. 31.
Significant problems still hang over the world's second-largest economy—a distinction Japan retained by expanding just enough to stay bigger than China, at least through the end of last year. Economic growth was elevated by government stimulus spending that is slated soon to expire, and will be hard to extend, given the country's huge public debt. Profit growth came off a low base, and was largely the result of cost-cutting, as revenues continued to fall amid persistent deflation.
Japan's 4.6% annualized growth rate for the fourth quarter—announced by the government Monday morning—follows robust growth reports for the same period from the U.S., which notched 5.7% expansion over the previous quarter, and China, which had 10.7% growth. Europe has, for now at least, replaced Japan as the central drag on global growth among the world's leading economies, reporting last week growth of just 0.4% for the period.
Separately, Monday, Daiwa Capital Markets released a survey summarizing the results of the recent earnings period, showing that, on average, the 300 major Tokyo-listed companies reported a 217.1% increase in pretax profits during the October-December quarter.
But with last year's 12-trillion-yen stimulus plan ending soon and being replaced by more modest measures, consumer spending is expected to fade. "The pace of the growth is expected to become slower early this year, as areas like consumption are largely supported by government policy," said Mari Iwashita, chief market economist Nikko Cordial Securities.
Japan is in a similar situation to the US. They've had some good growth that has been created by government stimulus. However, the question is will that growth continue as the stimulus fades? We won't know until the figures come out. However, the market is cautious. Consider this chart:
We can break the Japanese market's chart down into two areas. The first is (A), which is essentially a technical rebound from the extremely oversold conditions following the crash. However, since that time the market has stalled, waiting for confirmation from the economic numbers. The upward sloping channel (B) tells us that traders are in a clear wait and see posture.