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Stock prices not yet safe levels. Fear of “second bottom” rippling from Europe

6, 19. 2009

   While the stock prices have regained the average 10,000 yen level, some financial experts and economists warn of a "second bottom." Signs of positive movements are beginning to be seen in the U.S. and other economies. The Japanese economic indicators, however, are a mixture of bright and dark data, and the economy is still unpredictable. It is also pointed out that there are factors "in Europe" that will trigger a "second bottom."

Stock prices hit the 10,000 yen level for the first time in 8 months

   The Nikkei stock price average on the Tokyo Stock Exchange ended at 10,135.82 yen on June 12, 2009, up 154.49 yen over the previous day. The Nikkei average hit the 10,000 yen level at one time on the previous day for the first time in eight months since October 2008, and it was quickly renewed. It reached the new high since the turn of the year of 10,170.82 yen at one time.

   The sense of "hitting the bottom" about the economy spread as bright signs are seen in the U.S. economy following the measures taken for the bankruptcy of General Motors and the speedy repayments by financial institutions of the public funds which had been injected into them.

   In Japan, views are widely spread that the measures taken for the eco-tax cut for Toyota, Honda, Nissan and other automakers and the eco-point scheme for appliance makers are now showing effect. This gave the impression that the export industries are now "bottoming out" as a whole.

   Natural resources stocks were rallied following increases in the crude oil futures on June 11. Buying was pushed up by the announcement by the Cabinet Office of the upward revision of the gross domestic production (GDP) net indicator and the turn to down trend of the exchange value of the yen.

   Financial stocks and retail stocks were bought on the following day.

Uncertain factors in Europe. May be triggered by "Mideast shock"

   The economists who say, "The economic downtrend bottomed out," are not few. But it is still not certain that the economy will keep going up from now on. In fact, various economic indicators, including those announced by the Cabinet Office, are "multi-colored." The business firms price index announced by the Bank of Japan for May represented a decrease of 0.4% from the previous month marking decreases for nine months in a row. This causes a concern about deflation.

   According to the machinery orders statistics for April announced by the Cabinet Office (seasonally adjusted), orders for electric machinery and cars went up. But the plant and equipment investment declined 5.4% from the previous month. The industrialists do not seem to be in the mood yet for pushing up the manufacturing of goods.

   An economist said the current investment movements show that the "funds are moving from the right (bonds) to the left (stocks)." He said it would take some more time before the stock market becomes really active.

   Another worrisome factor is the movements in Europe. Iinternational financial analyst Jiro Edagawa said that the hope for economic recovery is heightening in the United States because of the feeling of the economy hitting the bottom and the popularity of Obama. This shows the close-up picture of the seriousness of economic decline in Europe, he said. He pointed out that there is the possibility in the future of the European situation triggering a stock market decline in Japan.

   He further said that the countries, such as Spain, Iceland and Hungary in Europe that were hard hit by the burst of the economic bubble are now keeping quiet. For example, he said, the German economy has been supported by earnings in Eastern Europe for the past several years. In this sense, he continued, Western and Eastern Europe are united. But, under the present condition, Western Europe cannot assist Eastern Europe. Germany and France are facing their own problems and it would be difficult… Europe appears to be united, but in reality it is not so, he added.

   The European economic downtrend may blow damage to the Japanese export industry resulting in decreases in stock prices. This could constitute the "second bottom" for the economic decline.

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