The media is full of bad news from Japan, the worst-performing economy in the developed world during this recession. But there is upside to Japan's weakness. The downturn has given corporations an excuse to restructure and prepare for the eventual upturn -- and both macro- and micro-economic forces are aligning to help boost this recovery.
On the macroeconomic front, Japan's terms of trade are improving. Corporate input costs are now falling almost four times faster than output prices, creating a strong base for companies' profit margins to expand. Construction companies are benefitting from lower cement prices; car companies are cheering over plunging steel prices; local retailers are snapping up prime location real estate at bargain basement prices; and a new generation of young entrepreneurs are happy to move into downtown offices as rents have come down. Japan is a net importer of basically all its energy and commodities, so the recent global deflation cycle has worked to boost competitiveness.
Read Full Article »