Friday, October 24, 2008


This morning the US Dollar has appreciated 7% versus the Australian Dollar and the Japanese Yen has appreciated 4% against the US Dollar. What a turn? The price of raw materials being mined in Australia, assuming no change in local prices, just dropped by 11% to Japanese buyers. Stocks do well during times of declining inflation rates. As lower priced raw materials work their way into products, the initial event will be an increase in manufacturing profit margins but the lower costs will later show up in lower priced products. Inflation rates are going to fall in the USA and even more in Japan, which imports a very high percentage of its raw materials.

Many an international mutual fund is charted to exclude Japanese investments. The rational is that Asian emerging growth nations are at the other end of the Japan see-saw. If you hold international funds, in 401-K accounts or elsewhere, you should focus on Japanese stocks. Over the long term, China, India and other nations will grow faster than Japan but Japan will be a strong performer for the next many years. Japan under performed from 1989 until 2003. It's relative performance has been strong since 2003 but the recent sharp declines have brought shares close to the 2003 bottom. EWJ is an exchange traded Japanese Fund.