Yesterday was a busy day for me so I am not sure how much attention this got but Japan recorded its first trade deficit since 1980. Japan has always exported a ton of stuff and imported all of its oil. The earthquake on March 11, 2011 shut down the nuclear industry and so now the country needs to import more for all its energy needs, so much so that it caused the trade deficit.
This article from the Telegraph makes the case for the trade deficit to persist which can’t be huge shock given the state of the nuclear industry there. The back drop for Japan has been poor for many years and I have thought this would continue to be the case long into the future even before the earthquake.
Japan has always been an interesting destination. It seems like every year, maybe not 2012 though, there is a contest for market pundits to come out and say that this is the year that Japan finally turns it around. There have been years here and there where Japan has done well but it never turned it around.
The problems with Japan appear to include an aging population, an enormous debt load and they seem to be getting undercut on manufacturing. The generally poor results, I believe, reveal a long term weighing of the fundamental backdrop with the conclusion being there is no visibility for a sustainable recovery. The Nikkei is down 76% from its high 22 years ago. That is a mind boggling nugget and the market is still not cheap. I remember from 1990 Japan’s PE ratio being in the 50s and according to the iShares website the iShares Japan ETF (EWJ) has a PE ratio of 18.
PE ratios aren’t necessarily a great predictor of future prices the combination of being relatively expensive (again, relying on iShares for this) and lousy economic fundamentals leaves little to be optimistic about. Simple avoidance of this type of trouble spot remains the path of least resistance.