The Coming Week in Asia

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The Coming Week in Asia: Summer Lull Gives Way to Fall Optimism

Kaya Laterman

TOKYO -- With traders returning rested from summer holidays, Japanese markets are springing back to life amid hopes for a bounce.

Daily trading volume shot higher last week, with foreign investors and local fund mangers picking up semiconductor and electronic shares in anticipation of robust fiscal first-half earnings, which will be released in October.

As a result, the key Nikkei 225 index looks like it will try to break through the important 17,000 barrier this week, just weeks after pushing its head through the 16,000 mark.

Oddly enough, the optimistic market sentiment comes amid a slew of negative news reports over the past month. For starters, the Bank of Japan hiked short-term rates for the first time in a decade. This, in turn, could push many debt-ridden firms into bankruptcy later this year. There have been numerous food-poisoning scandals that have worried the populace at large. And Mitsubishi Motors, after strongly denying any wrongdoing, has admitted it hid most customer complaints about its vehicles for more than two decades.

Investors are trying to look on the bright side, though. Despite the problems, the simple fact that they are being publicly acknowledged is evidence to many that corporate responsibility and good corporate governance are finally being treated seriously throughout the country.

And investors are taking a glass-is-half-full approach to the economy as well. Things still might not be rosy, but they're now a little less bleak than before. For example, although July household spending for wage earners, due out Tuesday, is expected to decline 1.4% from the previous month, it's better than the 2.5% decline logged in June.

The numbers on industrial production for July, which will be released Wednesday, are expected to decline 0.2%. Traders, however, are concentrating on the Ministry of International Trade and Industry's August and September estimates, which likely will show a rise of almost 3% in August alone. That means production of steel, cars and mobile-phone parts for the second quarter likely will reach a level akin to Japan's economic boom years of 1991 and 1997, the ministry says.

The expected jump in industrial production also would help boost second-quarter gross domestic product, which is scheduled for release in mid-September.

But, and this is a big but, there are fresh concerns over how reliable Japan's GDP data really are. The Economic Planning Agency recently released a report that admitted its methodology for calculating national household spending used a base that was too small to give an accurate sample. Because consumer spending accounts for about 60% of GDP, it's likely that growth estimates have been skewed.

"The government hasn't been able to adjust its calculations fast enough as Japan rapidly changes to a consumer-led economy from an industrial one," says Michael Naldrett, economist at Dresdner Kleinwort Benson. "The good thing is, the government finally admitted its shortcoming."

To keep things simple, Naldrett says he likes to track consumer-spending patterns by looking at the sales of Ferrari sports cars. The economist admits his official calculations are based on government-released unemployment and corporate spending figures. But he insists that the rise and fall of Ferrari sales in Japan has surprisingly coincided with consumer confidence.