Thursday, March 14, 2013

Is this finally the ride of a lifetime in Tokyo?

A couple of Saturday nights ago in Tokyo, living a Travelife, we were walking to a party nearby and talking about the changes in Japan. A friend was visiting from overseas and I had the most interesting conversation with him about Japan.

He runs his own hedge fund.

Like so many industry people with an eye on Japan, he was in Tokyo for the series of high-profile financial industry conferences happening that week.

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He said to me: "This may be it."

He was referring to the rise of the Japanese stock market in the past months, partly as a result of the many positive things the current Japanese government is doing to jumpstart the economy and revitalize the market.

Japanese Prime Minister Abe and his finance minister Taro Aso (who is also a former prime minister of Japan) both live in my neighborhood in Tokyo. In fact, Minister Aso's beautiful ancestral villa is literally two doors down from me.

And the revitalization of the local stock market under his helm has made all of us want to send them both flowers.


The biggest factor in the upturn of the fate of Japan so far has been the weakening of the Japanese yen vs. most major currencies. This has singlehandedly boosted earnings for many domestic firms doing business abroad, and improved their balance sheets instantly.

This is also why a lot of skeptics still abound. A currency rise isn't exactly a permanent improvement in fortunes for many people.


If this "Tokyo spring" is happening simply because the yen has weakened, then it's as ephemeral as the cherry blossoms in April that appear for a few days and then fall to the ground and disappear with the rains.

We've all seen how the Japanese yen has gyrated back and forth like a disco dancer on a ledge at Faces a couple of lifetimes ago.

What else is new, right?


He said: "This time it's different. Japanese companies are now lean and mean, and the Japanese stock market is among the cheapest in the world. If the yen weakens further -- and it will, most definitely do so -- then everything will start to look amazingly cheap to investors."

Still seemed like the ephemeral cherry blossoms to me, flowering for a couple of days and then gone as quickly as they come.

Is this guy just around the corner?

But then I started to look at things from his point of view as well.

The Nikkei was rising indeed, although where it's headed, no one really knows.

As I've written in a previous blog entry, if people were more certain of where the Nikkei is headed, then there would be a lot of significantly wealthier people all over the world as early as next week.


But then, just the idea that it's actually risen has a psychological impact on a society just so tired of a 20-year recession.

Even if gains aren't locked in, you'll feel like spending money because you feel you're making something.

Even now, we're seeing restaurants fuller, and the expensive ones are getting much harder to book. This side effect could last for a while -- enough for pretty significant gains and a pretty nice year for everyone in Japan.

So maybe this is really "it," after all.

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I then said: "If this is really "it," then, maybe it's already too late to get in?" It has gone up a lot already, after all.

This was when he smiled at me and said: "As long as there are Japan hands like you who are still skeptical, then it's not too late. This is the early stage. Hang on tight and get set for an interesting and exciting ride."

And before he left, he reminded me again, in finance-industry speak: "The choices are to go long, or to go very long."

Then he added: "And, for goodness' sake, make sure you short the yen while you're doing so..."


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