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Japan stocks bounce back

Posted by: Ian Rowley on May 7, 2008

It’s not quite time for investors in Japan to start popping champagne corks, but the benchmark Nikkei 225 is the best performing among big Asian economies in the last month. Could this be a sign of things to come?

For sure, in recent weeks has Nikkei 225 index has surged. It’s risen a meaty 12.6% since April, compared to a 3.1% rise on the Shanghai exchange, for example. What’s more, with signs that the credit crunch may be easing, the impact of bad news from the U.S., particularly if the yen weakens as a result may also aid Japanese stocks.

Still, it’s difficult to get too excited just yet. One reason the Nikkei index may be rising is that it simply fell too far too fast. Today’s Nikkei newspaper notes that the index dropped 7.5% in the July-September quarter of 2007, 8.8% between October-December and a scary 18.2% between January and March this year as nervy (mainly foreign) investors took flight. Add in the risks of another surge in the yen’s value against the dollar hurting exporters, Japan’s shaky politics (Prime Minister Yasuo Fukuda’s ratings make George W. Bush seem popular) and the longer term impact of a U.S. economic slowdown and it’s difficult to predict with any certainty that the current stock recovery will continue into the summer.

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