Japan's Stocks Rise to 4-Month High

Soaring oil prices historically have been bad news for Japanese stocks because high oil prices are bad news for corporate profit. This time, however, the Japanese market has been down for so long that any catalyst (surging oil prices) looks like up. The hope in Tokyo this time is that the US economy will not be as bad as feared.

At the same time, bond prices are weaker because higher oil prices = inflation, which Japan has not seen for nearly a decade. Higher inflation ostensibly means room for BOJ to raise rates at some point this year = widening loan/deposit spreads for the banks = better profits, and thus the banks are reacting positively.

The Yen is also comfortably back below the JPY100/USD "danger" line, easing investor fears that a sub JPY100 yen rate would decimate exporter profit margins.

As for the other items in the usual case against Japan (i.e., a) inept political leadership, b) lack of capital discipline, c) poor demographics, and d) ongoing deflation), "ongoing" deflation is gone, and has turned into undeniable inflation. Most foreign investors agree that inflation is an unequivocal positive for Japanese equities and property. In addition, according to data compiled by Platinum Asset in Australia, growth in adjusted (dividends + share buybacks - capital raising) has outpaced the world and US average since 2002 (at over two-fold increase versus a world average of less than 1.9X and a US average of 1.8X).

So...it looks like the recovery in Japan could continue for the foreseeable future.