The Nikkei index has been racing up in the past couple of months. This reversal has been based on a cacophony of optimism about Japanese recovery. As a result, the yen has also rocketed upwards against the US dollar and the euro.
I reckon this optimism is misplaced and so is the yen's strength. Consumers underpinned Japan's first two quarters of real GDP growth, contributing 0.5% points and 1.1% points to total growth of 0.1% year on year and 1.1% year on year in Q1 and Q2, respectively, of 1999.
Consumers could only do this because of past fiscal stimulus packages. These boosted Japan's housing cycle, in particular. Housing completions boost consumption of the items needed to furnish and equip them. Housing starts will now turn down, along with the decline in housing loans, now that government financing has ended. Indeed, as the impact of last...
