November 21, 1997
Introduction of Public Funds for dealing with bad debts and so on…
With the international financial situation moving towards chaos, Mr. Martin A. Armstrong, Chairman of Princeton Economic Institute, Inc. visited Japan and gave our paper an exclusive interview. His earlier forecast, that appeared in this paper at the beginning of this year, showed that this year would be a panic year worldwide. The international financial situation has actually proved this year to be a panic year with the Asian currency crisis and sharp decline of the Tokyo stock market. This time, we introduce Mr. Armstrong’s view as a special edition of the “neo-market-revolution” series. Today, we report on “reality of the Nikkei Average of 9700”, his previous forecast, and in tomorrow’ issue for the 25th, the international financial situation including the New York market.
“Japanese Government Does Not Move”
Q. Your outlook for the Nikkei Average of 9,700 which our paper carried made an impact on the market. Now, about your outlook for the Japanese stock market please?
A. The main support line for the Nikkei on a yearly basis lies at 12,882. If it closes under this line at the end of this year, it will become very possible for us to see 9,700 level during the first half of next year. We see at least 145.00, and even 160.00 likely for the USD vs. Yen exchange rate and, because of the continued Dollar’s strength, foreign purchase cannot be expected. Asset deflation in Japan is not yet over and the Asian crisis is still there. Capital tends to move decisively and at speed when danger is seen.
The Nikkei to at Least 12,000’s
Q. Presently, the Liberal Democratic Party have been studying the feasibility of introducing public funds for dealing with bad bank debts by purchasing preferred stocks of banks. Will it change the scenario when realized?
A. I think the situation will remain unchanged until a low below 14,000 is in place. We might see at least a low in the 12,000s. The problems this time are not of just Japan’s but have also occurred in the movements of global economies. The Japanese Government has still not even admitted the current economic recession. What can change when no recognition of the present situation exists? Historically, politicians move only when a big market fluctuation takes place. If 14,000 holds, Japanese politicians will do nothing.
However, foreigners will be back to buy Japanese stocks if Japan can accomplish reform and the Yen depreciates to 145-160. At the time of Black Wednesday in 1992 when the U.K. went out of the ERM (European Exchange Rate Mechanism), the U.K. stock prices went off temporarily but soon turned to rally to the extent to compensate the decline of its currency. Also, the U.S.A. in 1932 was in a similar situation as present Japan, with the strongest currency and the interest rate below 1%. However, after 75% devaluation of the U.S. dollar caused by a revaluation of gold in dollars from 20.00 to 35.00 per Troy-ounce, the U.S. stock market turned to rally. For the long-term, I think the Japanese stock market will bottom out in the first half of next year then move to highs into 2003.
Reporter’s Eyes: Mr. Armstrong’s view is interesting in that it symbolizes the current foreign view. As to the possibility of introducing public funds for dealing with bad debts, many foreigners have a cool view, based upon their strong distrust of the Japanese Government. In manner of speaking, “the potential for 9,700” can be taken as a warning to the Japanese Government.