Japan’ s problems are well known: major underperformance of the stock market, sluggish domestic economy, strong currency, aging population, high fiscal deficits, etc.  What is interesting is the uptick in performance of the Japanese stock market compared with the global benchmark.  Is this a sign of things turning around for Japan? Looking at the MSCI numbers for December (through Dec 24) we see that Japan is up 8.9%, compared with 2.9% for the S&P 500, and 4.8% for Europe.

Lets take a quick look at Japan.  First and foremost, it should matter to any investor. It is the second largest economy in the world. Second the stock market is down nearly 75% from its peak in 1989 and investors should be monitoring this economy closely to see if structural forces are in place to spark a rally. Note that this year there was an important shift of power in Japan: the Democratic Party of Japan (DPJ) took over after 54 years of rule by the Liberal Democratic Party (LDP). Could this serve as a catalyst for Japan to do what is necessary to ignite the economy?

Forget for a moment that Japan has the highest debt to GDP ratio in the world (near 200%).  They unveiled a 7.2 trillion yen stimulus package on Dec 8, a week after a 10 trillion yen credit program to support the economy. This is looking more and more like Japan is trying to play catch up and start quantitative easing in the British / American sense.