Ralph Shell submits:

Prior to his promotion from finance to prime minister, Naoto Kan’s chief economic concerns seemed to be fighting deflation, and assisting Japanese exporters, giving lip service to a weak yen which benefits their trade. Now Kan, apparently influenced by an Osaka economic professor, Yoshiyasu Ono, has changed his tact.

For years now, the aging Japanese population has chosen to save, resulting in a moribund domestic economy. A series of Japanese governments has embraced the Keynesian solution. If the private sector will not spend, do it for them. Decades of deficits now has the government’s debt soaring to a hearty 200% of the GDP, making the Greeks look like pikers. With tax revenues reduced because of the recession, and now accounting for less than 50% of the yearly spending, somethings must be done.

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A longtime shareholding on mine, Internet Initiative Japan (IIJI) [JP: 3774], is having its Annual Shareholder Meeting this Friday in Tokyo. I urge all ADR and Ordinary shareholders to submit their votes as soon as possible, but not later than this Thursday, 10:00 AM Eastern (NY) for ADR holders, or by Thursday, 11:59 PM Japan Standard Time for Ordinary shareholders. Please see my previous article detailing my activist work to-date with IIJ.

IIJ hit another 20-month high overnight in Tokyo, up 1.3% to ¥276,900 (ADR equiv. $7.65 at $1/¥90.5), although it traded as high as ¥288,900 in the afternoon session before giving back a good chunk of the gains into the market’s weak close. While IIJ’s stock has had a strong year, I remain convinced that its shares are still undervalued, due in some respects to management’s misuse of capital and the Board of Directors’ failure to unlock value, and in other respects primarily because of overly restrained IT spending in Japan. Those who have followed my activism with IIJ know that less than two weeks ago I responded to IIJ Chairman Suzuki’s response to myself and my fellow shareowner proposal co-sponsor, in which the Chairman informed us that as ADR holders we do not have a right to submit shareholder proposals. Chairman Suzuki did however thank us for our letter and proposals and addressed some matters from each in his response. I strongly believe that the Board has been missing a tremendous opportunity to buyback shares, and it has also failed to help enhance the trading liquidity of IIJ by splitting its Ordinary shares and reverse splitting its ADRs, thus I responded to Chairman Suzuki asking him and the Board to reconsider these two matters in particular and adopt them directly.

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Marc Chandler submits:

Euro: Over the past 2 months, the euro’s correlation with US-German 2-year yield differentials has turned positive (0.3) compared with a negative reading year-to-date(-0.06). The correlation with the 10-year differential has more than doubled to 0.47 from 0.21 in the year-to-date period.

The euro’s correlation with the S&P 500 edged higher over the past two months to 0.52 from 0.48 for the year-to-date, but the correlation with the Dow Jones Stoxx 600 has weakened to 0.33 from 0.45. The euro’s correlation with gold has switched. For the year-to-date period the correlation is about 0.15, but over the past two months it is -0.37.

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Doug Short submits:

Note: A significant number of visitors to the website hail from Japan, and I have received several recent requests to update this article, last posted on May 13th.

Here’s an updated chart that gives a close-up view of the cyclical rallies and their duration during Japan’s secular bear market, now in its 20th year.

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Ralph Shell submits:

As projections for the economic recovery in Europe and the US wanes, the yen has been quietly appreciating. The strength is may be more than a flight to perceived safety away from the ‘higher risk’ currencies.

This morning it was reported by Forbes that: "Japan’s exports expanded for a sixth straight month in May as brisk global demand for cars and high-tech products helped shore up a recovery in the world’s second-largest economy.

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Andrei Tratseuski submits:

First and foremost, Japanese consumers tend to tighten their wallets during times of uncertainty. Businesses tend to refrain from spending on new equipment and plants. The figures can be seen in the Nationwide Department Store Sales which are still printing in a negative territory (-2.1% in May), Convenience Store Sales (-3.2% in May), Corporate Service Price (-0.8% in May), Supermarket Sales (-5.3% in May), and Lending ex-Trust which printed at -2.1% in May. Overall, consumers and businesses alike will refrain from spending, putting a downward pressure on the prices.

Secondly, the Japanese government is pursuing a policy of a stronger Yen at this juncture in time. This was implemented to transform the economy from export orientated to a more robust consumer oriented economy. China has an ability to surpass Japan as the second leading consumer nation and navigate from the uncertainties of the markets abroad. Japan is trying to initiate the same principals right now, largely through a policy of a stronger Yen. A stronger Yen, however, for a medium time frame will have a negative impact on the country. Price declines tend to persist as the currency rises, which will be experienced in Japan. This will also continue to happen in the second half of the year.

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Investment U submits:

Source InvestmentU.com: The Japanese Stock Market: How to Play "The Land of Rising Stocks"

by Alexander Green, Chief Investment Strategist Monday, June 28, 2010: Issue #1290

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Michael Johnston submits:

Yukio Hatoyama resigned suddenly on Wednesday after just eight months in office, setting off a round of jostling among rival politicians to become Japan’s fifth prime minister in less than four years. Hatoyama had seen his popularity slide steadily since his election, highlighted by a controversial backtracking on a promise to move a U.S. marine base off Okinawa. Hatoyama called the decision to retain the base “heartbreaking,” but critics were quick to accuse him of giving into U.S. pressure, and his government coalition began to suddenly dissolve.

The rapid turnover of prime ministers has undermined Japan’s recovery efforts, helping to extend a nearly two decade long economic slide. Since 1989, only Junichiro Koizumi served more than 1,000 days in the office, with several leaders stepping aside after less than one full year. Whoever steps in to the position next will face some daunting challenges, including mounting debt burdens, a stubbornly strong currency, and an ongoing battle against deflation.

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Danny Furman submits:

Watching international markets has not been the most relevant thing to do for US investors in the last year. The Shanghai Composite Index peaked in the summer of 2009 and has steadily sold off about 30% since. Hong Kong’s Hang Seng Index peaked in October and has bounced around, ultimately grinding lower, since. Brazil’s Bovespa, Japan’s Nikkei, India and European markets have moved with the US market, pulling back in early 2010 after a hardly interupted trip to the moon in 2009, followed by highs in April and a euro-induced sell off in May. Saying that Hong Kong lags Shanghai by a few months, which the rest of us lag by a few more months, is not concrete enough for most to formulate an investment thesis.

On an intraday basis, however, one thing is very clear about the current relationship between international equity markets: None of them know what to do and they’re all looking at eachother cluelessly for answers. I’ve been watching the 3 biggest East Asian markets before I go to sleep each weeknight for almost a year and never until recently have I seen such a high correlation between minute to minute movements in them.

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Japan

Internet

• Japan’s Rakuten Inc. (RKUNF.PK) is buying Buy.com Inc. for US$250 million as part of its global expansion. Rakuten runs an online mall plus auction, bookstore, Internet search, travel and stock trading sites with yearly sales of approximately US$3.2 billion. Buy.com sells electronics, DVDs, CDs and some 60 million other products. About 35,000 merchants also use the site to sell their products. The company has yearly sales of approximately US$500 million. The deal marks the second time Buy.com has been acquired all or in part by a Japanese company. In 1999, a group led by Softbank Corp. paid US$165 million for a stake in Buy.com. Buy.com went public in 2000 and went private again in 2001. The company looked to go public again in 2005 but never did. Orange County native Scott Blum started the company in 1997 with a plan to sell products at a loss and offset that with online advertising revenue.

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