More encouragement for Japanese economy

It seems the Japanese economy is on the up again as official data released today has shown that machinery orders in the country jumped quicker than predicted in November.

One of the best indicators of investment in the industrial sector is core machinery orders. Reports show these figures were up nearly four percent in November from the previous month’s orders.

Many analysts see this data as confirmation of a growing view that the nation’s latest economic upswing will be more due to corporate spending as opposed to public spending in the coming year.

Other experts observing events are not as sure the core orders are such a decisive factor, and many doubt that the better than predicted figures released today and last week will spur the BOJ to raise interest rates. The central bank will meet next week to discuss the issue.

Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management said, “I’m not convinced the data we have seen over the last few days is going to force the BOJ’s hand on interest rates. I think they will take a much broader view of the economic landscape before making any major decisions.”

Others, like chief of FX sales and trading at Societe Generale Hidenori Kato, believe machinery orders will be “the big factor” that will bring in increased rates.

The Bank of Japan meets on the 14th to decide whether or not to move rates from their current 0.25 percent level. That rate was set in August 2007 after a run of over 5 years with a zero interest rate economic policy.

Morgan in $10 billion sell-off

In its latest efforts to save itself from this year’s credit crisis, Morgan Stanley has completed an agreement to sell a chunk of the troubled firm to Japanese holding company Mitsubishi UFJ.

The deal, which was announced on Tuesday, is thought to be worth nearly $10 billion and will be encouraging news for investors who will be hoping the US financial giant can make it through the most turbulent year in its prestigious history.

After the news hit the trading floors, Morgan Stanley shares staged a monumental rally, increasing nearly 90 percent. They had previously fallen substantially amid rumours the deal may not go through.

There was even a danger that the company could suffer a Lehman Brothers type total collapse if the agreement fell apart, which was a possibility up until only a few days ago.

“I’m sure investors will be relieved at a $10 billion funds injection,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a comment on his blog.

“At the moment it’s the only available move for the Americans, it’s all about survival at the moment and the investors need to know they are covered.”

Morgan, headquartered in New York, were involved in lengthy talks with Mitsubishi over the last few days, going through the terms of the deal which was first made public nearly a month ago.

According to insiders, Mitsubishi were trying to bargain a cheaper deal as Morgan’s stock fell dramatically since the proposal was announced. The original offer by the Japanese firm was for a mixture of common and preferred stocks.

After a new deal was hammered out, Mitsubishi will end up with a 20 percent ownership stake in the New York firm for a $10 billion stock payment, 10 percent of which comes back to Mitsubishi in the form of dividends.

It’s thought the US authorities themselves got involved with the talks, offering the Tokyo bank assurances that their investment would be a safe one. The government have a vested interest in the deal as it would calm the anxious mood in the markets and raise sentiment, vital factors if the country’s economy is to claw itself out of the current crisis.

Morgan Stanley boss John Mack said in a press release on Tuesday that the deal had “strengthened our position and brought about a critical alliance between two great companies looking to move forward in these most difficult and challenging times.”

Economic competitors now building ties

After Japan’s miraculous post-war economic recovery, it became the undisputed titan of Asia and currently sits at the pinnacle of world economies, second only to the United States.

Even though China is down at fourth in the world rankings, its growth is off the charts since its first boom in the eighties, and it continues to roll on like a freight train. In the last couple of decades Japan has not kept up with its noisy neighbour’s double–digit growth figures, only managing 2 percent in 2007 compared to China’s 12 percent.

Many analysts now believe China should really be higher up in the economy rankings, if certain important indicators were given more precedence.

The rivalry of the two ancient and dominant Asian cultures has led to many conflicts in political and economic arenas.

A good example is the significant need and competition for energy imports. Although China has a fair amount of coal resources, both countries depend almost entirely on imports for energy, mostly oil and gas, to fuel their rampant economies.

The energy war has produced periods of raised tensions and, in turn, maritime border and island disputes in the East China Sea, an area where there are known to be oil and gas reserves yet to be tapped.

Despite this, economic partnership between the old enemies has gotten much closer in the last decade. With the two nations accounting for nearly 80% of economic activity in East Asia, it makes sense to work together.

Bilateral trade between Japan and China reached a huge $240 billion in 2007, a figure which means China has overtaken the United States as Japan’s biggest trading partner. China has, since 2004, become the number one market for Japanese exports and the trend is only increasing.

Mutual investment is also on the rise, although still heavily slanted towards Japanese firms investing in China. Money is beginning to move the other way more recently.

Analysts say the relationship is extremely beneficial to both sides and can improve. Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management said in a phone interview, “China is always looking for new investment and technology to boost its already motoring economy, Japan is a good fit for that. Meanwhile, Japan will always want a growing and nearby market for its exports. It’s a wonder the two nations haven’t forged closer links before.”