Forbes – Global macro issues have once again taken center stage with the dramatic breakdown of the U.S. dollar over the past several days. The dollar now stands at a 20-month low against the euro anda 14-year low against the British pound, and the suddenness of the decline has reignited concerns about the health of the U.S. economy. Declining home prices (and worries about their impact onconsumer spending) and recent weak U.S. manufacturing data stand in sharp contrast to the continuing economic strength in Europe and Asia. Meanwhile, the strength in the long end of the U.S. yieldcurve and the dollar’s sharp move lower has spooked equity markets around the world, and there is rising concern that the U.S. dollar weakness will result in competitive pressures for non-U.S.corporations. This seems to have been at least one of the contributors to the underperformance of Japanese equities this year; the Nikkei stock index is down 0.2% year-to-date, compared to gains ofmore than 17% for German stocks and nearly 12% for U.S. stocks.
Given the poor showing of Japan in 2006, it is hardly surprising that previously bullish investors are throwing in the towel. According to the most recent Merill Lynch Survey of Fund Managers, Japanese stocks are nearly as unloved today as they were adored this time last year–sentiment toward Japanese equities is now at a three-year low by some of the survey’s measures. And net purchases of Japanese stocks and bonds by foreign investors may fall this year for the first time in four years, according to the Nihon Keizai newspaper.
