He was a great fan – he read all my columns and had done well over the years out of taking some of my advice. I glowed with pride. Then came the fall. But, he went on, he had also lost a small fortune as a result of buying into the Japanese market – again on my advice – in 2007.

What did I suggest he did now? I shifted uncomfortably from foot to foot and prayed for the speeches to begin while the editor of a rival publication, irritatingly standing right next to me at the time, tried not to smirk too obviously.

It’s always horrible to feel responsible for other people losing money, but when it comes to Japan I really feel the pain: my own Isa is stuffed with Japan-related investments. So the fact that the Nikkei 225 was one of the world’s worst performing markets last year hasn’t exactly brought forward my retirement date.

So what did I tell him? That I was buying more. Japan is cheap in a way that no other developed markets are. A good 50% of Japanese stocks trade at less than their book value (the accounting value of their assets), for example. Dividend payouts are also rising. They have always been stingy, when they have existed at all, but over the past three years, the dividends offered by the biggest companies have been rising at double-digit rates.

And the economy isn’t doing badly at all. In the fourth quarter of last year, Japan grew at an annualised rate of 3.5% and in the first quarter of this year the numbers are expected to show that it grew at around 2.5%. Given that the best the US can do is 0.6% (and that number is bound to be revised down over the next few months), that looks pretty good.

Japan is currently the world’s fastest growing developed economy and given its links to Asia (twice as many Japanese exports go to Asia than to the US), it is likely to stay so.

Even more interesting is that fact that, after well over a decade of falling prices, Japan appears to have finally banished deflation. Food prices are rising (McDonald’s has eased the price of a Big Mac up from ¥250 to ¥280) as are energy prices.

But these obvious elements aren’t the only things that drove core inflation up to 1.2% year-on-year in March. Strip them out, says Jonathan Allum of broker KBC Financial Products, and inflation is still “mildly positive”. Better still, wages appear to be rising: the average base salary turned positive in November last year.

This is a very big deal. For far too long falling prices have put the Japanese off spending money (why buy something now if it will be cheaper tomorrow?) but if prices are rising – and workers have more money in their pockets – perhaps they will finally start to loosen their grip on their left-over-from-the-1980s Louis Vuitton wallets.

Already, says Christopher Wood of CLSA, Japanese consumers are expecting inflation to be running at 3.1% in 12 months’ time. This should do wonders for corporate pricing power (you can’t put prices up when people are expecting prices to fall but you sure can when they are expecting them to rise anyway) and for profit margins.

The other thing that might work to cheer up the Japanese consumer is the state of the property market.

Those who have placed very heavy bets on the UK property market on the basis that “we are a small island and demand is greater than supply” don’t like anyone to mention Japan. There, the long and totally insane bubble of the 1980s was justified on identical grounds. Then prices fell for 15 agonising years.

The good news – for Japanese homeowners if not for our own buy-to-let investors – is that they aren’t falling any more: residential land prices rose for the first time in 16 years last March.

Still, a lot of this has been true for some time and, as my new banker friend reminded me, it didn’t do us any good last year. Why might it now?

The answer is sentiment. Today most people hate Japan. Jonathan Allum points out that the week leading up to March 14 saw the biggest wave of foreigner selling since October 1987.

This is good news in the sense that the total capitulation of foreign buyers often marks a turning point for Japan. And so it has again. The point is that sentiment is beginning to turn. Right now very few investors have a stake in Japan. Soon they’re all going to want one.

So it’s best to get in before the rush – and the easiest way to do so is via the iShares MSCI Japan ETF (NYSE:EWJ).

Source: Bucking the Trend Could Help You Make It Big in Japan

The impact of the credit crisis has left the rarefied glass towers of the City and moved into a bank near all of us. A mortgage squeeze is on, with the Bank of England talking about “rationing” over the next three months. Miserable news for estate agents looking for a pick-up in trade as the traditional Spring selling season gets under way. House buying activity, already at very depressed.

levels, will likely to continue that way for some time yet with the principal movers perhaps being the estate agents themselves as they go out of business.

The joke was on us on April Fool’s Day as the second quarter started with an impressive bounce by global equities led by the venerable old stock bellwether index the Dow Jones, up nigh on 400 points. The rally has continued since with the FTSE 100 back over 5,900 having ended March on Monday at 5,700.

The question for investors now is whether the worst is over and we’ve seen the bottom, or whether we still need to keep our powder dry. Perhaps this is a bear market rally that will pull in the succours only to roast them a little further down the line. Legendary speculator George Soros certainly thinks so. They’ll start heading down again in a few months time, says the man who once broke the Bank of England when he bet against the pound in the Exchange Rate Mechanism.

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Certainly when you start thinking of the headwinds the UK economy faces it gives pause for thought. Tighter credit, shaky house prices – flat or falling depending on your measure of choice – and a substantial consumer debt load. At present though employment levels remain at record highs, though for those that liken the UK economy to a mini-US economy with a 12-month time lag, the indicators from across the Atlantic continue to be alarming. Jobs continue to be lost in the US. The latest employment report on Friday revealed 80,000 jobs lost in March up from 76,000 in February. It’s a vicious downward spiral, comments one analyst. Job cuts weaken consumer spending which leads to more job cuts.

Commodities are rallying again after recent falls with soft commodities reaching record levels. With basic food stocks at low levels and traditional exporters curbing trade to protect their home markets, some emerging market nations are finding they’re running short of food. Rice has caught my attention in recent days and as a traditionally cheap staple relied on by approaching 40% of the world’s people. The price is heading to the moon which leaves you wondering what a cheaper substitute would be if rice is no longer affordable to those living on a dollar a day? To go hungry most likely…a recipe for trouble.Gold, a popular item here at the Daily Reckoning, has bobbed back over $900 having been in retreat from its $1,000 peak. Silver too has fallen back now a little over $17 having been over $20.

These insurance policies remain valid always. As someone said, have some gold in your portfolio as insurance and hope you never need it.On the currency markets, the dollar has a good week but the pound, still near $2 is ripe for a further kicking for reasons referred to earlier. The euro could challenge the dollar as the world’s global reserve currency thinks the FT’s Wolfgang Munchau. But methinks rumblings will soon surface from this political constructed monetary union as Germany powers ahead while others such as Spain and Italy struggle.

Not a great week for the one time “World’s Favourite Airline” as it presides over one of the world’s greater PR disasters. Systems went haywire at its new Terminal 5 at London’s Heathrow airport. Flights were cancelled by the score and tens of thousands of bags of luggage escaped being reunited with their owners. Curiously, the mislaid bags were then trucked to a depot in Milan to sort out the mess as there wasn’t the capacity locally. It’s a fortnight CEO Willie Walsh will want to forget but one shareholders are unlikely to. As of high fuel prices were not bad enough, the debacle is estimated to have cost the airline £16m. Little encouragement for a stock that has more than halved over the past year.

Enjoy your week-end.

Regards,

Rob Mackrill
The Daily Reckoning