Japan: Finally Moving on Economic Stimulus   

• The US now has both a large economic stimulus package and a credible bank rescue package, in addition to the Fed's aggressive use of its balance sheet, which has assuaged the worst of investor fears about a financial sector meltdown. As regards the impact on other global equity markets, a stable US equity market was the first prerequisite for a recovery.
• The Nikkei 225 has rebounded some 23% from an October low and a recent re-test of this low in early March, but our working assumption continues to be is that this rebound is a rally in an ongoing bear market at least until a golden cross in the 13-week and 26-week moving averages is confirmed.
• The brighter mood in Japan’s and global equity markets notwithstanding, Japan's economy remains in deep trouble, having declined at an annualized rate of 12% in each of the last two quarters, and with the IMF forecasting a 5.8% decline for the full year.
• While way behind the curve, the BOJ has finally moved to aggressively use its balance sheet to offset shrinking private sector credit, and the worst of end-of-period valuation losses for the banks and corporations have been avoided by an 8,000 print on the Nikkei225 at the end of the fiscal year.
• In addition, the Japanese government has finally passed its FY09 budget, thereby clearing the way for a nominal JPY75 trillion of economic stimulus and fiscal expenditures of JPY12 trillion. The government is now readying even more stimulus of JPY20 trillion, as well as a scheme for outright purchases of stocks.
• While a full commitment to Japanese stocks may still be too early, we believe now is a good time to begin considering what sectors and stocks will lead the Nikkei 225 out of this "Great Recession" bear market. One of the first places to look is global commodities-related stocks, particularly copper-related companies. Construction equipment companies should also benefit from increased infrastructure spending in China.
• In addition, we would also focus on the regional banks, which should benefit from full-fledged Japanese economic stimulus.

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