Japan Needs to Hitch on Asia's Rising Star     

• A combination of exit strategies by the US Fed, and a stimulative stance by the BOJ, should be enough to produce a pull-back in the Yen to JPY100~JPY110 in 2010.
• Yen weakness, plus volume growth in exports to Asia (particularly China), very favorable year-on-year comparisons in Q4 2009, Q1 2010, and severe underperformance vis-a-vis other equity markets since August 2009, should be enough to support a period of relative outperformance in Japanese equities in the first half of 2010.
• Technically, the proclivity of the Nikkei 225  is up, not down, despite quite a lot of gloom and doom regarding a possible double dip in Japan's economy, and possible political confusion as funding scandals threaten to topple the new Hatoyama Administration. 
• While actively-managed foreign funds are now significantly underweight Japan, deep value investors, pension funds and sovereign wealth funds are selectively returning to Japanese stocks particularly those stocks with relatively high exposure to the earlier recovery in Asia demand whose stocks remain undervalued vis-a-vis their more pricey Asian competitors.
• On the other hand, domestic demand-dependent companies whose management refuse or cannot globalize and still cling to once dominating and profitable domestic markets such as construction companies with high exposure to domestic public works, or railway companies in regions with shrinking populations face further downsizing, consolidation or extinction. 
• In other words, any Japan rally in 2010 will not lift all boats, as globalization continues to ravage Japan's domestic economy, and an unstable government continues to struggle with a shrinking population and a structurally heavy debt burden.
• The smart Japanese companies are already working to re-orient their businesses to the growing pool of Asian (and emerging) demand, and it is the more successful of these companies are the ones that investors need to own.

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