Message from the publisher.

On February 26, 2007, the Nikkei 225 Stock Average hit an 81-month high of 18,215.35 points, the highest close since May 2, 2000. While it could be that this is just another temporary year-end closing blip for the market, by companies bundling their profits into the final quarter, most analysts are saying that it is more likely a milestone on the way to the Nikkei hitting 20,000 later this year. The reasoning behind this is that due to the low yen, exporters are making some quite massive local profits, and these will be reflected in the stock prices moving forward.

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For those of us doing business here in Japan, the whole situation is a bit surreal. Basically there are still a lot of issues outstanding from the recession of the 1990s: the much-needed government restructuring hasn't been fully implemented, there are still many weak corporations trying to find a place after the industrialization of China, and consumers are dead scared to spend any of their meager bonuses. Yet, thanks to a weak currency, exporters and thus downstream companies are reporting record profits.

We're not complaining, but we are worried. A weak currency usually means that the economy isn't doing so great, but in Japan's case, the tail is wagging the dog. Interest differentials between Japan and the USA, and other major economies, are so great that speculators are pushing the market around. The Japanese government can't do much about it, because they need to have the Bank of Japan hold the interest rates low, so as to not kill the debt-driven economy and further to not blow out the interest payments on government debt.

There are two main bodies of speculation. The first is the so-called "carry trade" by hedge funds borrowing yen loans (with foreign collateral) then lending the money out at higher interest to overseas borrowers. This has been both very profitable for the hedge funds involved, and because of the sheer volumes of money, it has greatly impacted on the value of the yen.

Interestingly, although the Japanese finance ministry has been making noises about how it is undesirable to have the yen trading so cheaply compared to its likely true value, in fact, no one wants to touch the issue. The Europeans have complained, but the Americans are staying quiet. The reason, in my opinion, is that the Japanese are still faithfully buying US government debt, and so there is a lot of benefit for both the USA and Japan to maintain this temporary financial surplus in Japan, and thus stability in the global financial system.

The other body of speculators is Japanese consumers themselves and there are a record number of people speculating on their own currency. Being from "down under", I have seen the effect of Japanese "uridashi" bonds, where by Japanese retail banks are selling their customers huge amounts of NZ and Australian dollars, keeping those currencies pumped up. They are also buying other currencies, largely on margin, and as of September last year, deposits by people trading FX this way jumped 76%. As a consequence, FX brokers in Japan are enjoying one of the best years they've had in several decades.

Well, whatever the reason for the low yen, those of us living in Japan can celebrate for a little while. Toyota, Canon and the myriad of other Japanese brand-name exporters must be particularly delighted. Jobs are up, and unemployment is almost the lowest it's been since 1992, at 4.1%. According to the Ministry of Health, Labor and Welfare, the ratio of job offers to job seekers was 1.06 for last year, exceeding 1:1 for the first time in 14 years.

As a result of the perky economy, this edition of Japan Inc is not only larger than usual, but also is a sign of the times. Our feature article focuses in on investment in network infrastructure and how to get the best out of it. Then one of our special features is about finding a job with a foreign company--a perennial favorite, but now more achievable than ever, thanks to the expansion of foreign firms here.

Whether this particularly favorable clime will last is hard to predict, but we think it's fair to say that one of the best indicators will be the health of the US economy. If the US soft-landing turns out to be real, and if the markets can stomach a cheap yen, then the current situation will continue. Either way, it's a great time to be out looking for a new job.

Terrie Lloyd

Publisher, Japan Inc magazine