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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: John Hunt who wrote (14882)	3/16/1998 8:24:00 AM
From: Otimer	Respond to of 18056

Washington Post: LOOK FOR TROUBLE FROM JAPAN SOON By JOHN CRUDELE WHENEVER Wall Street can find no reason to worry about anything, it's time to look a little closer at the rosy picture. The stock market has already shrugged off numerous corporate profit warnings including many from the key high-tech sector. It has laughed in the face of the Asian financial crisis, and chortled at the mini-scandals dominating so much of Washington's time. The bubble lives. The Dow Jones industrial average soared past 8,600 this week as the pros realized correctly that in the month between now and tax time small investors are likely to feed the stock market's irrational exuberence with greater enthusiasm than they have in the past few months. All of this, of course, will end badly. But it's hard to explain that to small investors like the guy who called me last week to complain that Alan Abelson, my esteemed colleague at Barron's, was misleading people into thinking the stock market is dangerous. Well, sir, I agree with Abelson. In fact, I'll do Abelson one better - it is irresponsible for any financial columnist not to urge investors to exercise extreme caution. Remember that old axiom, "if it seems too good to be true, it probably is." There is one hurdle immediately ahead for the market. The end of the Japanese fiscal year comes on March 31. As everyone knows by now, it hasn't been a very good year in Japan. But what American investors should be focusing on is whether the Japanese government will decide that raising interest rates is best for its economy. If that's the way the Japanese go, and many knowledgable people believe Tokyo should, then the move would come early in the new fiscal year. Raising interest rates could have some detrimental effect on Japan. For one thing, higher borrowing costs might dampen Japanese consumers' desire to take out loans. But some experts don't think consumers will be hurt by higher rates. The biggest problem in Japan today isn't available cash, it is confidence - confidence that they won't lose their jobs, confidence that taxes won't explode. But a rise in interest rates would have numerous beneficial effects. Japanese consumers who have money in Japanese banks at appallingly low yields would essentially be given a raise. And once the Japanese get back that old happy feeling, they might even spend some of the extra money. There is a more important impact of higher rates in Japan: They may be able to scrape their currency off the floor. The yen has been devastated over the past few years. And while the lower yen value may help Japan sell products in places like the United States, it has also made loans taken out by Japanese corporations that are denominated in dollars extremely expensive. So expensive, in fact, that many Japanese companies will be unable to honor their commitments. A rate increase that strengthens the yen would bail out many of those Japanese borrowers. What would a rate increase do here? Several things. First, if Tokyo raises rates it could cause borrowing costs to rise here whether the Federal Reserve likes it or not. And if interest rates rise enough, the stock market will be hurt. And if Japanese can invest better in their own country, they will have less incentive to keep the hundreds of billions of dollars they currently have in U.S. bonds. That'll get rates rising here even further. So if you are the kind of person who needs to put reminders on your calendar, you might want to mark off April 1. That's the date when the hands of the Japanese come untied. With the Dow driving to new records every day, I'll give the same advice I have been giving for years: Ride the bubble, but don't be misled into thinking the trip will last forever. MORE BUSINESS NEWS