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Deep gloom in Japan amid talk of V-shaped recovery

business Updated: Jul 10, 2011 22:34 IST

Traders here are fond of joking that no one has lost money betting against Japan since the collapse of the bubble economy of the 1980s.

More than two decades later, the Nikkei 225 stock index is still three-quarters off of its peak. And the economy has been hit by blow after blow, from sagging property prices to mounting debts and intensifying competition from China.

Add an aging population, a lack of jobs for college graduates and persistent deflation and you can see why Japan's so-called lost decade is a misnomer.

Natural disasters could be added to the list of economic shocks, notably the earthquake that leveled Kobe in 1995, and, in March, the earthquake and tsunami in northeastern Japan and the nuclear crisis in Fukushima that followed.

Four months since the triple disasters, there are early signs of another rebound. Carmakers are resuming production, gasoline shortages have disappeared and roads and homes are being rebuilt. Many economists say they expect a "V-shaped" recovery; indeed, the Nikkei 225 index has risen 18% since March 15, four days after the earthquake.

It seems that the impact of these disasters is far more profound than that of the 1990s quake - a difference that investors in Japan-related mutual funds may want to consider. As a whole, Japan stock funds gained 2.4% in the second quarter, and more than 15% over the last 12 months, according to Morningstar.

While the damaged reactors provided electricity to the Tokyo region, fears about the safety of the nuclear industry have led to the shutting of many other reactors, prompting utilities across Japan to ask customers - including the largest manufacturers - to use less electricity. If the reactors are not restarted, shortages could persist into next year.