Keep the home fires burning

CANNON to the right of us, cannon to the left, and still into the valley of death trots the ASX S&P 200. In Tokyo the Nikkei Index has lurched to a 15-year low and in New York the last rites are being administered to the Nasdaq. Fund managers are limping home heavily bandaged from their overseas campaigns. In Hong Kong last week, the Hang Seng Index slumped 1,300 points or 8.6 per cent, and markets all round the region were on the nose.

Meanwhile, the underheated tech-light Australian stock market plods amiably along handing out fat dividends to the crowds, many of them fully franked. Japan is disappearing in front of our eyes. Record unemployment, industrial output down 3.9 per cent, and consumer prices falling for the 18th consecutive month. The CPI in February declined 1.1 per cent, the steepest fall since records were first kept in 1971. That is big time deflation. Very nasty.

Every time we see the beaming face of Japanese Prime Minister Mori we expect someone to get an old time music hall hook to pull him off the stage. But who else would want the job?

Ordinarily, these events would really put the wind up Australian exporters. But a sea change is under way. Two weeks ago, Japanese steel mills meekly handed over 8 per cent price rises for our coking coal, the first hike in four years. BHP and Rio Tinto are also likely to get a good result in their iron ore negotiations now underway. The fact is that, before too long, China, Korea and Taiwan’s iron ore imports will outstrip those of Japan. ABN Amro resources analyst John MacKinnon told the recent ABARE conference: “The Japanese steel mills once very influential position is being eroded to such an extent that we believe the next couple of years will see the end of an era.” Chinese Premier Zhu Rongji has just told the National People’s Congress of a plan to triple the country’s already trillion dollar GDP within 10 years. Think about that.

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