• According to the Bank of Japan (BOJ), “Japan’s economy has started to pick up” and the economy is “likely to improve gradually,” writes Myra P. Saefong for MarketWatch. The BOJ left rates steady at 0.1%, which is not having much of a stimulative effect on economic activity.

• The Japanese Central Bank stated that public investment, exports and production are all on the increase, as stated in China View. Exports and production are expected to rise when other countries recover and begin to buy again. (Domestic industries are benefiting from new political party).

• The Central Bank has hopes that this is the beginning of a two-tiered economy based on high domestic demand and greater foreign exports. The Democratic Party of Japan is aiming to change the Japanese economy into one centered on domestic demand. (Japan’s new dominant political party).

Private consumption and housing investments remain weak. Furthermore, corporate profits, employment and income all remain depressed.

For more information on Japan, visit our Japan category.

• PowerShares FTSE RAFI Japan (NYSEArca: PJO): down 1.2% year-to-date

• iShares S&P/TOPIX 150 Index (NYSEArca: ITF): up 1.6% year-to-date

• iShares MSCI Japan Index (NYSEArca: EWJ): up 1.6% year-to-date

Max Chen contributed to this article.

South Korea’s growth in the third quarter was at its quickest rate in more than seven years, accompanying China and Singapore in reporting faster growth during the September quarter, reports Gillian Murdoch for Reuters. (How to capture China’s growth).

• iShares MSCI South Korea Index (NYSEArca: EWY)
• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI)
• iShares MSCI Singapore Index (NYSEArca: EWS)

Japan, Singapore, Hong Kong, Thailand and Taiwan all officially exited a recession in the second quarter.

• iShares MSCI Japan Index (NYSEArca: EWJ)
• iShares MSCI Hong Kong Index (NYSEArca: EWH)
• iShares MSCI Thailand Invest Mkt Index (NYSEArca: THD)
• iShares MSCI Taiwan Index (NYSEArca: EWT)

Japan, however, grew 0.6% in the second quarter – less than expected. (Small-cap plays for Japan).

Singapore’s economy expanded in the second quarter at its fastest rate in almost six years, as a result of a surge in biomedical production and construction. (Sectors pushing Singapore’s growth)

Hong Kong pulled out in the second quarter after its economy grew at a faster-than-expected 3.3% from the previous quarter. (Is Hong Kong facing a correction?)

Thailand’s economy grew 2.3% in the second quarter from the first quarter on a recovering manufacturing sector. (Reasons to watch Thailand)

Taiwan’s economy saw growth for the first time in a year during the second quarter. Officials expect rising demand from China to support the island’s recovery. (Why Taiwan’s heating up).

• iShares S&P Asia 50 Index (NYSEArca: AIA)
• BLDRs Asia 50 ADR Index (NasdaqGM: ADRA)

For more information on Asia, visit our Asia category.

Max Chen contributed to this article.

The Democratic Party of Japan (DPJ) plans to support small- and medium-sized businesses, a major shift from the former Liberal Democratic Party’s inclination toward big businesses, comments Patricia Oay for Morningstar. In addition, Prime Minster Yukio Hatoyama is proposing stronger trade relations with neighboring Asian countries, which would further benefit Japanese businesses.

Potential investors seeking some allocation in Japan may consider broad market ETFs or small-cap ETFs, depending on where your interests happen to be.

• iShares S&P/TOPIX 150 Index (NYSEArca: ITF): up 0.2% year-to-date

• iShares MSCI Japan Index (NYSEArca: EWJ): up 1.2% year-to-date

• iShares MSCI Japan Small Cap Index (NYSEArca: SCJ): up 6.1% year-to-date

• WisdomTree Japan SmallCap Dividend (NYSEArca: DFJ): up 5% year-to-date

• SPDR Russell/Nomura Small Cap Japan (NYSEArca: JSC): up 7.5% year-to-date

Note that consumer discretionary sector accounts for around 20% weightings in broad market and small-cap Japan ETFs. The broad market portfolio includes global auto manufacturers and consumer electronic firms, whereas the small-cap portfolios contain domestic-oriented restaurants, retailers and apparel manufacturers. Industrials, materials and information technology are export-oriented. The small-cap ETFs available have similar weightings except SCJ may be more exposed to financials.

Before the economic recovery can freely come about, the DPJ has to deal with a complex bureaucracy and large budget deficit. Another potential problem is the appreciating Japanese yen against the U.S. dollar. A higher yen may be better for local businesses, but it also means more costly exports. The biggest concern is the country’s rapidly aging population.

For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

The defeat of Japan’s long-standing conservative party, the Liberal Democratic Party (LDP), by the landslide victory of the opposition Democratic Party of Japan (DPJ) brings hopes that the political system will become more competitive, democratic and dynamic, according to BBC News. The DPJ will help steer policies away from bureaucratic and business interest that plagued the previous leading party.

The DPJ will keep committed to strong relations with the United States and may develop more friendly, long-term Sino-Japanese relations.

Major media report that the DPJ won more than 300 of 480 seats in lower house of parliament, which is more than enough to choose the next prime minister and control the national agenda, writes Tomoko A. Hosaka for The Associated Press. The Democrats vowed to expand the social safety net and reshape the economy with proposals, including a monthly $280 handout to families with children, toll-free highways, higher minimum wage and tax cuts.

Japan is currently dealing with a record 5.7% unemployment rate and spending is on the decline, compounding worries about jobs and wages. The new party also needs to address the problem of a rapidly aging and shrinking population.

• iShares MSCI Japan Index (EWJ): up 7.3% year-to-date

• PowerShares FTSE RAFI Japan (PJO): up 5.7% year-to-date

• WisdomTree Japan SmallCap Dividend (DFJ): up 9.8% year-to-date

For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

The Reuters/University of Michigan Surveys of Consumers reported that its final index of confidence for August fell to 65.7 from 66.0 in July, the lowest level it has been at in the past four months.  In fact, according to the report, consumers ranked economic conditions the worst since the market’s “bottom” in March.  The good news is that the index beat analysts’ expectations of 64.5 and is above this month’s preliminary reading of 63.2, Reuters reports.

In the technology world, chip-maker Intel (INTC) increased its third-quarter revenue forecasts above Wall Street’s expectations as demand for microchips increased, indicating that business is improving.  The Santa Clara, CA-based firm announced expected sales of $8.8 billion to $9.2 billion for the quarter, up from an original anticipation of $8.1 billion to $8.9 billion and ahead of $8.55 billion analysts expected.

Additionally, Dell (DELL), the nation’s second-largest personal computer maker, announced that although consumers are coming back to the market, corporations are holding off purchasing new hardware as they continue to implement lean measures.  The Texas-based company stated that it doesn’t expect to see a turnaround in corporate business until next year.  The news from both companies sent the Technology Select Sector SPDR (XLK) up nearly 0.4% in morning trading.

Although the global economy appears to be recovering, things are not easing up in the Asia-Pacific region as the world’s second-largest economy reported the highest unemployment rate since World War II.  According to a report released by Japan’s Ministry of Internal Affairs and Communications, the nation’s unemployment rate hit 5.7% in July, a 40.2% jump from the prior year.  Additionally, Japan’s average monthly income per household declined by 2.4% in nominal terms., states John Letzing of MarketWatch.  The news sent the iShares MSCI Japan Index (EWJ) down 0.2% in morning trading.

The Dow Jones Industrial Average lost 0.9%, the S&P 500 was down 0.7% and the Nasdaq gave up 0.4% in morning trading.

For more stories on Japan, visit our Japan category.

Kevin Grewal contributed to this article.

The demand from China’s dynamic growth has helped Japan pull out of the deepest-post war slump in history, according to a government official. Large manufacturers such as Honda Motor Corp. and Komatsu Ltd. have benefited from the $545 billion stimulus plan, which took effect last quarter, report Toru Fujioka and Tatsuo Ito for Bloomberg.

Honda, Japan’s second-largest automaker, will build about 90,000 vehicles more than initially planned in response to higher-than-expected sales from emerging markets, including China.

Exports to China, which overtook the United States to become Japan’s largest overseas market this year, are offsetting weak domestic spending by consumers and companies in Japan. International Monetary Fund data imply that China is set to overtake Japan as the globe’s second-largest economy as soon as next year.

Meanwhile, China’s jump has hit a stumbling block as its economy faces down new worries. The country has had some trouble increasing domestic consumption, in particular, says Reuters.

• iShares MSCI Japan Index (EWJ): up 7.1% year-to-date

For more stories about Japan, visit our Japan category.

A couple of signs of concern:

• The CBOE Volatility Index (VIX) jumped more than 15%.  This index is an indicator and gauge of fear in the markets and moves inversely to the S&P 500.

• Lowe’s (LOW), the nation’s second largest home-improvement retailer reported earnings of $0.51/share, falling short of Wall Street’s expectations. The home improvement retailer blamed weak consumer spending and inclement weather for the decline.  As a result of the poor economy and consumer pullback, the retailer plans to scale back new store openings and expects future sales to decline.

To help spur lending to consumers, the Fed has extended its Term Asset-Backed Securities Loan Facility through March 31 for most loans that it makes. The program was constructed to ease credit, stabilize the financial system and help end the recession.  It enables investors to use the funds of the program to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.  The program has the potential to generate up to $1 trillion in lending for households and businesses.

It appears that things are getting a bit more optimistic in Asia. The Japanese government reported that Japan’s economy has finally climbed out of a recession, expanding 3.7% at an annual pace.  This recovery was driven by robust demand for autos, video recorders and other electronic goods and an increase in exports to China.  Some economists are still a bit wary of the nation’s future because domestic consumer spending remains fragile amid plunging incomes and rising unemployment, states Yuri Kageyama for the Associated Press.  The iShares MSCI Japan Index (EWJ) dropped 2.9% in morning trading.

The caution that loomed over Wall Street further spread to the oil markets as crude oil dipped to its lowest level of the month, hitting an intra-day level of $65.32/barrel. The decline snapped a four-week rally of gains.  The United States Oil Fund (USO) dipped 2.6% in  morning trading.

Overall all three major U.S. indexes were down in morning trading with the Dow Jones Industrial Average losing 2%, the S&P 500 dropping 2.3% and the Nasdaq dipping by 2.5%.

For more stories on Japan, visit our Japan category.

Kevin Grewal contributed to this article.

U.S. economic activity has been slow to recover, but China, the world’s second-largest oil consumer, is once again putting its economy on a path to growth. This growth is having an impact on oil prices. China’s oil refiners  operated at a record rate in June, drawing down crude inventories, though stockpiles are still nearly 10% higher than they were last year, explains Madalina Iacob for The Wall Street Journal.

• United States Oil (USO): up 13.7% year-to-date

Rana Foroohar for Newsweek reports that China may soon surpass Japan economically, and it is only matter of time before they do so politically. Japan, which was once the second-largest economy after the United States, is  nervous about being displaced by China. Japan has only recently emerging from their “lost decade” of the 1990s.

• iShares MSCI Japan (EWJ): up 3.4 year-to-date

Indicators such as China pushing crude oil futures prices higher are reinforcing the other efforts made by China to secure their spot as a world power, second only to the United States.

• iShares FTSE/Xinhua China 25 Index (FXI): up 43.7% year-to-date

• SPDR S&P China (GXC): up 50.7% year-to-date

• PowerShares Golden Dragon Halter USX China (PGJ): up 59.5% year-to-date

For more stories about China, visit our China category.

First, the better news:

• The Japanese government claims that the worst of the recession is over as overseas demand and a series of economic stimulus measures have helped the ailing economy, reports Takashi Mochizuki for The Wall Street Journal. By the end of March, the country’s debt is expected to reach 163% of GDP.
• The trade surplus widened for the first time in 20 months for June, reaching $5.4 billion from $1.1 billion a year earlier.
• Industrial production increased 5.7% in May.
• It is projected that the GDP may rise 0.5% in 2010 after shrinking 3.3% in fiscal 2009. Japan’s GDP is around 70% of pre-financial crisis levels.

But the country still faces worsening employment conditions, which stood at 5.2% in May, falling consumer prices and possible further economic declines in overseas economies. Some analysts think unemployment could rise above 6%. Officials also fear a possible relapse into deflation since the CPI has fallen for three consecutive months.

In lighter news, too-hot offices might have added to the economic slowdown. Japan initiated a “Cool Biz” policy, which is part of a plan to cut greenhouse emissions by 6% in 22 years starting in 1990, writes Masatsugu Horie for Bloomberg. The policy recommends that companies to set air conditioners at 82 degrees Fahrenheit. That led to perspiring and disgruntled workers. It is estimated that the policy reduced economic growth by $6.9 billion or 0.13% of Japan’s GDP in 2008.

• iShares MSCI Japan Index (EWJ): up 1.5% year-to-date

For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

Jeff Saut for Minyanville has a case that supports the argument that Japan’s descent may be ending and an upward movement may soon emerge. Although Japan’s demographics and corporate governance aren’t the greatest, a quick rundown of corporate Japan show sings that restructure has already started, especially in the small-cap realm.

Here are four signs:

1. A bull market begins with cheap valuations. Japan’s P/E multiple is high — but in that, it’s like a cyclical stock you’d want to buy when its P/E multiple is high and the price-to-book is low. For the record, we watch trend lines to spot potential opportunities.

2. Foreign investors and commercial banks should provide the liquidity that is needed for Japan to recover. Japan’s money multiplier is positive for the first time in two decades.

3. Peaceful relations between China and Taiwan means greater integration between China and Japan. Japan also does more business with China than it does with the United States. China’s transformation could mean good things for Japan.

4. Japanese equities will prosper if the Democratic Party of Japan (DJP) is gaining traction over the long-dominant Liberal Democratic Party. The signs are there that this is happening.

• iShares MSCI Japan Index (EWJ): down 1.6% year-to-date

For more stories on Japan, visit our Japan category.