With the Nikkei unable to move much higher, full financial statements for the fiscal year ended March 31 will have to be reported. The cover-up of huge equity losses will be much harder, if not impossible. Some institutions may have to report themselves as not only broke but also guilty of grossly and intentionally understating losses, Weinberg says. Thus, we're likely to see a big rush to cover up the cover-up as banks unveil their reports.
Regardless of what happens with banks and the stock market, Moody's Investors Service may be ready to make good on its threat of a two-notch downgrade for Japan. If so, it also may lower credit ratings for individual banks. Additional downgrades could make it harder for banks to do business with other institutions, hitting their stock values, too.
The yen's sudden rise isn't exactly helping. Rather than enacting painful economic reforms, Prime Minister Junichiro Koizumi and his team have talked down the yen. The hope was to make Japanese goods more competitive so the nation could export its way out of recession. These days, even with Japan's problems, it's the US dollar that's trending lower. It's changing hands at 128 yen versus 132 at the start of the year.
These two trends -- falling stocks and a firmer yen -- could be good news for Japanese government bonds. Even with the specter of rating downgrades hanging over the market, local investors may have little choice but to buy debt.
With yields so low -- 10-year rates are 1.365 percent -- few analysts expect a big rally, but bonds may be a safer bet than stocks this earnings season.
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