Since 1970, this is the index's third streak of ten negative days.  In each of the prior periods, the Nikkei managed to have an up day both times, and was also positive over the next week.

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With all of the recent news about food shortages and rising food prices worldwide, the idea of growing rice for ethanol would seem ludicrous on the surface. Rice is even more of a main staple than corn for most of the world's population - much more - and just look at the political blame being laid on the threshold of corn ethanol. But in Japan, it's possible, just possible that it makes sense.

Over the last several years, investing in Japan has been a difficult exercise in patience.

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Firstly, let’s look at the long-term chart of the Nikkei 225 Average. Japan’s stock market had an extended multi-year rally that started in earnest in the 70s and accelerated sharply in the 80s. The Nikkei peaked on December 29, 1989 at 38,915. During the devastating deflationary period that ensued, the average dropped by a massive 80.5% to 7,607 on April 28, 2003. The Nikkei staged a recovery from 2003 until 2007 when the sub-prime fallout came into play.

Canada:

The US market share has been declining steadily in recent years, while other markets have been increasing. Today, the US market (SPY) has declined to less than 41% from nearly 53% as recently as of 2004, according to the S&P “World by the Numbers” report.  In earlier times, the US share was much higher than 53%.

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The Nikkei had a rough go last week indeed, losing 3.6% and the 14,000-level (13,973.73); TOPIX fell to 1,371.57 after a short-lived recovery of 1,400 two weeks ago. No worries though, as Chicago Nikkei 225 futures not only held 14k, but added 140 points to the upside (14,220) setting the stage for a gap up on Monday (Osaka N225 futures: 13,980). The Bank of Japan held its benchmark rate at 0.5%, as expected; meanwhile, the yen has eased to its weakest level against the dollar, ¥108/$1, since late February.

Inflation and U.S. i-bank earnings will weigh heavy on sentiment this week. Lehman (LEH) leads off on Monday, 6/16, Goldman (GS)  is up on Tuesday, 6/17 and Morgan (MS) reports on Wednesday, 6/18. Circuit City (CC) is scheduled to announce earnings on Thursday, 6/19, which could impact consumer electronics stocks.

In “Hollowing Out, Tokyo Style,” FT Alphaville’s Gwen Robinson does a fine job of capturing an ongoing, and now accelerating human resources conundrum. While it seems like there’s no shortage lately of fake Japundits (not to be confused with the real Japundit, who is simply trying to keep it real on the cultural front) saying to go long Japanese stocks, boots-on-the-ground evidence provides further insight into the opaque. First, the positives:

 “You know when the big guys like Goldman and Lehman cut their small cap teams that we’ve reached the bottom - you have to think, it’s got to be upwards from here”. [FTA’s quoting of an expat broker]

• Digital Garage Inc., the Web site services provider, said it had a nine-month net loss of 821 million yen (US$7.9 million), dragged down by increased operating costs and devalued stockholdings. Sales in the period ended March 31 climbed to 29.9 billion yen (US$288.6 million) from 11.5 billion yen (US$111 million) a year ago. Media, Entertainment and Gaming

• Capcom, the publisher of “Resident Evil” video games said net income will rise 10 percent to 8.6 billion yen (US$83 million) this fiscal year, helped by sales of titles for game machines made by Sony Corp. and Microsoft Corp. Profit in the year ended March 31 gained 33 percent to 7.81 billion yen (US$75.4 million), with a 12 percent advance in sales.

The Nikkei 225 had a positive week, up a modest 1% to 14,489.44, its highest close since early January, but fell short of its calendar year high of 14,691. Remember, keeping things in perspective is important because the N225 opened the year at 15,155 and was trading 18,000-plus last year. In spite of recent resiliency in Japanese equities, it looks like this week will be a tough one, starting with a big gap down on Monday and external factors as well as domestic economic data all putting potential downward pressure on stocks.

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That has some bargain hunters intrigued, as Japan remains the world’s second-largest economy, with exposure to the emerging markets of Asia. Viewed in the go-go days of the last bull market as a country with a slowing economy and an aging population, Japan is now seen by some as a market that’s been beaten down.

“Light as a feather! Light as a feather! It’s absolutely like flying above the clouds!” 

The 1952 Japanese bestseller, The General Manager, was a literary signpost marking the beginning of Japan’s shift from post WWII- recovery to worldwide economic powerhouse. The success of the book’s protagonist is chronicled by his automobile purchases, culminating in him acquiring a Lincoln and driving around the famous Meiji shrine shouting the above line.

Japanese small caps?  Definitely out of favor.  When I look at the top ten holdings of the Japan Smaller Capitalization Fund, I can justify holding them on a book value basis, and on an earnings basis, relative to the low interest rates in Japan, they make sense as well.

The below topics you mentioned sound great. We'll look at the dollar direction as well as the market murmurs that may be set for a rebound.