This morning I met with Mr Saji, Chief Economist at Mitsubishi UFJ Bank. He has been the number one rated economist in Japan for over a decade and was made famous by his persistently bearish view of the Japanes economy through it's "lost decade". He is pretty bearish about prospects for the world economy and in particular Japan.

Japan is structurally dependent on exports for economic growth. Despite the past 5 years of economic expansion Japan still could not convert to a domestic demand driven growth structure. During the past 5 years export growth contributed to 143% to Japan's nominal GDP growth rate, far higher than Korea at 78% or China at 43%. While its main competitors currencies are falling the YEN is rising. This is the 'perfect storm'.

I completely agree and it reinforces my technically driven 4000 target for the Nikkei 225 index.

When looking at potential hot spots to ignite further global stress he highlighted Russia. Based on a $35 oil price he believes Russia is already in Current a/c deficit. If oil falls further the focus on Russia financing it external debt will intensify. Recall, I wrote last week:

"Russia’s total official reserves are now US$386 billion, down from US$597 billion in July 2008 - implying an average of close to US$10 billion worth of losses in reserves per week during this period, making this the largest run on a currency in history. The pace of reserve haemorrhaging has accelerated in recent weeks. Continued pressures on the RUB will help push the 'risk' currencies lower."