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Major domestic sales declines from Toyota Motor Corp. (TM) and Nissan Motor Corp. (NSANY) led Japan to post its worst overall annual vehicle sales in nearly three decades.

Santa may have skipped Wall Street this year but (Saint) Obama’s stimulus package, which seems to be growing like Topsy, has brought some New Year’s cheer. It now seems certain that the new deal will include tax breaks / cuts of up to $310bn (out of a total package of $775-850bn). As any competent economist will tell you, in theory, these have a greater multiplier (bang for your buck) impact on the economy. This of course makes it far easier for Republicans to swallow. GM (GM) and Ford (F) were the big winners Friday, up 14% and 7.4% respectively. So round one to the optimists as risk appetite has returned. But remember what 2008 taught us: markets can be very fickle.

Today’s Market Moving Stories

2008 was a year of realized risk among many asset classes. It followed a period of lower volatility in many asset classes, like foreign developed and emerging markets. The foreign developed market index, EAFE (Europe, Australasia, and Far East) is held by many US investors through the iShares ETF, EFA. The appeal of this kind of investment and asset class is its diversification benefits. However, the risks of the EAFE index encompasses currency risk that many investors fail to incorporate into their risk assumptions.

Japan, one can argue, is the global leader when it comes to green technology. For over four decades, Japan has implemented some of the most comprehensive energy efficiency policies on the planet, including 1974's Project Sunshine, which made the nation a major producer and consumer of greentech. The country is home to large solar manufacturers like Sharp (SHCAY.PK) and Kyocera (KYO) and three of the automakers at the forefront of electrification of transportation: Toyota (TM), Honda (HMC) and Nissan (NSANY). Modular homes are well established too. In 2006, Toshiba (TOSBF.PK) bought BNFL and the nuclear assets of Westinghouse. Despite the slow, lumbering nature of many of the country's conglomerates, we expect exports to increase.

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CHF/JPY: Note the recent strong uptrend.

The Yen is extraordinarily strong this year, having appreciated close to 25-30% against a basket of currencies. If such strength is not corrected, the Japanese economy would fall into a deep recession quite independently of the financial market turmoil. With the financial tsunami still in full force, the Japanese economy stands no chance with the strong Yen.

1. Japan should waive or write-off US Treasury holdings as it is likely that US government will find it extremely difficult to service them.
2. Given the size of its budget deficit and the potential amount of borrowing it needs to do will put tremendous pressure on the dollar, which he sees at 50 to 60 Yen if such measures are not taken.
3. Japan also should invest in the infrastructure, roads and bridges that the US plans to help create jobs and support personal spending.
4. Such an 'out of the box approach' is only likely to save countries like Japan which are dependent on US consumers. In this sense it is a current sacrifice to protect the long term interest of the Japanese economy.

This sounds very interesting and if implemented could be challenging for Japan (it has $976.9 billion in foreign-exchange reserves). China may be better placed, but given the political angle this may not be possible. The US, it appears, has to be 'doled out' while its government is busy ''bailing out'! Watch out, as any such move may bring life back to the markets.

Stocks obviously don’t know it’s Christmastime as they finished with their fifth straight loss, as the Dow shed 1.2% in extremely skinny volume led down by the banks & GM…again.

Today’s Market Moving Stories

(From The NY Times): "TOKYO — Toyota Motor, the Japanese auto giant, said Monday that it expected its first operating loss in 70 years, underscoring how the economic crisis was spreading across the global auto industry.

Joining a chorus of ailing U.S. automakers, Toyota Motor Co. (TM) Monday forecast its first operating loss in 71 years on plummeting demand and sharp appreciation of the Japanese yen. The announcement prompted Moody’s Investors Service to consider downgrading the company’s top-rated credit.

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Panasonic Corp. (PC) said Friday that it will spend up to $9 billion to acquire a majority stake in rival Sanyo Electric Co. Ltd. (SANYY.PK).

Motivated by Cassandra Does Tokyo’s eloquently-written post about the pundits prematurely anticipating economic and financial conditions returning to “normal” (because normal may not mean anything any more), and Paul Krugman’s recent comments at the National Press Corps Luncheon about ZIRP in Japan vs. the U.S, I decided to share a little experiment I’ve been keeping track of for about 5 years now. This is a picture that’s truly worth the proverbial 10,000 words: I overlayed the compound returns to the Nikkei 225 and S&P 500, beginning 4 years before each market’s bubble top, and continuing for the next 8 years. I believe the graph speaks for itself: