Lombard sees Japan in recession

LONDON (Reuters) - Investment adviser Lombard Street Research is advising its clients against buying Japanese stocks now as a slowing world economy and a rising yen would likely knock Japan into recession in the first half of 2008.

The Japanese currency hit a three-year high of 102.59 per dollar <JPY=> this week as risk-averse investors unwound their leveraged carry trade positions where they borrowed in the low-yielding yen to finance purchases of higher-return assets.

Export-damaging yen strength pushed Tokyo stocks .N225 to six-week closing lows this week.

"The only thing that has kept Japan going was a cheap yen and the world boom. Now they are gone. The yen is taking off, or rather yen carry is being taken off. Probably Japan is in recession in the first half of this year," Charles Dumas, head of the world service at Lombard Street Research, told an investor briefing on Tuesday.

Growth in the world's second largest economy is expected to slow down to around 0.2 percent in the first quarter from expansion of 0.9 percent in the fourth quarter, according to economists polled by Reuters.

"The only glimmer of hope is that we may finally get some fiscal relaxation. So there will be a point that we should dive into Japanese stocks but we are not there yet," Dumas said.