Long Term Offshore Investment Opportunities

Michael Wilson wonders if the recovery in Japan is more than a temporary bounce

There’s really not much room for doubt any more. Exactly ten years after the biggest stock market crisis since the second world war, Japan is finally getting back into the running as an investment prospect, and at last it’s time to overhaul some of those sceptical attitudes that have been keeping us out of Tokyo for so long. By the last week of November the Nikkei Average had recovered to 18,800, a 39 per cent increase on the year (or 48 per cent in dollar terms), and its small-company counterpart, the Tokyo Second Section index, had put on an incredible 160 per cent.

Long Term Offshore Investment Opportunities - Japan

And not a moment too soon, most business people would say. Japanese company profits are down at rock bottom, and even big exporting corporations like Sony and Hitachi are actually making big losses at the moment. Nissan, the country’s second biggest car maker, has just been humbled into selling a third of its equity to Renault of France, and even the mighty Long Term Credit Bank has been flogged off wholesale to a little American private equity company called Ripplewood.

Long Term Offshore Investment Opportunities - Japanese

That’s something that would have seemed all but impossible a couple of years ago, and it’s a sign of how badly Japanese pride has been dented by the near-recession of the nineties. Meanwhile there’s still a lot of unemployment on the streets (Japan’s 4.6 per cent joblessness rate is double the post-war norm), and the suicide rate has tripled. The government is doing its best to help the economic recovery, but it really hasn’t got a clue how to go about it; instead, the economy is having to heal itself naturally, and it’s going to be a slow process by the look of it.

When you put it like this, it doesn’t sound like a very vibrant sort of basis for a stock market recovery. So where are we getting all this optimism from? Surely anybody with any sense can see that Japan has still got a lot more restructuring to do before we can talk about a proper business recovery? Besides, haven’t we been saying for years in this magazine that Japan has hardly even started to face the biggest hurdle of all yet, the deregulation of its financial markets?

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