Advertisement
Merryn's Blog

The 'awe-inspiring' financial strength of Japan

People talk endlessly about Japan’s lost decades. But have they really been lost? A new report suggests that far from being about to go bust, Japan is in rude financial health.

Whenever we write about Japan (as I did here this week) at least one person (and usually a good many more) emails to tell me that Japan is about to go bust and that investing in it would therefore be utter madness.

I've looked at this before but a new note from Peter Bennett at Walker Cripps has some points to add. As far as he is concerned, the "overall financial strength of Japan is awe inspiring".

Advertisement - Article continues below

There has been endless talk over the last 20 years of Japan's lost decades. But have they really been lost? GDP figures are generally meaningless unless they are adjusted for population change. In Japan, the population has been falling at around 0.6% a year. Furthermore, Bennett reckons that Japan has been understating its deflation levels for some time "possibly by 1% or more". If so, "one could be looking at real GDP growth of nearer 3% per annum".

That's a number that would make some sense to people who spend a lot of time in Japan and can never quite equate the statistics with the thriving economy they see around them.

There's also the fact that the banking system is now "fully functional", something you can't say about many banking systems; the fact that the Japanese personal sector has huge net savings - household financial net worth comes to about twice the 200% GDP worth of government debt; and the reassuring fact that 93% of government debt is owned domestically (for now at least).

Since I last wrote on this, we have also seen the first steps introduced to address the deficit (and eventually the debt): consumption tax is to rise from 5% to 10% by 2015, a move which should cut the deficit by a third.

You can look at Bennett's full report here.

But if you are investing in Japan and you sometimes wish you weren't it is worth remembering that it still offers astonishing value; that value always outs in the end; and that there "should be a huge market technical improvement soon."

In 1990 (around when I first arrived in Japan) 75% of quoted equities were held in some kind of cross holding. Since then, the selling down of these positions has "provided a perpetual wet blanket on the market." But this selling is now getting near its end. Not long now and there will be no sellers left.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
James Montier: valuations are way too high
Investment gurus

James Montier: valuations are way too high

The market is completely discounting the risk to the economy and operating as if there is nothing to worry about, pricing in a V-shaped recovery, says…
10 Aug 2020
Should Big Tech be broken up?
Tech stocks

Should Big Tech be broken up?

The dominance of the big four technology giants has attracted the attention of politicians determined to humble them. But what real harm are they doin…
8 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020