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”.
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.