Following a succession of false starts over the last ten years, prospects for Japan are again lookin...
Following a succession of false starts over the last ten years, prospects for Japan are again looking cautiously optimistic.
"In the last few weeks, several developments have rekindled hope that the pace of change is about to accelerate," says Andrew Milligan, head of global equity strategy at Standard Life Investments.
He says that in a 'radical break from tradition', the Bank of Japan has offered to buy some of the struggling banks' shareholdings. "The aim is to stabilize the capital base of the banks and remove the need for forced selling into a weak market," notes Milligan.
It is unclear how much money will be pumped into banks' shareholdings: the matter is made all the more vague after an announcement - which was meant for Tuesday - has been delayed until the end of the month.
In the meantime, SLI is holding a neutral position on Japan, but Milligan says he is 'watching this space very carefully'.
The appointment of a new head of the Financial Services Authority, Mr Takenaka, could accelerate the country's recovery, says Milligan. Takenaka believes that rationalization, and the survival of the fittest, is a potential solution for the troubled banking sector. "There's a lot of debate on how fast the adjustment process should be," he says.
Changes in the banking sector could have major implications on the corporate sector, where some of the largest companies are being propped up by the banks. There's a lot at stake, particularly with troubled companies like conglomerate Daiei, which apart from having sizeable debts, also employs 96,000 people.
"The prospects for the corporate sector and therefore the equity market could be dramatically improved if the authorities provide the right framework," says Milligan. He says SLI is already focused on companies which are making their own internal adjustments, like giving up business which fails to meet targets.
"Given the number of false dawns there have been in the last 10 years, it would be brave at this stage to give the reformers the benefit of the doubt," says Milligan. "Over the next few months we will see whether the recent momentum of structural reform is sustained and whether our neutral position on Japanese equities should be raised".
Has run Cautious Managed fund since 2011
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Invested from 2006-2011