While the Japanese government is expected to begin 2003 full of good intentions with regard to econo...
While the Japanese government is expected to begin 2003 full of good intentions with regard to economic and financial reform, little solid progress is expected.
Paul Chesson, head of Japanese investment for Invesco Perpetual, says there will be continued attempts at reform early this year in Japan with the government looking at the economy as a whole as well as the troubled banking sector.
Although there have been positive signs of a change at a corporate level, a common feeling is that Japanese authorities will continue to muddle through as they have done for the past 10 years, without any real signs of change. Charles Brock, head of Pacific equities at F&C, says the heart of the problem in Japan lies in the lack of real political leadership.
He says: 'For the 95% of Japanese who have a job, living standards are high and rising, if anything, thanks to deflation, so why is a politician going to stand up and admit there are these huge imbalances in the economy? They are just going to continue to try and maintain the status quo as they have done for 10 years now.
'The core problem is that you have the world's biggest pool of private savings. You also have enormous debt and at some point something structural has to be done about debt in Japan.'
There are some positive indicators in the corporate sector, however, with companies now conducting share buybacks. Brock notes investors would prefer capital returns to come in the form of dividends, but says buybacks are nonetheless a positive indicator.
'Some sectors of the market are starting to look reasonable in valuation terms compared to the rest of the world but looking at the stock market and only 20%-25% appeals to me,' Brock says.
A bearish global macroeconomic overlay still remains a negative influence for Japan.
Brock says US economic activity will continue to have a massive influence on Japan in 2003. With Japan's domestic sector languishing, the economy moves up and down in line with exports, most of which have historically been destined for the US. Any slowdown in US consumer spending could have dire consequences for Japan and possibly even push it into another recession.
According to Chris Tracey, global strategist at JP Morgan Fleming Asset Management, towards the Christmas period the stronger yen hit export stocks, helping push the Topix down. The yen strengthened against the US dollar towards the end of last year, as global geopolitical concerns led investors away from US assets and as perceptions grew the US will allow its currency to weaken to helps boost its own economic prospects, Tracey notes.
However, bank stocks did stage a rally at that time on the back of a proposal from Japan's Financial Services Agency not to harm shareholder interests when injecting capital into bankrupt banks. For 2003, JPMF sees good value in many Japanese stocks with the Tokyo market close to 20-year lows.
Over the 12 months to 31 December 2002, the Topix has fallen 17.48% in yen terms while the Nikkei 225 index has dropped 17.97%, also in yen terms.
Government talking about reform.
Companies making share buybacks.
Japanese producers able to outsource.
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