The four-page supplement entitled “Investing in Japan” by Leo Lewis, Kana Inagaki, David Keohane and Melanie Gerlis is for the most part positive about the prospects for such investments, with one opinion piece by Bruce Kirk, Goldman Sachs’ chief Japan equity strategist, suggesting Japanese equities offer a “once-in-a-generation” buying opportunity (“It’s time for Japanese equities to leave the doldrums”, Opinion, Special Reports, October 2).
As a long-term investor in other markets, I would urge caution before investing in Japan as the situation there is far from encouraging.
In July 2008, during the financial crisis, the yen was worth ¥106 to the dollar. Today it is ¥149 — a decline of 29 per cent. It would probably be even lower today had not foreign investors returned to the Japanese stock market this year in a big way.
Japan’s weight in the MSCI World Index has declined to around 6 per cent from 40 per cent back in 1987.
That is even after the Topix and Nikkei 225 gained over 20 per cent this year as investors rushed in believing times had changed.
That gain looks higher than the S&P 500’s return of around 11 per cent but drops back into single figures in dollar terms given the dollar gains and it still leaves those markets below their 1990 high.
I suspect those investors will rush to the exits when they find things have not changed. Pay has stagnated and lagged for around 30 years, according to a recent OECD report.
Japan’s real wages in August declined for a 17th straight month, according to government data issued on October 5. That further erodes purchasing power.
The country has an ageing population and has tried to attract immigrants but could not even get them from low-pay India because pay in Japan is so low!
In my view, those points alone make investing in Japan a high-risk venture.
James Hanshaw
Zurich, Switzerland