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Japanese sun rises again

In the 1990s, many Western economies reshaped their

structures utilising globalisation and technological change. However, Japan fell behind.

In the 1980s Japan was seen as the leader in the consumer electronics and automobile industries.

The Western world took note of the management practices that were being implemented by Japanese companies.

Practices such as lifetime employment and consensus management were lauded as the way forward.

Just-in-time inventory management became the preferred system taught to students studying accounting at university.

Concurrent with the falling behind by Japan, they became overburdened by excessive debt and over investment.

The bubble finally burst in the early 1990s.

The domestic economy in Japan was seen for what it was – an economy clogged by inefficiencies that other developed economies had already eliminated.

For example, electricity costs in Japan are amongst the highest in the OECD. Transport costs are five times those of the US.

In the ensuing years, the Japanese Government has been at pains to restimulate the economy.

1996 saw the deregulation of the banking sector and the removal of many barriers to competition that had existed to that point.

Other measures included the dilution of the power of the Ministry of Finance and the previously all-powerful Ministry of International Trade and Industry.

Independent regulators were appointed to enact the reform that was necessary to make the system more effective.

Nothing the Japanese government did has worked for the last ten or so years.

So why are fund managers suddenly confident that the Japanese economy has turned the corner?

BT Funds Management has identified a number of factors that lead it to the view that the tide has finally turned and that the Japanese economy is ready to move forward.

It notes that many Japanese firms are finally restructuring – merging, selling off under-performing businesses and improving management.

Banks in Japan are now pricing their loans to reflect risk and return rather than to retain relationships.

The Sarariman system is in collapse. This is the system that rewarded loyal career men for devotion to the company by ensuring a lifetime of secure employment and seniority-based salary increases.

The world is enjoying a period of synchronised economic growth and this is helping the Japanese.

A rapidly ageing population has created a massive demand for retirement funding. With the decline of the Sarariman system, individuals need to take more responsibility for their own

retirement.

A defined contribution scheme not dissimilar to that in Australia is planned for introduction.

It will allow individuals to make tax-exempt contributions and choose the investment style of those contributions.

Over the next two years, an estimated Y106 trillion ($US1 trillion) of post office savings deposits will mature.

The current investment yield on these deposits is down to 0.15 per cent. Even the traditionally risk averse Japanese households are likely to redirect these deposits into the sharemarket, either through their defined contribution super schemes or directly.

The conclusion drawn by BT Funds Management is that: “Corporate restructuring and a massive flow of pension savings into shares make the Japanese sharemarket an attractive investment destination.

“However, our experience in Europe teaches us that restructuring throws up as many losers as winners.”

The BT Funds Management group has launched the BT Funds Management Japanese Growth fund to allow investors to access BT expertise and tap into a potentially strong growth rate that may accrue from the Japanese sharemarket.

The strong growth rate will have various attendant risks but the managers at BT Funds Manage-ment have shown themselves adept at managing these in the past.

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