Positive signs in Japan indicate that it may soon turn around its economic performance from the slump of recent years, says Simon Somerville, manager of the Jupiter Japan Income Fund.
He says a changed picture has been emerging with the installation of Taro Aso as Japan’s new prime minister and Japanese banks digging into their coffers to buy up pieces of distressed American banks.
“Domestically, things look positive,” says Somerville. “Japan is a net creditor nation and personal and corporate finances are in good shape. Quite clearly we need to see domestic investors return, and the fundamentals suggest that they could and should, after suffering a lot of pain investing abroad.”
The growing strength of the yen against global currencies, spurred by its image as a safe haven currency, has combined with sharp share price falls in developed economies to make it less attractive for the Japanese to invest abroad.
Japan’s ageing population has in the past bought heavily into fixed income to combat the effect of deflation on its investments. Somerville says this trend should start to change. “With headline inflation at 2% and 10-year bonds yielding 1.5% and deposits paying 0.3%, you’re actually eating into real income by keeping it in cash or bonds,” he says.
One of the companies Somerville has been buying is Jupiter Telecom, the largest cable company in Japan, which he says will see domestic growth in spite of global turbulence.
Despite positive signs in its stockmarkets, Japan’s economic situation has appeared as complex as its political landscape in recent times.
Aso’s appointment was welcomed as his popularity both in his Liberal Democratic Party and among the general public has given analysts hope that he might last longer than his predecessor, who resigned the post after less than a year.
Concerns remain, however, with the main opposition party, the Democratic Party of Japan, aiming to take advantage of the upheaval at the centre of the government.
Over one year the Jupiter Japan Income Fund has lost 8% against an Investment Management Association Japan sector average loss of 13.5%.