Changing expectation into action

Why is Japan becoming the new business haven for investors?

A combination of aggressive monetary policy to dispel the inflation mindset, flexible fiscal policy to ignite the dampened economy and the Japan Revitalization Strategy, a growth strategy which aims to restore the confidence of companies and people and change expectation into action.

These are all fundamental to reversing the 15 years of deflation, which have caused the Japanese economy to stagnate.

As a result more opportunities than ever are opening up for both internal investors and those from abroad.

But why Japan, why now?

These measures have been in place for some time now. In January 2013, the government and Bank of Japan (BOJ) released a joint statement introducing a price stability target aimed at achieving two per cent inflation, while BOJ then went on to introduce quantitative and qualitative monetary easy (QQME).

Japan has endured the best part of two decades of stagnation. Now, at last, the markets look set to provide opportunities once more.

That same January the government formulated an economic stimulus package of 10 trillion yen, while in December that year a further 5.5 trillion economic stimulus package was announced to counter the impact of the rise in the consumption tax from five per cent to eight per cent.

Finally, there was the 2.4 per cent reduction in the corporate tax rate, encouragement for greater participation of women and foreign talent and the welcome of new entrants into fields including energy and agriculture.

When the penny dropped for foreign investors

The situation continued to improve when in October, the BOJ introduced the second phase of QQME, which was designed to increase the annual growth of the monetary base from 60-70 trillion yen to 80 trillion yen, as well as increase the annual growth of the balance of holding long-term government bonds to 80 trillion yen, up 30 trillion yen.

On top of that it was decided to extend the average remaining maturity of long-term government bonds bought to 7-10 years, up by three years, accelerate the pace of buying ETFs and J-REITs by three times and thus remove the risk of delay in the conversion of deflation mind, which has seen steady progress to date, and keep improving the momentum of forming expectations.

Then in November, Prime Minister Abe decided to postpone the consumption tax hike, which will now be definitely lifted to 10 per cent in April 2017.

And now the future.

All of this has caused a seismic change in investors attitudes towards Japan, to say nothing of the opportunities open to them, in terms both of asset appreciation and the ability to take advantage exchange rate fluctuations and the relatively low yen.

This site will be taking an in depth look into some of them, most notably in the commercial and residential real estate market, where opportunities and potential yields are far higher than they are in comparable Far Eastern economies.

Japan has endured the best part of two decades of stagnation. Now, at last, the markets look set to provide opportunities once more.

01-2015 Virginia Blackburn.