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© Copyright 2000 Rogers Media. The following article first appeared in the May 2000 edition of
BENEFITS CANADA magazine.
Japan's recovery
It might be for real this time. But it won't come quickly.
Former Japanese Prime Minister Keizo Obuchi, who suffered a massive stroke at the beginning of April, was
still in a coma as we went to press with this month's issue. Yoshiro Mori became Japan's new prime minister
on April 5.
This all comes at a delicate time for the Japanese. The country remains in a crushing economic
downturn--the worst experienced in Japan since the Second World War. More than a decade after the crash,
Japan's benchmark Nikkei 225 index remains about 50% off its record high.
The question on investors' minds around the world is obvious. After years of repeated promises that Japan
is finally ready for a sustained economic turnaround, what impact will the change in political leadership
have? Not to be indelicate about this, but the fact is Mori--like Obuchi before him--has less to do with
Japan's future than one might think.
Despite their considerable efforts, Japanese politicians cannot take responsibility for the developing
optimism there. The country's capitalists are driving the important progress.
A bit of background first. Success in Japanese business has, for years, been regarded in terms of
organizational size and market share. The code was simple--bigger meant better. Layoffs were considered
embarrassing, and were avoided at almost any cost.
None of this did any great harm until a confluence of economic events led the Bank of Japan to raise
interest rates back in 1989. The bubble burst, and remained stubbornly deflated for the balance of the
century.
Predictions of recovery in Japan have come often in the 11 years since. The difference this time is the
emergence of a new focus on profitability among a number of high-profile Japanese companies. The interests
of shareholders are finally a priority.
For example, we've seen important consolidation among the country's major banks. Market watchers there
expect the number of big firms to drop by perhaps 75%--from an extraordinary 20 to as few as five or six.
Just as surprising, there have been groundbreaking partnership deals announced in high-profile sectors like
steel and technology. These arrangements would never have been possible in the adversarial business culture
that dominated Japan for so long.
As we reported in February (www.benefitscanada.com/Content/2000/02-00/ben020004.html), there is value
available to Japanese equity investors. Nationally though, this progress will come slowly. For the time
being, we're only talking about a relatively few enlightened leaders.
Richard Schmidt, a portfolio adviser with Jardine Fleming in Hong Kong, says the progress is "not
widespread." But, "it's getting better . . . Eighty per cent of the companies in the country are not
restructuring. That's by number. By value, these dinosaurs are becoming less and less important. By market
value, and importance to the economy, an increasingly significant proportion is changing."
The region may demand careful stock picking for the foreseeable future. But at least it's getting easier to
spot the dinosaurs.
--KEVIN PRESS
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