Is there life in the old dog yet? Thoughts on Japan...Japan, once known for its high standard of living and expensive prices, has seen a dramatic shift. Today, Japan is often praised by travellers for its affordability, with the Yen weakened by decades of financial repression. While Japan's industrial and infrastructure standards remain high, its citizens are becoming poorer. The average monthly income has fallen sharply from $4,000 in 2012 to just $2,240, putting it on a par with countries such as Spain.
Japan's current economic policies, particularly its refusal to raise interest rates despite inflation remaining above the 2% target for over 31 months, are worrying enough. The Bank of Japan's reluctance to adjust interest rates due to Japan's high level of government debt has kept the key interest rate at just 0.25%. As a result, Japanese savers have turned to foreign currency investments, further weakening the Yen.
Currency depreciation has never led to greater competitiveness or long-term prosperity, and countries such as Argentina and Italy are examples of where such policies have failed to deliver the desired results. In contrast, countries such as Singapore, Norway and Switzerland remain at the top of global income rankings. We could also draw parallels with Germany's own departure from the "hard currency" club, as it and the wider Eurozone follow Japan's economic model.
Questions on my mind:
- Given Japan's current economic environment, how do we view on the long-term stability of the Yen?
- With Japanese wages stagnating, do we see opportunities in Japanese equities or sectors that could benefit from a weaker currency?
- How might Japan's refusal to raise interest rates affect foreign investment in the country over the next few years?
- Do you think the trend of low interest rates and currency depreciation will continue in the Eurozone and how might that affect global markets?
- In a scenario where Japan continues on this economic path, what other regions or emerging markets might offer better investment opportunities in comparison?
