Recognizing the Long Term Nature of Japan's Economic Recover

Recognizing the Long Term Nature of Japan's Economic Recovery

NEW YORK -- (BUSINESS WIRE) -- October 28, 2004

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting the long-term nature of Japan's economic recovery. It can be viewed at:

http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus36.html

Portfolio Inflows into Japan Have Increased Dramatically Over the Past Year

Increased confidence by foreign investors has resulted in substantial inflows into Japan-oriented investments over the past year. Assets within Japan-related equity funds, for example, have surged over 50%, attracting almost $9 billion, while U.S. and Western European funds have declined over the same period.

Recently, uncertainty over energy prices, China, the sustainability of Japan's recovery efforts, the strength of global consumption and the general need for a consolidation after such a strong performance has begun to slow this upward momentum. Nevertheless institutional investors appear to be maintaining their confidence in Japan.
Japan's Stability and Recovery Potential Represents a Real Strength in Uncertain Times

Rising confidence in Japan can at least partially be attributed to a desire for stability and predictability in uncertain times. The nations commitment to democratic rule, the maturity of its institutions, its large, well-educated and affluent population, the size and diversity of its economy, its relative transparency, and even ironically the homogenous and conservative nature of its society, have all helped to make Japan one of the more attractive investment venues in the world today.

Important policy reforms have helped to introduce change into the troubled banking and real estate sectors. Corporate earnings are also on the rise. Investors should not, however, be under the impression that economic fundamentals are peaking. Many Japanese firms lag their counterparts in other countries in terms of their overall profitability. As a result, far more can be done to achieve further gains moving forward.

In addition to restructuring, the potential for earnings and revenue growth will be dramatic if Japanese consumers continue to regain their confidence. While it is too early to declare victory, there are definite signs the nation is moving past the troubling deflation it endured over the past decade. .
Major Japanese Firms Continue to Transform Themselves to Compete in a New Japan

Many of the reform measures envisioned in the "Action Plan for Economic and Structural Reform" adopted in 1996/7 have already been initiated. As a result, Japanese firms are now moving to adapt themselves to a more market-oriented economy. This process is likely to accelerate over time. That is true not because these firms necessarily welcome and endorse these changes, but because they are coming to understand they are essential to maintain their competitiveness and survival.
Economic Fundamentals Likely to Continue to Improve Over the Long Term

While the Japanese economy remains highly influenced by global trends and demand from major trading partners, its economic fundamentals continue to improve. After a long period where it could be said the nation was lagging behind other major economies, one can now safely say the Japanese locomotive has begun to move again.

Corporate bankruptcies declined nearly 18% during the first half of the current fiscal year. In addition, Japanese exports -- largely propelled by increased sales to other Asian markets -- rose 12.5% in 2003 to approximately $51 billion. This is the highest level achieved since the government began monitoring this data in 1947.

Within Japan's domestic economy, unemployment fell to 4.8% in August and data recently released by the Japanese Cabinet office shows that consumer confidence for the three months through Sept. 30 rose to an eight-year high.

Additionally, the September Bank of Japan Tankan survey measuring corporate sentiment was more positive than it has been in over a decade. .
Economic Recovery in Japan Should Be Viewed as a Long Term Investment Story

While corporate and portfolio investors need to ascertain for themselves whether Japan is indeed within the early stages of a long term economic recovery, it is important to recognize the long-term nature of the changes now taking place as well as the numerous structural and cyclical factors that provide evidence of continuing progress moving forward.

Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.

For additional information on economic and financial trends in Japan, please contact
Akihiro Tada, Executive Director of JETRO NY at
Tel: 212-997-0416,
Fax: 212-997-0464,
E-mail: Akihiro_Tada@jetro.go.jp