Why should you care that booking a table at a top Tokyo restaurant is so difficult, asks Stephen Womack in The Mail on Sunday, or that getting your hands on opera tickets there is nigh on impossible? The answer is simple: the world’s second-largest economy is hauling itself out of the economic doldrums, where it has been languishing for over a decade. The Nikkei 225 share average is up by around 20% in the past 12 months, while Japan’s GDP growth in the three months to June was recently revised up from an annualised rate of 0.8% to 1%. The ascension of the unusually nationalistic Shinzo Abe to the office of prime minister is a sign of growing confidence, something thought “largely taboo in post-World War II Japan”, says the Washington Post. This all makes Japan “a great buying opportunity for
investors prepared to focus on the long-term picture”, says Paul Ilott, senior investment analyst for Bates Investments in Financial Adviser.
But investors may need strong nerves. May’s sell-off was harsh on Japanese stocks, with the Nikkei 225 still some way below the six-year high seen in April. And while strong domestic growth has seen Japanese workers’ pay packets creep up, household spending, retail sales and housing starts all fell in the year to July. “Japan’s economic recovery is looking a bit shaky,” said Lex in the FT.
But that’s mainly due to lack of confidence, Paul Kim of the IMS Select Fund tells Investment Week. “The underlying domestic economy is doing well and unemployment is going down. The job to applicant ratio is getting better and wages are creeping up.” So although “Japan has spent more than a dozen years in the doldrums”, says John Ip of Morley Fund Managers in Financial Adviser, “the big story is that it is back and is flexing its muscles again.”
So how can you buy in before the restaurant queues grow even longer? One result of the recent sell-off is that many Japanese investment trusts trade on attractive discounts to their underlying asset values. Baillie Gifford Japan and Schroder Japan Growth Fund are on discounts of 5.5% and 4.9% respectively, according to TrustNet.com. What makes them even more appealing is that now that Japanese interest rates are rising, the yen is likely to strengthen. This will boost the net asset values of sterling-denominated investment trusts holding Japanese equities, points out the Daily Reckoning’s Derek Moorhouse.