I asked James Ferguson, who used to work with me in Japan, if he thought the election results there would make any difference. “Don’t be silly,” he said.
He’s not alone in his pessimism. For most of the world’s investors Japan is now, and is likely to remain, a dead loss. For James, the main worry is not that the new government won’t make things better, but that they might make things worse. How? By following through on promises to cut government spending when government spending has been the only thing keeping the Japanese economy even slightly above water for the last decade. I have some sympathy with this view, but I am – unusually for me – a bit more optimistic.
The very fact that Japan has, after 50 years of LDP government, voted the party out, is important in itself – it shows that the Japanese people want change. That surely gives the DPJ a mandate to do anything at all, as long as whatever it is turns out to be less rubbish than most of the policies followed by the LDP in the last 15 years.
So what might they do? The key suggestion is that they will work to make consumers feel slightly less wretched than they do now. They say, among other things, that they will cut fuel duties and dump road tolls; introduce child benefit of ¥26,000 or £172 a month per child (you get £86 a month here); and introduce a minimum wage of ¥1,000, or around £6.60 an hour.
This is interesting – for as long as anyone can remember Japan has been run on what Alex Kerr in Dogs and Demons (published in 2001 and a must-read if you are at all interested in modern Japan) calls a “poor people strong state” policy. The people get to live nasty lives in rubbish prefab houses surrounded by telephone wires and neon signs; the state gets to spend all the cash (on pointless bridges, roads, concrete river linings and anything else that benefits its favoured sectors and legions of ex-bureaucrats). Anyone who thinks the UK has a bloated and semi-corrupt public sector should read Kerr and count their blessings.
Given all this, any policies that hand back some wealth to the consumer and that might stop the fall in nominal wages in Japan (as a minimum wage might) can’t be all bad. Longer term it might even mean the return of domestic demand.
So what of the stockmarket? We’re keen on Japan largely because it is so cheap. Even now, more than half of the companies listed in Tokyo trade on a price-to-book ratio of less than one. Martin Currie’s Keith Donaldson reckons this means that now is the time to “build stakes in global businesses at knock-down prices”. He might be right, but I’d skip the global businesses (given the state of the global economy) and go for the many domestic small caps trading at really knock-down prices instead.