In the garden of the New Otani Hotel in Tokyo, there is a teppanyaki restaurant that my father used to take me to occasionally when I lived in Tokyo and he was passing through on business. Ten years ago, at ¥15,000 for the set menu, we considered each visit to be an eyewateringly expensive treat.
I visited the New Otani again last week and popped into the garden to see what dinner costs now. It still costs ¥15,000. Not only that, but the yen has weakened substantially since. So instead of being expensive, one of the best meals in Tokyo (I think eight courses of it), cooked by a highly trained chef directly in front of you in a restaurant that only seats about 15 people and which is located in what many think is Tokyo’s prettiest garden, now costs around £60 a head. That’s about what you would end up paying for two courses in any of London’s averagely good restaurants. Fifteen years of deflation have done something those of us living in Japan in the 1990s could never have forecast: it has made Japan cheap.
Will it stay that way? From what I saw last week, I think deflation’s days really are numbered. The yen is now very undervalued relative to the pound and, while it isn’t moving as fast as most of us would like, Japan’s economy is improving steadily. GDP growth last quarter was a reasonable 2.4%. Consumption is picking up slowly and there are hints of price rises to come all over the place. The thing that struck me most, however, was the changed state of Tokyo’s property market. Several friends are trying to buy flats and others are getting offered huge bribes to move out of rented accommodation so it can be redeveloped: an old colleague has been offered a payment of over a year’s rent to move out of her flat. At first, she jumped at the offer. Then she had a look around and found that rents had gone up so much in the previous year that if she moved out she wouldn’t be able to find anything of the same size in the same area for the same price. She might have a lump sum, but she’d be moving to the suburbs. She’s staying put. None of this quite counts as a housing boom, but it’s certainly an improvement on the relentless falls in prices we’re used to. Overall, I still like Japan – for all the same reasons we have given in the magazine and on MoneyWeek.com over the last year or so.
A cheap way to invest in Japan
There is also currently a cheap way into the market: many big UK-listed Japan investment trusts are trading at large discounts to net asset value. James Bartholomew, writing in The Sunday Telegraph, points to the JP Morgan Japanese Investment Trust: it’s on a discount of over 10%. But I think this one might be cheap for a reason. The fund has been a dismal performer relative to the market and there is no reason to think that will change. Better might be the Schroders Japan Growth Fund, which is trading on a discount of 8.8%. That said, it tends to focus on big firms and exporters (a good strategy for the last year, but might not continue to be so), so if you want something with more domestic exposure, I’d go for the Baille Gifford Japan Investment Trust, which you can pick up for 6% less than its net asset value.