I have been a fan of Japan as an investment for quite a while now. Shinzo Abe’s economic reforms are, for now, paying large dividends. There are questions of course about monetary policy as implemented by the inventors of Quantitative Easing, taking monetary policy where it has rarely been. The BOJ is about as intertwined in the Japanese markets as it is possible for a central bank to be.
While my gut instinct is to mistrust this intrusion on private markets, I wonder if the dangers are as great as most seem to think. There is a cottage industry of analysts, writers and hedge fund managers who believe that it is only a matter of time before Japan’s debt load does them in, the Yen collapses and interest shoot to the moon. That’s the so called widow-maker trade that has ruined more P&Ls than any other single trade.
A few years back John Mauldin, newsletter writer extraordinaire, kept referring to Japan as a bug in search of a windshield. I don’t know if John came up with that line or he heard it from some old Texan but it is a great turn of phrase. The problem for Mauldin and all the Japan bears is that the oft predicted debt crisis just hasn’t happened. I suppose it could be just around the corner but this obsession with Japanese debt has been around since at least the turn of the century which makes me think there is less here than meets the eye.
Meanwhile, the actual Japanese economy since the election of Shinzo Abe in 2012, has been quietly transforming from the “lost decades” everyone knows to the best developed economy no one is paying attention to. As this Bloomberg article puts it:
“The world’s third largest economy has suffered from a caricature. Yes, Japan fell from its pinnacle in the 1990s because of a property crash, enfeebled banks, and a dwindling population. But that was then. It’s not falling anymore.”
If you think Japan is still the same basket case it was in the 90s, you need to rethink things. Japan’s economy is performing well, earnings and profit margins are rising and the stock market is cheap. That’s a great combination.
Read the article: Japan’s Economy Was A Cautionary Tale. Now It’s Starting A New Chapter