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After nearly a decade and a half of floundering in the economic environment, Junichiro Koizumi has taken Japan on its back and revitalized the land of the rising sun into one of the promising investing environments on the planet today. Year to date, the Nikkei index is up over 50%, making it one of the best performing markets in 2005. Yet, there is still plenty of room left for growth in the market as the index is still 60% off from its all time high in 1989.
A ruthless and hard nosed politician, Koizumi has a political style that has earned him several enemies and countless admirers. After the upper house rejected his idea to privatize the Japanese postal system, he called an immediate election, essentially sending the issue straight to the people of Japan. The citizens resoundingly rallied around Koizumi and enough supporters were voted into the house to pass the privatization law. In the process, he showed the world how to deal with bureaucracy and proved that he would do whatever it takes to help return Japan to its past glory. Koizumi has also been instrumental in attacking the outlandish protectionism in Japanese law. This has helped Japan return to be a global player and domestic demand has also started to show signs of life. Japanese banks have been forced to swallow non-performing loans and heavily indebted companies were forced to go under. Skeleton companies, once a mainstream of the economy, are becoming harder and harder to find, and the real estate market has turned up for the first time in 14 years. In trying to revive its workforce, it may soon become easier for foreigners to immigrate there. To be sure, Japan is not out of the woods yet. It has been well documented that stock market returns are inversely proportional to changes in interest rates, and Japanese rates have no where to go but up, especially considering inflationary forces throughout the world. This may place a damper on the returns that investors can expect. In addition, the past 10 years have been marked by an extreme amount of public works projects all financed by borrowing largely from Japanese citizens. The amount of internal debt the government faces is by no means an easy task to handle. Despite that, stock market prices were so depressed and many of the painful changes that were necessary to restart this economy have been made, in large part because of Koizumi's no-nonsense reform programs. While it may take a while for the economy to truly reap the fruit of these changes, the end of Japanese deflation is nearly in sight, and that can only mean good things for the Japanese people. |
