Thank goodness for Shinzo Abe. Back in 2007, I wrote here that ‘over the next two to five years Japan will turn out to be one of the best investments UK-based investors can make’. By the middle of 2012, nearly five years on, that wasn’t looking like much of a prediction.
Then prime minister Abe appeared on the scene. Since his election in November the yen has fallen 20 per cent against the dollar and the Japanese stock market has risen not far off 50 per cent. Phew. So what’s so great about Mr Abe? The short answer is that he has promised to do something about the Japanese economy after two decades of slow growth and semi-deflation, and — crucially — everyone believes him.
He has what he calls a ‘three arrow’ strategy for change. The first arrow is fiscal policy. This is pretty standard for Japan: spending piles of money the country doesn’t really have on stuff it’s hard to imagine the country really needs, and it’s a method that hasn’t ever really worked before. The next arrow is a ‘growth strategy’, which is to be announced in June and again is unlikely to have much immediate market impact. Growth strategies don’t often work either.
But the third arrow is a different matter. It’s a huge programme of western-style quantitative easing (QE), and one that the markets love. Abe’s new Bank of Japan chief, Haruhiko Kuroda, has announced that over the next two years the Bank will effectively print money to the equivalent of around 15 per cent of Japan’s GDP. The money will be used to buy government bonds alongside some exchange-traded funds and even real-estate investment trusts.
This will all keep pushing the yen down — the more money there is around, the less each unit of it is worth.
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