Japan as the next Greece? Nay, say the moneybags

Whenever the debt crises in Europe and US come up for discussion, Japan is invariably invoked as the ultimate sovereign debt nightmare scenario: its debt-to-GDP ratio is close to 200%, and its “lost decade” of deflation has now stretched to two decades.

Japan, it’s frequently said, is the “next Greece” and is at risk of being swallowed up by a black hole in the Pacific.
But big-money investors and hedge funds, who say they’ve made piles of money in Japanese investments, scoff at such exaggerated reports of Japan’s “demise”, and in fact argue that the country’s best days may be ahead of it.

“Media commentators seem to have a field day saying Japan is dead, or that it’s the next Greece,” Edward J Rogers, chief investment officer of Rogers Investment Advisors, who has lived and managed wealth in Japan for over 20 years, told the Bloomberg Asia Hedge Fund Summit in Hong Kong on Tuesday. “But that’s just a silly thing to say.”

Japan, Rogers points out, is a well-diversified $5 trillion economy and accounts for some of the world’s biggest brands. Greece, on the other hand, is a $33 billion economy with not one brand to show for it. “Japan can grow its way out of its problems, and to say that it’s in danger of a Grecian debt disaster is just not reasonable.”

Media narratives have focussed excessively on Japan’s negatives, whereas the country is industrious and —- importantly —- has a current account surplus because of high savings, concurs Anthony Limbrick chairman of wealth management firm Pure Capital.

Even the debt-to-GDP ratio of 200% overstates Japan’s problem, says Curtis Freeze, chief investment officer of Prospect Asset Management.   

That’s because “the Japanese are lending money to themselves: it’s like lending money to your brother.” It’s “deception”, he adds, to say that Japan is the “next Greece”; Japan is “very stable, and very cash-rich.”

Those who say that Japan has “peaked out” are unaware of the “huge potential” that underlies its economy from domestic productivity gains that are just waiting to be tapped, adds Freeze.

“Everyone is aware that Japanese exporters are world-class but the domestic economy has been left behind over the last 20 years - to the extent that domestic productivity has a long way to catch up,” he says. Illustratively, Italy is 50% more productive on the domestic side than Japan - “and it’s not like the Italians are sweating blood,” he points out.

As for legendary investor Jim Rogers’ claim that he wouldn’t invest in Japan because, given the country’s ageing demographic profile, “it won’t have anyone to repay its debts”, Ed Rogers says that while that may make for a “great soundbyte”, it exaggerates Japan’s demographic downside. “There are a number of ways in which Japan can address this: immigration is one of them.”

Japan, he says, is the “mecca for Asian workers: it’s the land of opportunity.” It’s true that there isn’t a political consensus on how to address the problem, but when the leadership decides it wants to, “it will have a number of different policy tools.”

In fact, says Freeze, no one in Japan is looking for the government to provide a solution to the deflationary trap. “That’s a good thing, because when people stop relying on Big Brother or government, they start looking for answers themselves.” Indicatively, corporate Japan is “out there doing what it takes”, with help from easy credit in the cashed-up economy.

“You’re going to see massive mergers and acquisitions —- perhaps running to $100 billion - as Japanese companies go acquiring overseas,” prophesies Freeze. Additionally, since the only excess capacity in Asia right now is in Japan, its “best days are yet to come”.

He also points to another bizarre —- but positive —- effect of the debate over demographics. “There will be hundreds of companies whose founder-owners are dying, which in turn is catalysing change of control, with Japanese managers waiting to take advantage in every sector and winners looking to take market shares.”