Mr Griffen, a 28-year veteran of Japanese investment markets, is the managing director of Lazard Japan Asset Management KK in Tokyo.
Speaking at a recent lunch in Sydney, Mr Griffen said he began his career in Japan in 1986.
“I had three years of financial boom/bubble in Japan, and then I lived through 25 years of [deflation],” he said.
In 1989, Mr Griffen advised his clients to sell all of their equities – because with price/earnings multiples at 120 and a 0.25 per cent dividend yield “it didn’t make sense to be invested there”.
It was a pretty smart move considering the market proceeded to peak and fall 75 per cent from its highs.
Since then, Mr Griffen has consistently warned his clients against attempting to catch what has turned out to be a ‘falling knife’.
But things have started to change for the better with the election of Prime Minister Shinzō Abe in 2012 (and his re-election on 14 December 2014).
“In 2012, we came out for the first time and said Japan – from a structural and secular perspective – is starting to look like an interesting investment opportunity,” Mr Griffen said.
The first thing Abe did when he was elected was elect Haruhiko Kuroda as the new governor of the Bank of Japan.
Mr Kuroda’s primary goal – and, indeed, the goal of ‘Abenomics’ in general – has been to get Japan’s economy growing more nominally than in real terms, Mr Griffen said.
More accurately, the purpose of Abenomics (via government spending and quantitative easing) is to create inflation – something that has been sorely lacking in Japan for the past 25 years.
The reality of two decades of deflation in Japan has shifted the psychology of consumers, Mr Griffen said.
“In Japan, real estate prices have fallen over 70 per cent since 1989,” he said.
“So the decision to buy a home is basically the same decision you’re making to buy a car [in Australia],” Mr Griffen said.
As a result, Japanese consumers tend to save enormous deposits before they make the decision to buy a house – suppressing any other sort of natural expenditures in the process, he said.
“This is the psychology that Japanese consumers have been operating under pretty much since the peak of the bubble in 1989,” Mr Griffen said.
“The single biggest success the Abe administration has had is to break the stranglehold that this deflationary mentality had on peoples’ behaviour,” he said.
Bank lending has been rising consistently since Abe became the prime minister, Mr Griffen said.
Furthermore, every single region in Japan has announced a rise in real estate prices in recent weeks, he said.
Inflation is running at around one per cent, he added.
“The citizens in Japan are starting to behave in a more ‘normal’ fashion to these economic forces,” Mr Griffen said.
The same change in psychology is emerging among corporations, which have been spending the last two decades deferring purchases of plant and equipment supplies, he said.
The Japanese stock market is also showing signs of recovery, he said.
“In the two years since Abe was made prime minister the Nikkei has doubled. Earnings per share on the stock market has also doubled,” Mr Griffen said.
However, on a price/earnings basis the market is as cheap today as it was at the outset of Abenomics, he admitted.
“Return on capital for Japanese companies has gone from five to nine per cent – forecast to rise as high as 10 per cent over the next fiscal year,” Mr Griffen said.
