“Confidence is rebuilding, you can see it, you can feel it, you can taste it,” Charles Beazley, chairman and chief executive officer at Nikko Asset Management told InvestorWeekly.
The current policy of the Shinzo Abe government has called on the Japanese people to employ a “three arrow approach” involving massive monetary stimulus, fiscal boosts and changes, and structural reforms.
“Abe essentially is warning his people that you cannot have one arrow, you do not get a choice of two arrows, you must understand that it is three arrows if this is to succeed,” Mr Beazley said.
The Bank of Japan has already implemented an unprecedented round of quantitative easing, which has had a strong effect on monetary markets.
“It has been critical to domestic and consumer and investor confidence that the Yen weakens. That is the most important thing that has happened,” John Vail, head of global investment strategy at the firm stated.
With the second arrow, fiscal reform, Abe’s government has also been pushing forward on this front, with Nikko pointing out “they have done quite a lot, especially on infrastructure spending”.
Uniquely, the Abe administration has threatened to implement a structural revolution, which has traditionally been the most difficult for governments to tackle.
“By far the most important, of course, is the structural changes that Abe has threaten to bring upon his people ... these are structurally Reagan and Thatcherite things to do,” Mr Beazley said.
Nikko believes the government has made headwinds in this area.
“He is actually promoting the role of women in the Japanese economy to where it has never been before and that addresses some of the demographic worries that people have,” Mr Vail stated.
He added, “Japan has a very low participation ratio of women in the labour force and the plan is to increase that dramatically by improving the childcare availability and pushing for better maternity leave and rules.”
The danger for the West is that investors will miss out if his reforms are successful.
“There is an element of cognitive dissonance in the West, ‘oh Japan, it won’t work, it won’t happen,’” Mr Beazley said, but added “by and large people are significantly under-invested in Japan”.
