The fact that you have reached the Japan Investor site and are reading this means that you have at least a passing interest in global investing and in Japan.

Please take a few seconds to read why:

a) you should be investing in Japan, and
b) why you need The Japan Investor.

Why Japan?

Japan has spent the last 10 years in economic malaise. The economy has stagnated and the Nikkei 225 stock index has plunged from nearly 40,000 in the late 1980s to under 8,000 in 2003.

In the 1980s, books like Trading Places and Japan as Number One extolled the virtues of Japan's style of capitalism, and of the long-term strategic management syles of Japanese companies. Japanese companies and Japanese products appeared to be taking over essentially every key industry and market in the world. Today, the descriptions of Japan by most English language reports and media are of a country whose economic performance is miserable, whose financial system is in shambles and whose government appears incapable of dramatically improving the situation.

Once feared by US and European firms for their leading-edge technology, aggressive pricing and long-term management strategies, Japanese companies now appear to be losing out to their US and European competitors, while their rivals in Asia are catching up fast.

If that is the case, then Japan is of no interest to international and global investors, right? Wrong! In fact, Japan has a tradition of change. The slow progress in fixing Japan's economy today has precedent in Japan's own history. In both the 1895-1914 period, and in 1919-1932, Japan's economic growth stagnated to levels lower than any other developed economic nation.

But the prior periods of stagnation were inevitably followed by robust economic growth. Indeed, the historical record since Commodore Perry's Black Ships landed in Shimoda serves as a vivid reminder that Japan has constantly changed in the last 150 years, and is in fact nearing the end of its decade-long malaise.

Sensing that Japan is edging ever closer to its next renaissance, savvy international investors have been consistent net buyers of Japanese equities over the past several years, even amidst continuous selling of equities by restructuring domestic financial institutions and corporations. Free cash flow for Japanese companies in aggregate has actually been positive and growing since the fourth quarter of 1992, while average daily trading value on the Tokyo stock exchange has been increasing since 1992, and is now 50% higher than peak trading values in 1989, while stock prices are one-third 1989 peaks.

The fact that domestic investors and uninformed foreign investors are still cautious is actually good news for astute investors. It means the best is yet to come for Japanese stocks. It is an environment where well-informed investors with foresight will be able to realize the full benefit of the coming Japan renaissance with handsome medium-term capital gains.

Once Japan's domestic financial institutions finish restructuring and re-engineering their businesses, the Japanese market will be ready for a major bull market. The pool of pension funds in Japan is the second-largest in the world, at over US$2 trillion. Japan's Government Investment Pension Fund is the largest pension fund in the world, and some two times larger than CalPERs in the US, or ABP in Holland, the world's second and third largest pension funds. Until fairly recently, pension funds were prevented from investing in stocks by government mandate. Japan has approximately US$13 trillion in personal financial assets, only a fraction of which is presently invested in stocks.