Why the future of Japan’s economy depends on the yen

Added 21st June 2016

Japan’s economy has waned slowly, which is why government action has not been dramatic but with Abenomics in full swing, Schroders’ Andrew Rose explains why the future depends on the yen’s performance.

Why the future of Japan’s economy depends on the yen

What is particularly striking about Andrew Rose is just how immersed he is in Japan. In fact, his experience of Japan over many years makes him a seasoned specialist.

Inspired by a Japanese school friend to read Japanese studies at Sheffield University – one of only four universities at the time where the subject could be studied – he charted his destiny by making what he describes as a “pretty contrary and outlandish” decision.

“There were only two of us in one year and seven lecturers, which at the time was quite hard-going because you just couldn’t skip a lecture,” he recalls.

A generously funded Japanese government scholarship for a post-graduate international economics degree followed, where for two years Rose lived what he describes as a very Japanese lifestyle and learned to speak the language properly.

Yen master

His mastery of the language has been put to good use throughout his working career, which started at what was then J Henry Schroder Wagg (now Schroder Investment Management), just as the UK prime minister at time, Margaret Thatcher, had removed exchanged controls, and investment in Japan by UK institutions was on the increase.

"Had Japan's economy fallen off a cliff rapidly, then that would have encouraged more prompt, dramatic government action."

That was in 1981, almost 35 years ago, and Rose has been part of the Schroders Japanese team ever since, taking in three stints in its Tokyo office covering 11 years and most recently returning in 2006 to be full-time in London as head of Japanese equities. 

Japan has never been the biggest economy in the world, but in the 1980s it was the second biggest after the US and is currently third after China in an absolute sense rather than a per-capita basis.

“People talk about Japan’s lost two decades, but it has been gradually down bit by bit, almost as if we didn’t notice – like the frog in the boiling water. Had it fallen off a cliff rapidly, then that would have encouraged more prompt, dramatic government action.”

While the average Japanese citizen has not been getting any poorer, as falling prices push up real incomes, this situation is not sustainable forever, he says.

“Over that period, the yen has been a strong currency, so for a sterling-based investor, returns have been better than a pure yen investment would suggest. In the 1980s there was a lot of hubris around and the Japanese were buying assets overseas, but the current situation is that people are rather downbeat about prospects.”

Last month, Schroders’ emerging markets team wrote a paper, Is the world economy turning Japanese?, citing how Japan had seen low growth, low or negative inflation and low bond yields for 25 years, and finding that China and Europe seem most likely to suffer from what it calls the “Japanese disease”.                                                                                                                                                                    

                                                                                                     continued on the next page

Inside the International Adviser - June 2016 Issue

International Adviser - June 2016

The June issue of International Adviser magazine is now available to read online. View your digital edition by clicking on the link below, or download the free International Adviser App through your app store.

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Inside the latest edition:

  • The potential impact of a Brexit vote on financial advisers
  • The growing business trend in South Africa away from Qrops to offshore trusts
  • Why Hermes’ Harriet Steel is passionate about TERs
  • The importance of having a clear business plan

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About Author

Mark Battersby

Editor, International Adviser

International Adviser

Mark Battersby is editor of International Adviser. He is also programme director for International Adviser events in strategic expat locations around the world, and its flagship FundLinks conference in London. Mark joined Last Word Media in February 2012, having previously worked at Citywire, Interactive Investor International, and FT Business.

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