For British investors, the problem with Japan is that it’s no fun investing in things you only vaguely understand.
Investing isn’t just about making money. It’s about making sense of the world. Figuring out what’s going on. And using your knowledge to grab control of the situation.
Making money comes after all that other good stuff.
And Japan is hard to figure out…
It’s far away, it has a different language, different script and a different culture.
Add to this the fact that there just aren’t many Japan experts around.
So when I come along and say you should, say, buy a random Japanese turbine company, I can see why you might not bother reading past the first few paragraphs.
Because there are two ways you can invest in obscure Japanese turbine companies…
Either: a) take the time to study up about the Japanese economy, learn about the Japanese stock market, the Japanese turbine industry, check the tax implications, call your broker to make sure they trade in the stock, etc. Or b) invest in something you don’t fully understand.
Neither option is much fun…
But, it doesn’t need to be like that.
You see, the Japanese market is glowing hot, and I think you should get involved.
That’s why I’m going to do the work for you. I’m going to Japan, where I’ll be based for a month. I’ll show you what’s driving the boom over there. I’ll show you how to invest, all without going through the hassle of changing broker. I’ll meet with local experts. And, in The Penny Share Letter, I’ll recommend the most exciting Japanese small caps to buy right now.
I’ll start by explaining what’s going on in Japan right now. It’s an exciting time.
Tiger, in a coma
Some background first.
Japan’s economy roared back after the Second World War. In 1945 it was around a third as rich as the USA on a per capita basis; by 1990 it had passed the USA out.
Then in 1990, Japan’s economy went into a coma…
The stock market crashed from a high of 38,957 in 1989 to a low of 7,603 in 2003. Spending collapsed. Banks went bust. The labour force shrank. Deflation set in.
Recessions are normal. What’s not normal is for a recession to drag on, and on, and on. Japan basically never got its mojo back after the 1990-91 recession.
Economists scratched their heads. This wasn’t in any of the textbooks. And the Japanese came to accept their lot. Somewhat like Britain after the Second World War, they were resigned to decline.
The Japanese government tried its best. In an effort to kickstart the economy Keynesian-style, it covered half the country in concrete. The government racked up huge debts in the process; more than twice Japan’s GDP. Then it half-heartedly tried printing money. Nothing worked.
In 2012 Shinzo Abe came to power. His basic promise was to shake things up. He had three ideas: print loads of money, spend loads of money, and reform labour markets.
The second two ideas proved difficult politically, so he didn’t do much of those. What he did do was appoint a new central bank governor, Haruhiko Kuroda, who was keen as mustard on printing money.
Kuroda did two important things…
The first is that he and the Bank of Japan Board of Governors decided to start printing an intimidatingly large amount of money every month. The BoJ announced it would print Y80trn per year; which is more than twice as big as the US and UK money printing programmes, proportional to the size of Japan’s economy.
The second thing Kuroda did, which is just as important as the money printing, is commit forcefully to printing more money in future. In the weird world of monetary policy and central banking, the promise matters as much as the money printing itself.
Here’s how Kuroda put it: “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘The moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.”
The BoJ’s goal was to convince Japanese businesses to go out and spend money; the way to do that is to convince them inflation is just around the corner; the way to convince them inflation is around the corner is to convince them that the BoJ is going to keep printing money indefinitely.
Money printing in a depressed economy
“Since when has printing money ever solved anything?”
That is a common view, and it seems like common sense. If real wealth is the stuff you buy with money… and money is just the counting system… how can you make people wealthier by messing with the counting system?
Answering that question properly is a couple of thousand words in itself, so if you don’t mind I’ll skip to the end. Instead of showing how Japan’s money printing programme worked, I’ll show you that it worked.
Exhibit A: More people are working. The chart shows the percentage of Japan’s prime-age workforce which is working.
Exhibit B: Wages are rising too. Basic wages are growing at the fastest rate in 20 years.
Exhibit C: Companies are making more money. This chart shows profits as a percentage of sales.
Exhibit D: Japan’s nominal GDP, i.e. its economic growth plus inflation. The red line shows the start of Abenomics.
Exhibit E: Japanese stocks are taking off. The chart shows the MOTHERS index, which is Japan’s version of Aim. It’s up 34% over the last year.
Hopefully I’ve convinced you that something real is happening over in Japan.
BoJ Governor Kuroda and Prime Minister Abe have woken Japan from its coma. There’s a new energy over there. And there’s money to be made.
Over the next few weeks I’ll be digging more deeply into the story. I’ll learn more about the best opportunities over there. And I’ll show you how to get involved.