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“Japan is bust”, says Neptune’s Taylor

Chris Taylor, head of research at Neptune and manager of the Neptune Japan opportunities fund, has declared that “Japan is bust”.

In a statement released today, Taylor adds the yen is overvalued and that global multinationals are the “only functioning parts of the economy”. He says overvalued yen is hurting the recovery process by hampering the tax take on multinational’s profits.

He says: “Given the yen’s rally, the G7 decided to intervene to stabilise the yen, to which no members objected. They understand Japan’s predicament and all of the Bank of Japan’s monetary intervention has not been sterilised.

“This corresponds with our analysis: Japan is bust, the currency is overvalued and the only functioning parts of the economy are the large global multinationals.”

Taylor says this recent rally was owing to momentum rather than the result of foreign asset repatriation. The seasonal inflow witnessed towards the end of the financial year will be reversed, he adds.

Meanwhile Taylor says that it does not appear the Japanese are selling their foreign assets to allegedly fund reconstruction. There remains a net outflow year to date of the yen and most companies foreign currency deals are already being processed as the financial year-end is March 31.

Taylor predicts only individuals with foreign currency reserves will switch back into yen for the purposes of reconstruction. Companies are more likely to relocate their production outside of Japan as their funds are already in yen.

Despite the most recent estimate for reconstruction costs in the Tohoku region being between 5 and 20 trillion yen, the government’s share of liability is likely to remain comparatively low, Taylor says.

An estimated 95 per cent of the population do not have earthquake insurance and those that are part of the government earthquake insurance scheme will only get back somewhere in the region of 30-50 per cent, he says.

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