Neptune head of research and manager of the Neptune Japan opportunities fund Chris Taylor has declared that Japan is bust.
Taylor says the yen is overvalued and global multinationals are “the only functioning parts of the economy”.
He says an overvalued yen is hurting the recovery process by hampering the tax take on multinationals’ profits.
Taylor adds the G7’s intervention to stabilise the yen after its dramatic rally following the earthquake was a necessary decision that will ultimately aid Japan in its recovery.
He says: “Given the yen’s rally, the G7 decided to intervene to stabilise it, to which no members objected. They understand Japan’s predicament and 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 econ- omy are the large global multinationals. The greater their profits, the greater Japan’s tax take – with the multinationals’ profits being the only way to lift the latter quickly – and a strong yen restricts this possibility.”
Despite the most recent estimate for reconstruction costs in the Tohoku region of ¥5trn-¥20trn, the government’s share of liability is likely to remain comparatively low, Taylor says.
He says 95 per cent of the population do not have earthquake insurance and those who are part of the government earthquake insurance scheme will only get back about 30-50 per cent.
Hargreaves Lansdown investment manager Ben Yearsley says: “Japan is in recession and you wonder how it will pay it off, but the Japanese people keep buying the debt through government bonds. It is internal debt and therefore can be renegotiated much more easily.”