Ageing, shrinking Japan still a good investment

By Kevin Plumberg, Asia Asset Allocation Correspondent

TOKYO (Reuters) - Has the sun set on Japan as the rest of Asia becomes the sole source of growth in the global economy?

The country's economic situation is indeed dire.

Nevertheless, bankers and investors at the Reuters Japan Investment Summit said the country will remain relevant due to its growing financial ties with other countries in the region, its technological prowess, vast pool of untapped savings and reputation for stability, especially in the midst of the current economic crisis.

The world's second-largest economy is expected to shrink 3.5 percent this year, one of the poorest performing economies in the region, and it will be the biggest laggard in Asia next year, according to Reuters polling.

The country's population is likely to shrink by a third within 50 years while all of Asia's will grow by a quarter, United Nations projections show.

No one doubted these significant challenges, but they still see value and opportunity in Japan.

"Compared with where Japan was in the past, I think Japan will find itself in a weaker position. But does that impact our investment activities? Not necessarily so," said Hiroyuki Arita, president and representative director of the Japanese unit of BlackRock Inc, one of the biggest asset managers in the world.

"If you look at Japan, we have a very stable society. From the viewpoint of overseas investors, I think Japan is an attractive investment opportunity," said Arita, who oversees about $51 billion in assets for Japanese investors.

Arita, who is also head of the portfolio management group in Tokyo, said advances in research on green technologies, such as solar cells and zero carbon emissions, will keep Japan a popular investment destination.

Indeed, BlackRock Japan has seen its overseas clients become net buyers of Japanese stocks since March, when a global equity rally began. These flows were likely driven by investors snapping up heavily discounted shares in a developed market that is deep and not strewn with banks struggling with illiquid securities.

BlackRock is a long-term investor, but even in the nearer term Naoki Kamiyama, chief equity strategist with Deutsche Securities in Tokyo, said he expected the Topix index to climb to 1,000 in a year, up 10 percent from where it is now.

SEALING TIES IN ASIA

The stability of the yen, which strengthened to a five-month high against the U.S. dollar on Wednesday, is also attractive to investors as well as countries.

The Japan Bank for International Cooperation (JBIC), a government agency that has become one of the country's main tools to protect its industries from the global recession, has been offering partial guarantees on yen-denominated debt issued by sovereign governments trying to raise cash in a tight credit environment.

Indonesia is very close to finalizing one such bond to raise $1.5 billion, and the Philippines is talking to Japanese investors about a $1 billion deal, Hiroshi Watanabe, president and chief executive of JBIC, told Reuters.