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Japan: Recovery 'at risk from pensions
David Ibison ,
July 15, 2003
Tokyo - Japan's top
300 companies have pensions shortfalls totaling Y23,000bn ($196bn),
independent research has calculated - a reminder of the scale of the
problems that continue to hinder the country's recovery just as investors
were starting to look at Japan more positively.
Daiwa Institute of
Research compared the companies' pensions obligations with the value of
the assets invested in their pension schemes at the end of 2002 to arrive
at the figure, the equivalent of around 5 per cent of GDP.
Japan has been
rediscovered by global investors in recent weeks and the benchmark Nikkei
225 index has risen around 30 per cent in the last six weeks despite the
fact that there have been no changes in fundamentals. Senior Japanese
politicians have stated that the rally is the result of investors
regaining their faith in a recovery of corporate earnings. The Daiwa
research reveals any recovery in earnings will be absorbed by future
shortfall was caused by the gap between the guaranteed returns promised to
policyholders and the performance of the pension funds, which suffered as
a result of the decline in the stock market. Any recovery in the fortunes
of pensions would equally hinge on the performance of equity investments.
But the research
forms part of the growing body of evidence that the foundations of the
recent market rally in Japan are shaky and unlikely to be sustained. One
market participant said: "The large European institutions have
started to get out, the large US institutions were never fully in and the
hedge funds are looking to go short." The global economics team at
Dresdner Kleinwort Wasserstein said: "Try as we might, we can't get
excited about Japan's growth prospect...Just as all the talk is of upside
surprises, there are accumulating signs of a cyclical slowdown. Year on
year export growth has slowed decisively in recent months as has
industrial production. Lead indicators indicate the latter will
Goldman Sachs argued there have been no changes in Japan's fundamentals
and the market's rise is a liquidity event that has little do to with
foreign investors rediscovering their faith in Japan.
liquidity resulting from massive yen selling intervention by the Ministry
of Finance/Bank of Japan has not been sterilized but has been parked in
short term money markets," the bank said.
It added that this
led to huge investments in foreign bonds by Japanese banks and Japanese
institutions. Of the Y6,700bn invested in foreign bonds in April and May,
Y2,500bn was made by Japanese banks.
obtained by Japanese monetary authorities through yen-selling intervention
were flowing into the US bond market via the Federal Reserve," it
said. Japanese authorities spent Y4,500bn intervening between April and
June, MOF figures reveal.