Business

DESPERATION ERODES BARRIERS

Recovery shows benefits of letting foreigners in

by Yuri Kageyama

The Associated Press

Like many other Japanese investors, Hiroo Sato got burned a decade ago when the nation’s speculative bubble burst. These days, he’s finally getting some of his money back via a rebounding stock market.

But the 71-year-old retired bank executive is also putting more than one-fifth of his money into a foreign investment — low-risk variable annuities from the U.S. insurer Hartford Life.

Overseas investments, which Japanese have long shunned, are giving the country’s latest economic recovery a greater chance of success than previous, abortive comebacks.

“In the bubble days, Japanese companies didn’t care about new ideas from foreign companies,” said Debbie Howard, president of the American Chamber of Commerce in Japan. “The prolonged economic slump has forced Japanese businesses to look at new and different ways of doing things.”

That includes letting foreigners invest in and manage Japanese firms.

Japanese stocks held by foreign investors reached a record high in fiscal 2003, at 22 percent, with the main index for the Tokyo Stock Exchange surging 46 percent, rallying from a 20-year low hit in April 2003.

Foreign direct investment in Japan totaled 2.1 trillion yen for fiscal 2003, more than quadrupling from a decade ago, according to government data, although this still represents a fraction of the foreign investment in the United States or Europe.

Recent high-profile moves have seen French automaker Renault SA invest in Nissan Motor Co., Wal-Mart Stores of the United States invest in the Seiyu retail chain and Vodafone invest in a Japanese carrier that now carries the British mobile giant’s name.

Individual investors are also embracing the idea, buying alternatives such as Hartford Life’s annuities.

Sato said he learned about the superiority of American financial services to Japanese investments the hard way.

“I think this time the recovery is for real,” he said.

Analysts agree that this recovery could last, in contrast to the last two “phantom” upturns during the last decade, which fizzled out almost as quickly as they came.

For the January-March quarter, the economy grew at an annual 6.1 percent, with solid exports to the United States and the rest of Asia combining with a boost in consumer spending here to generate the best showing in a decade.

Last month, the central bank issued its most upbeat assessment of the economy since the bubble, noting that growth was gathering momentum from improved employment and industrial production.

Optimism is also growing among Japanese companies — the gadgets they are producing, including DVD recorders, flat-panel TVs and digital cameras, are in high demand worldwide.

Top companies such as Toyota Motor Corp. and Sony Corp. are increasingly counting on overseas revenue to propel their earnings. Manufacturers are busy building plants in China to hire cheaper labor and be closer to burgeoning markets.

Still, the improvement in the economy could not be happening without foreign help, and many Japanese are grateful. Carlos Ghosn, Nissan’s chief executive who came from Renault to turn around the then near-bankrupt automaker, is revered as an idol.

“The old aversion to takeovers has faded,” said Kohei Shiino of the government-backed Japan External Trade Organization, which promotes trade and investment.

The organization’s survey of more than 350 foreign companies in Japan this year found that 62 percent of the respondents plan to expand their business here, the highest figure in the six years the survey has been carried out.

The success Hartford Life has achieved in the last three years in a market that had been notoriously protective underlines demographic and other social changes in Japan, believed to be a forerunner of future trends in the rest of the industrialized world.

Japan is perfect for Hartford’s star product, variable annuities, because the ratio of people over 60 is increasing rapidly, they are big savers but mostly put their money in low-interest bank accounts, and worries are growing about the reliability of government and company pension funds, according to Gregory Boyko, chief executive of Hartford Life International.

“I understand fully also that in the last 15 years, Japanese investors have had disappointments,” Boyko said during a recent visit to Tokyo. “But over the long term, people realize that they have to take some risk and diversify their investments in order to get suitable returns.”

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