There has been some renewed interest in the Japanese market with several big investments announced recently.

A leading Irish asset management company is launching a £500m Japanese property fund - the first step of a move into property fund management in the Asia-Pacific region. The Irish group has stated it is aiming to capitalise on growth potential as Japan emerges from a 15-year recession and its government changes the way it manages its property estate. It will invest in prime office, retail and industrial property, or property that needs minor refurbishment and asset management. It will invest in Tokyo, as well as in the Fukuoka region on Japan’s southern island of Kyushu. Fukuoka is a distribution hub because of its proximity to the Korean peninsula and the Asian mainland.

It is one of the first western fund managers to launch a Japanese fund so is there something we are missing with Japan?

Its main reason behind going into the Japanese market are : The economic story is good, as the country is coming out of a recession, so we’re expecting good GDP growth. The property market is also coming out of a long-term downturn and is into a growth phase. There is a huge shortage of supply. It’s the second-biggest property market in the world, but only 17% of the supply is prime, compared with 75% in the US, which makes it attractive for us.

It added that the government is selling off property assets, which would provide the fund with a good investment opportunity. The government has a huge budget deficit, and so is about to start a sale-and-leaseback initiative

Another asset manager – this time from Germany has also made its first investment in Japan with a £97m investment in an office building in Tokyo. The managing director of its Singapore subsidiary, said the Japanese property market would remain stable because of strong demand with growing rents and insufficient supply. The economy in Japan and the office market fundamentals are strong and vacancies tend to be low in this location.

Major logistics company, Prologis, is also investing in the Japanese industrial market - £2.6bn in the development of a logistics park in south-east Japan. ProLogis has identified Japan as a logistics hub for distribution to Asia-Pacifics biggest retail markets. Its reasoning behind going into Japan is the strong economy with the country having the second-highest nominal GDP worldwide at $4.5 trillion (£2.3 trillion) and is third after the US and China in terms of purchasing power. Japan also has well-developed infrastructure and proximity to more than 25 sea ports

I’m not so sure about Japan myself. The Japanese economic growth has been relying on exports, alongside capital spending. The yen is strengthening against the dollar which will make products sold in the US less competitive - the US is its second largest trading partner.

Economic growth for 2008 is not expected to be great – with analysts predicting just 1% growth and some 0% growth. Is 2008 really the year we will see an upturn in the economy and start of renewed growth in the property market - or will we need to wait longer?

Has anyone been on the ground in Japan recently – what is local market sentiment? Does anyone share with the confidence of the asset managers going into the market and believe the fundamentals are good for Japanese investment at the moment?

Thanks

Noreen

Hi Noreen

I wouldn’t touch Japan with a proverbial barge pole.

You’re right 0% to 1% growth isn’t ‘great’. It’s actually dire!

People have been asking ‘Is this the year when the world’s second biggest economy turns around?’ for years.

Japan reminds me of Spain in terms of international soccer – it seems to have all the right ingredients, but it always underperforms.

Plus, there’s possibly another big cloud hovering just over the horizon.

The Nikkei has tumbled this year, led by Japan’s mega banks.

As has been reported, there is still some $300 billion of his toxic sub prime debt out there and no one knows where it is.

Many are now starting to look at Japan, still the world's banker, with net international investments of $3,000 billion.

Where’s the money been invested?

Many believe secretive Japanese banks may be holding lots of this extra debt – and there’s still a lot out there.

According to reports, the US and Europe have apparently so far confessed to around $130 billion of worthless sub prime debt out of an estimated $500 billion worth.

The end of the tax year in Japan is the end of this month.

So watch this space….