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Japanese equities: Restructuring boosts Japanese stocks

Ten years after the Japanese stock market suffered its dramatic plunge, following a decade in which the Japanese economic model - with its corporate cross-shareholdings, scandal-ridden financial sector, and notorious convoy system which prevents well-managed companies from outperforming the bad - has been pilloried, Japanese equity markets are suddenly soaring.

On December 29 1989 the Nikkei 225, the main index, hit a record 38,916. In the 1980s, the Japanese economy had boomed as never before. By the end of the decade, the country was close to overtaking the United States as the IMF's largest bilateral aid donor. With the 1990s came collapse, and the index plummeted by more than 10,000 points in the first four months. The Nikkei has headed downwards through most of this decade, hitting 13,197 points in October 1998. Since then it has rallied, rising by more than 5,000 points in eight months to 18,532 in July this year and since holding at around 18,000.

Now the debate is whether this recovery, underpinned by an economy which is still the second largest in the world, is going to last and whether a deregulation process that has meant the end of the convoy system will continue.

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