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Japanese equity and real estate: Long taxi to a slow takeoff

A revival of domestic investor interest in Japan’s equity and real estate markets is inevitable.

Predicting a recovery in Japan’s financial markets is perilously difficult. After the recent economic renaissance, Japan’s equity market enjoyed a stellar performance in 2005, only to disappoint hugely in 2006. Analysts are already making cautious noises for this year.

They might yet be proved right, of course, but consider the economic outlook and the country’s demographic challenges and it seems difficult to avoid the conclusion that, on a medium-term view, Japanese equities and real estate assets look increasingly attractive.

Bankers in Tokyo will tell you unanimously that the financial restructuring is over. Corporate Japan is in rude health and has entered growth mode amid renewed confidence. M&A is the talk of the town, the yen and interest rates remain low in real terms and asset prices remain attractive.

But absent from the investment party thus far are Japanese investors. Brokers say that foreign money that pushed the stock market so hard in 2005 has become disillusioned at the pace of recovery and is finding other Asian markets more alluring, notably China.

Is it time then for the Japanese investor to step into the breach? The obvious answer is yes, but there is precious little evidence of that happening.

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