What does Japan mean for investors?

For a long time, the Japanese economy and stock market performed poorly, and UK investors were reluctant to put much of their money there.

Japan has poor demographics, with a shrinking population and a disinclination to accept immigrants to replace retiring workers.

The country also suffers under the weight of a huge amount of debt – over 200 per cent of GDP in government debt alone – and the only reason it has been able to finance this is because most of it is held by domestic investors.

The yen has remained strong for the past two decades; however, this has worked against Japan's markets, because an expensive currency discourages investment in the country and trade with it.


Why invest in Japan?

There are short- and long-term reasons for investing in Japan.

Since the Second World War, Japan has developed a technology industry that is second to none. Some of the most exciting high-tech companies in the world are Japanese, and the country leads in the field of robotics.

Indeed, some analysts suggest that robot workers could ease the pressure on the country’s aging demographics.

The country is also home to many excellent engineering firms and internet businesses.

In the short-term, the country is engaged in an attempt to pull itself out of its debt-deflation trap by money-printing, or monetary stimulus.

This attempt saw markets rise sharply in the first half of 2013, although it is too early to say what the eventual outcome will be. Most analysts say that long-term structural reforms – which are being attempted – are key to any recovery from its multi-decade slump.


How to invest in Japan

There is a whole IMA sector full of funds devoted to Japan, with different styles and strategies. These funds do offer a pure exposure to the country, but with all the short-comings of single-country funds: if Japan does badly, there is no hiding place.

These funds may be suitable for an investor who already has a geographically diversified portfolio they want to add to.

However, you can also gain access through the funds in the IMA Asia Pacific inc Japan sector, which have the flexibility to invest in the country as well as in fast-growing emerging Asia.