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Hi....

I was wondering if anyone had any thoughts on your average working professional in Japan has invested and fared over the last 20 years.

Reason I ask is that if the UK is headed towards a Japanese style stagnant couple of decades with with 0% interest rates, how has the average person invested their money and saved for retirement? If they had been ploughing into domestic risk assets for the last 20 years I don't think they would be sat too pretty at the moment looking at the history of the Nikkei since 1990 (i acknowledged the nikkei has rocketed the past 2-3 years).

Does anyone have any further reading on this, or long term investment strategies in a similar environment?

I know everyone generally seems to think if you have long investment horizon, stocks are your best bet, but i don't think that is true in the case of Japan. I suppose they could have looked at foreign markets, but if all developed markets are in the same situation, where do you look?

Any thoughts or suggested reading much appreciated...

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I think Japan is a 'worst case scenario'...mainly due to the fact that for the past 30 years they have seen their market stolen by the Koreans and then Chinese....I dont think the FTSE got as frothy as the Nikkei.

Sure there is the pensioner problem, but even by 2050 Japan will supposedly have better demographics then Italy did in 1995...and while Italy has its problems, it hasnt collapsed as such.

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Agreed UK not likely to actually go Japanese but I understand the answer to your question is higher yielding foreign currency marketed by local banks.

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Agreed UK not likely to actually go Japanese but I understand the answer to your question is higher yielding foreign currency marketed by local banks.

Appreciate the comments....

On higher yielding foreign currency marketed by local banks; as a UK investor I am not sure how easy it is to access these markets without exposing myself to currency risk. Also, I am not sure whether I would want to venture into emerging market fixed income instruments at present - and virtually all developed markets are also virtually at 0% interest rates also. I suppose there are NZ and AUD that perhaps I could tolerate, but then i worry about the FX exposure. I wonder if there are any ETFs or similar that may invest in such currencies that hedge the currency risk....

At the moment my asset allocation is heavily skewed towards cash, the paltry returns on the cash driving me crazy; I do not particularly want to venture into risk assets at present.

The reason why I cite Japan, is that i don't think interest rates in the UK, EMU, USA are going up (well enough to satisfy my aims) for a long long time - there must be people in Japan going through a similar quandary to myself!

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Japanese asset prices and interest rates are only half the story. They also have had a rising currency, so the value of japanese assets measured in, say, dollars or pounds, has fared better than the prices would suggest. Deflation in action.

And look at their house prices!

Sure there is the pensioner problem, but even by 2050 Japan will supposedly have better demographics then Italy did in 1995...and while Italy has its problems, it hasnt collapsed as such.

Italian demographics don't tell the full story, either. Many Italians live as big extended families of several generations in big houses. The children go to school, the parents are working age, the grandparents are pensioners. But those grandparents are economically active: they're running the family vineyard and olive grove. So, you can drink to Italy's grey economy.

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Thanks for the contributions!

So in summary what is the conclusion? If you were Japanese and relatively risk averse, there was no way to invest domestically over the 20 year period and generate beyond meagre returns?

So for a UK saver, what should the strategy be? Ccy hedged foreign fixed income?

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After this fall in J share prices, J shares, hedged v debasing currency, cld be trade of the next decade.

Why would you hedge against debasing currency?

Specifically, how would you expect the cost of hedging to be less than any savings you might make by hedging? Surely that can only work if you're betting (successfully) against market expectations. Are you saying you can out-guess the market?

Your risk and your reward is in the shares. Hedging introduces a second risk/reward, but one in which your average expectation is - as in a casino - slightly negative.

Edited by porca misèria

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Why would you hedge against debasing currency?

Specifically, how would you expect the cost of hedging to be less than any savings you might make by hedging? Surely that can only work if you're betting (successfully) against market expectations. Are you saying you can out-guess the market?

Your risk and your reward is in the shares. Hedging introduces a second risk/reward, but one in which your average expectation is - as in a casino - slightly negative.

I assume because any decline in the fall in the Yen would offset gains made in yen denominated shares? I suppose the cheapest way of doing so would be to invest in one of the many ccy hedged Japan focused ETFs???

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I assume because any decline in the fall in the Yen would offset gains made in yen denominated shares? I suppose the cheapest way of doing so would be to invest in one of the many ccy hedged Japan focused ETFs???

That should read "any decline in the Yen"!

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Japanese asset prices and interest rates are only half the story. They also have had a rising currency, so the value of japanese assets measured in, say, dollars or pounds, has fared better than the prices would suggest. Deflation in action.

And look at their house prices!

Italian demographics don't tell the full story, either. Many Italians live as big extended families of several generations in big houses. The children go to school, the parents are working age, the grandparents are pensioners. But those grandparents are economically active: they're running the family vineyard and olive grove. So, you can drink to Italy's grey economy.

Hi Porca,

Do you have any further reading on Japanese house prices since early 90s? I recall that they have still not recovered from their peak.

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Property there is remarkably different to here because they live on a small island where traditionally houses lasted for a few years until the next typhoon, tsunami, earthquake or war destroyed it. They have a vast number of abandoned houses because they place less value in second hand homes and the market is dead as hell because it was so overpriced. All those bad investments were simply ignored rather than purged .... a wonderful demonstration of the utterly unforgivable stupidity in encouraging land price bubbles vs other assets (it's best to make up a new asset e.g. a tech company). Read a wonderful article on that recently I cannot for the life of me find (probably in the FT).

I think the average wealth of a Japanese person has declined but averages are the equivalent of politicians ... they tend towards the most neutral answer and lie about the true distribution plus depending on which average you pick you can get a completely different and contradicting impression of the same world. I wouldn't even bother looking at them myself.

In practice they've been through what we've been through but much more drawn out and with a much longer period where those who could borrow at the Japanese interest rate made out like bandits selling the loan abroad to large investors in other countries that couldn't borrow at that rate (in individuals case this would only have been a tiny proportion of the top 1%). Of course I find that anology very rude to bandits because of course bandits do an honest days labour for their dishonest days wage in a brutally meritocratic organization and with a personally short life expectancy. In my experience bandits that have been in the game for a while and are still alive are far more interesting and easier to work with (no ego flattery required ... just money).

Edited by Kinky John

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