Foreign Investors Dump Japan Stocks as Economic Planning Fails

Foreign investors are on an exodus out of stocks in Japan as disillusionment with the country’s economic policies sets in, according to a report.

Also read: Japan Passes Law to Increase Regulation of Bitcoin Exchanges

The latest news comes as Japanese fintech and bitcoin startups continue to post multimillion-dollar deals, providing a small but notable ray of hope.

Reuters reports that foreign investors, including large funds, have exited Japanese equities to the tune of a net ¥4.5 trillion ($42.07 billion USD) in January-May this year, and the country’s key Nikkei Share Average indicator has dropped 13 percent in the same period, falling further than the global average.

Over the same period last year, Japanese equities saw net purchases of about ¥2.83 trillion ($26.46 billion USD) from overseas.

Doldrums in Japan’s Traditional Economy

Japan’s economy continues to sail in the doldrums despite nearly four years of government and central bank policies designed specifically to stimulate it.

These policies, which have included massive amounts of quantitative easing (increasing the money supply) and negative interest rates for banks, have raised eyebrows even among those who typically support such measures. Some have called them signs of “desperation.”

The Japanese public responded to these moves by buying home safes in record numbers.

The stock slump, continued “low” inflation, low domestic consumption and poor external trade figures are all signs that government central planning has done little to reinvigorate an economy that has been in a “lost decade” that became 20+ years, impressing few with lackluster growth and falling in and out of recession multiple times since the early 1990s.

Abenomics

Japan’s current economic direction is known as “Abenomics,” after Prime Minister Shinzo Abe. Elected in December 2012, Abe promised a three-point, or “three-arrows” plan to kick-start growth.

The three arrows were: fiscal stimulus (government investment projects), monetary easing and structural reforms. The government introduced the first two measures almost immediately, but investors have complained progress on reforms has been slow.

These promised liberalization of the agricultural and energy markets, special economic zones, tax and labor reform, and corporate governance. So far, all the public has seen is a 3 percent increase in consumption tax at a time wages are still falling.

Hope Remains in Innovation

The government has shown admirable foresight in one sector of the economy though, showing that Japan remains creative and able to identify new opportunities: digital currency.

Bitcoin startups bitFlyer and Zaif have seen a total $33 million USD new investment in the past few months alone, and much more is coming over the horizon. This is thanks to members of Abe’s government showing support for digital currency use and development, from grassroots to policy levels.

While it would be overly-optimistic to suggest this budding sector is capable of overhauling the world’s third-largest economy just yet, it shows innovative ideas breaking through a long-held faith in Keynesian economic planning that is beginning to slip in most developed countries.

As for the safe-buying Japanese public, it has long showed a willingness to identify and save “real” money, and seek answers in new technology faster than most — two needs the digital currency economy is trying to fulfill.

Can Japan pull itself out of decades of slump with government stimulus policies? How could bitcoin play a greater role in the Japanese economy?

Images courtesy of WorldStrides, Ko Sasaki.

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