Foto: Jakub Hněvkovský

However, this shouldn’t impede further developments of foreign companies on the Japanese market, according to Christian Blaabjerg, chief equity strategist at the Danish investment bank Saxo Bank in Copenhagen. If companies manage to come up with products that they present as “must have” items, the potential of the Japanese market is still high, he said. 

Q: What can we expect from the Japanese economy this year and on mid-term?

A: This year we expect the ‘lost decade’ scenario to continue. Growth is expected to rise by 1.1 percent in real terms, but inflation to remain negative at minus 0.5 percent. For the mid-term we expect this overall economic picture to continue. The Japanese government has during the last 20 years done everything in the book trying to revive growth in Japan, but so far without much success. They have managed to accumulate a rather large amount of debt compared to GDP (which is expected to reach 197 percent in 2010 by OECD figures), but virtually no growth. The major explanation for this is that the aging population of Japan that is more focused on saving and pensions than spending and creating internal demand.

Q: What are the major risks hanging over the Japanese economy?

A: Long term it is the combination of high debt to GDP and the large number of coming pensioners that pose the major risk toward the Japanese economy. The debt level is reason for worrying, but when combined with the aging challenge that faces Japan, then it is becoming a serious challenge. A high debt-to-GDP ratio does not in itself pose a threat toward an economy if the outlook for growth is solid; but with Japan there are continuously fewer [people] in the labor market to pay taxes servicing the debt, and this will eventually become a problem. So in the longer-term perspective, the major risk or challenge… the Japanese economy faces is a lack of taxpayers.

Q: What are the major opportunities that the Japanese economy still has to offer?

A: First of all I think that it is important to stress the difference between the state of economy in the average household and government. The balance sheet of the government looks rather stressed. As mentioned above, despite the high debt to GDP ratio in Japan the debt is still manageable, but it is in reality the aging problem that sets the outlook for the Japanese economy under pressure. But the household balance sheets looks healthy so in other words there is still room for internal demand in Japan.

The average Japanese consumer is not a big spender, actually saving is more on the agenda here, but there is room for spending so if you are an exporter of goods to Japan and you can persuade the Japanese consumer that your product is a must-have product then you should be fine. Second, and we find this important as well, Japanese equities are undervalued compared to their U.S. and European counterparts. We believe that the economic scenario that is currently priced into Japanese equities (especially small cap) is too pessimistic. So, when the market sentiment turns back into risk appetite mode, we foresee a pickup in Japanese equities.

Q: How will this economic situation influence the business of Japanese companies that operate abroad, for example, in the Czech Republic?

A: The internal deflationary mode of the Japanese economy is actually a competitive advantage for the Japanese companies that have the major part of sales abroad, as this will keep a downward pressure on salaries for the Japanese employees. Besides, from this I don’t suspect it to have much influence. Japanese exporters are dependent as other exporters to the EU and U.S. and emerging markets on the speed of the recovery. So far, the earnings season from the U.S. is quite good-looking actually. If we take a look at results so far and extract financials from this we have an earnings growth year-on-year at 20 percent and a sales growth on the year at 3.6 percent. So, in not so many words the recovery is there, but it is weak and what the market currently looks to assess is the impact of government stimulus removal on the recovery speed.

Q: How will this influence the business of foreign companies that aim to enter the Japanese market, such as the Czech software producer Zoner Software, for example?

A: As mentioned, there is a rather large potential for exporters to Japan due to the state of household balance sheets. But as I also mentioned the average Japanese consumer has for long been in savings mode, so you need to have a product that is perceived as a must-have product and you will be fine.

Q: What are your expectations from Japanese exports? How will these develop this year and on mid-term?

A: Japan is like Germany: heavily dependent on exports and as such it is vital for the country that exports develop well and we expect for Japan as well as Germany that their exports will after the drop last year pickup steadily during 2010 and thereafter. However, the speed of the global recovery that we expect will remain slow during the next couple of years will set the pace for the recovery of the Japanese exports.