Is the West resembling Japan?

27 June 2013

Standard Life Investments, the global investment manager, scrutinises the outlook for the Japanese economy, in the light of ‘Abenomics’, and compares its problems and potential solutions with those facing the Western economies in general and Europe in particular.

The latest edition of Global Horizons highlights that the Japanese economy currently faces severe structural problems, which if not addressed, could lead to a major economic crisis. In “Learning from Japan” Standard Life Investments uses its Focus on Change approach to examine the specific structural reforms that are necessary to raise Japan’s potential growth, as well as manage the enormous fiscal and demographic challenges that still lie ahead.

Andrew Milligan, Head of Global Strategy, Standard Life Investments, said:

Andrew Milligan

"Japan’s experience provides important lessons for Western policymakers as they navigate the aftermath of the 2008-09 financial crisis. A key conclusion from our analysis is that while overall the West does not suffer from the scale of the difficulties that have plagued Japan, certain European countries, such as Italy, are much more vulnerable to going down the Japanese path than others.

"The active currency exposure within the new fund provides an opportunity to further enhance returns, and the improving credit ratings of EM countries has led to greater liquidity and less volatility.

"This reflects both deep seated trends such as rapid population aging, but also the weakness of economic and political institutions and hence the ability to push through necessary structural reforms. Whether or not policymakers are successful in maintaining growth in the face of fiscal and demographic headwinds has important implications for long-term asset returns."

The full report develops some of the ideas that were presented by Andrew Milligan to the Centre for Investor Excellence (CIE) conference in Tokyo and includes insights both from Standard Life Investments and its strategic partner Sumitomo Mitsui Trust Bank. The report was co-authored by Andrew Milligan, Head of Global Strategy, and Jeremy Lawson, Senior International Economist, Standard Life Investments.