Author: David Roche Bank of Japan governor Masaru Hayami missed a step when the bankruptcy of the Japanese retailer, Sogo, stopped him ending the zero interest-rate policy (ZIRP) at the BoJ’s July meeting. But he looks determined to end ZIRP within the next two months.
Zapping ZIRP will help the gathering pace of Japan’s waltz with reform. It would be great long-term news for Japan that the cost of capital is set to rise and that those (like Sogo) that don’t use it wisely will be allowed to go bust. The long-term benefit of this to investors outweighs the short-term cost of possible future bankruptcies.
Don’t expect Japanese investors to get the message quickly. They may even drive the Nikkei down further. I dropped my overweight Japanese equity position after a visit there last April. What I saw convinced me that Japanese corporations hadn’t got the message about competing in the new economy. Also, up to now, the economy, as measured by GDP, has been like the surface of a dark pond, with probably just a small ripple of movement of around 1.0%