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Digital Subscriptions > The Hedge Fund Journal > Issue 122 - May 2017 > Cheap Capital Breeds Opportunity

Cheap Capital Breeds Opportunity

Japan 2017


Japan, for anybody who’s heard the story, has done nothing since 1990, close to the last three decades. Japan has massively over-leveraged companies, leverage is extraordinary high, and so are cash balances. So people have learned the lessons of over-leverage and yet they’ve taken those lessons, I think, way too much to heart and every two to four years (in some cases five years) you have a change in management. They think they’re changing management but they just continued the behaviour of the last 27 years. So leverage continues to go up very dramatically, and corporate cash balances are rising dramatically. That’s created a whole host of opportunities, and a whole host of problems for corporate Japan as an investment market.

Herbivores versus Abenomics

Another Japanese problem is described in a video by Masaki Fujisaki. The phenomenon of herbivores in Japan: who are effectively, as she describes it, men in their 20s and 30s who are not interested in real physical relationships, who are not interested in sex, who are not interested in getting married, who are not interested in having kids. That same phenomenon has permeated the aggression in business, in being just a suit in a job for five years or for 10 years or for 50 years. However, the government has put an enormous amount of effort into trying to get animal spirits going and animal spirits, to some degree, should be pushing people to invest money and should be getting people to do things. So we have this phenomenon in Japan of, most recently Abenomics, but 10 year yields are around 0%, which created a whole host of opportunities.

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