Last year was a record year for retail fund sales, and Japanese offerings played their part. Investors pushed a record £1.7bn into the country’s equity portfolios in 2017, and a net £9.1bn into equity products as a whole.
This was not just a case of a rising tide lifting all boats: the proportion of sales accounted for by the region rose to a record 19 per cent.
There are complicating factors. The exodus from UK funds has affected the overall sales figure in a manner not seen prior to 2016. But there are also signs of a Japanese acceleration: in the fourth quarter of last year, Japanese equity fund sales stood at a record £627m, the first time that interest in the region has topped inflows into Global and North American products.
If sustained, the trend would mark a change from the previous status quo, which saw much talk of Japan’s promise, but little sign that the country’s equity market was the subject of widespread interest from the advisory community.
This talk started in earnest in late 2012 with the election of Shinzo Abe as prime minister. Mr Abe’s package of reforms aimed at stimulating Japan’s economy, quickly dubbed ‘Abenomics’, represented an attempt to lift the country’s economy out of the deflationary environment that had dogged it for the previous two decades.
For markets, the upshot of the ensuing stimulus measures is a Topix index that has risen 100 per cent in sterling terms since Mr Abe’s election.
There are mitigating factors for those who have opted not to take part in the rally. The first is that the Topix’s rise has, in fact, been exceeded by that of the S&P 500, which is up 118 per cent over the same period.
The MSCI World is similarly up by 100 per cent in sterling terms. By these measures, there is justification in a failure to diversify.
Another reason for investor scepticism may be that old habits die hard. Japan has struggled for years to kick-start an economy that, judged by conventional measures, has been sclerotic since the early 1990s. Indeed, the sweeping range of reforms that constitute Abenomics has itself been deemed unsuccessful by many observers, in large part because it has singularly failed to achieve one of its core goals.
Central to the stimulus measures was the intention to stoke inflation in the domestic economy. Taking over as central bank governor in 2013, Haruhiko Kuroda pledged to push inflation up to 2 per cent within two years. Five years later, it remains stuck at the 0.5 per cent mark.
Mr Kuroda has continued into a second five-year term, not least because the central bank’s giant quantitative easing programme has contributed to some beneficial outcomes.
The country’s economy has grown healthily, the unemployment rate sits at just 2.4 per cent, and Japanese corporate profitability neared record levels in 2017.
A weaker yen has driven many of these trends. Driving down the value of Japan’s currency has been a core objective of Abenomics – and quantitative easing in particular – in the hope that a drop would spark inflationary pressures. Consumer price rises may remain stubbornly low, but the yen has by and large filled its part of the bargain.