- The Washington Times - Friday, July 2, 2004

TOKYO — Like many other Japanese investors, Hiroo Sato got burned a decade ago when this nation’s speculative bubble burst. Today, he is getting some of his money back in a rebounding stock market.

But the 71-year-old retired bank executive also is putting more than a fifth of his money into a foreign investment — low-risk variable annuities from the U.S. insurer Hartford Life.

Overseas investments, which the Japanese long shunned, are giving this country’s latest economic recovery a greater likelihood of success than its past, abortive comebacks.

“In the bubble days, Japanese companies didn’t care about new ideas from foreign companies,” said Debbie Howard, president of the American Chamber of Commerce in Japan. “The prolonged economic slump has forced Japanese businesses to look at new and different ways of doing things.”

That includes letting foreigners invest in and manage Japanese firms.

Japanese stocks held by foreign investors reached a record high in the fiscal year ended March 31, at 22 percent, as the main index for the Tokyo Stock Exchange surged 46 percent, rallying from a 20-year low in April 2003.

Foreign direct investments in Japan totaled $19 billion for fiscal 2003, more than quadrupling from a decade ago, according to government data, although that still is a fraction of foreign investments in the United States or Europe.

Among the recent high-profile investments are French automaker Renault SA in Nissan Motor Co., Wal-Mart Stores of the United States in the Seiyu retail chain and Vodafone in a Japanese carrier that now has the British mobile giant’s name.

Individual investors also are embracing the idea, buying alternatives such as Hartford Life’s annuities.

Mr. Sato said he learned the hard way the superiority of American financial services to Japanese investments. Now, “I think this time the recovery is for real,” he said.

Analysts agree that the recovery could last, in contrast to the last two “phantom” upturns in the past decade, which fizzled out almost as quickly as they came.

For the quarter from January through March, the economy grew at an annual 6.1 percent as solid exports to the United States and the rest of Asia combined with a boost in consumer spending in Japan for the best showing in a decade.

Last month, the central bank issued its most upbeat assessment of the economy since the bubble, noting that growth was gathering momentum from improved employment and industrial production.

The optimism about the economy also is coming from Japanese companies — the gadgets they are producing, including digital video recorders, flat-panel televisions and digital cameras, are in high demand worldwide, including Japanese consumers.

Top companies such as Toyota Motor Corp. and Sony Corp. are increasingly counting on overseas revenue to propel earnings. Manufacturers are busy building plants in China to hire cheaper labor and be closer to burgeoning markets.

Still, the improvement in the economy could not be happening without foreign help, and many Japanese are grateful. Carlos Ghosn, Nissan’s chief executive who came from Renault to turn around the automaker from near bankruptcy, is being revered as an idol.

“The old aversion about takeovers has faded,” said Kohei Shiino of the government-backed Japan External Trade Organization, which promotes trade and investments.

The organization’s survey of more than 350 foreign companies in Japan this year found 62 percent of the respondents plan to expand their business here, the highest in the six years the survey has been conducted.

The success Hartford Life has achieved in the past three years in a market that had been notoriously protective underlines demographical and other social changes in Japan believed to be a forerunner of trends in the rest of the industrialized world.

Japan is perfect for Hartford’s star product, variable annuities, because the ratio of people older than 60 is increasing rapidly.

They are big savers, but mostly they put their money into low-interest bank accounts, and worries are growing about the reliability of government and company pension funds, said Gregory Boyko, chief executive of Hartford Life International.

“I understand fully also that in the last 15 years that Japanese investors have had disappointments,” Mr. Boyko said during a recent visit to Tokyo, “but over the long term, people realize that they have to take some risk and diversify their investments in order to get suitable returns.”

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