Since the Japanese government announced that it would allow Yamaichi Securities to become Japan's biggest-ever corporate failure, the mood of international fund managers has switched from sullen bearishness to tentative optimism.
The long-held perception is that Japan's ministry of finance has been sweeping fundamental problems under the tatami - such as ignoring massive bad debts and turning a blind eye to questionable corporate practice. Recognition that Yamaichi Securities had to go to the wall appears, at first glance, to be the beginning of the end of Japan's bear market.
To Western eyes, Japan has for too long resisted the combination of market forces and bad debts which have led Yamaichi - and before it Sanyo Securities and Hokkaido Takushoku bank - into effective bankruptcy.
The political unpopularity of using public money to bail out brokers in the midst of a recession has stopped finance ministers from stepping in to protect the interests of customers. But because it appears that the Government is now taking a tougher, more realistic approach to systemic problems in the sector, institutional investors are now thinking again. Paul Kirkby, head of the Japanese desk at Global Asset Management, is now cautiously selecting Japanese banking stocks after avoiding them for 10 years.
However, for all but the opportunistic, any calls to buy must be hedged with provisos. Japan's economic policy remains a muddle - as Peter Whelpton, president of Gartmore's Japanese operations, points out. And the spectre of systemic risk, affecting further banks and life insurance companies, is as daunting as ever. More worrying, the government has left itself with little room for manoeuvre, with interest rates already as low as 0.5 per cent.
Outside banking, there may be some scope for bottom picking - though not in export stocks such as Sony, which have already priced in the low yen. The rewards could be great, but this is strictly for the risk takers.Reuse content