James Grant's Long Case for the Yen

In his latest Forbes column, James Grant recommends buying the Japanese Yen (FXY):

The worst of it, for a yen bull, of which I am one, is the perceived certainty of things. At 121 to the dollar, the yen on Feb. 26 stood at a 15-year low against the euro and its predecessor currencies, and a 21-year low in real trade-weighted terms. Before the worldwide selloff that began on Feb. 27, there was supposedly nothing on the horizon to change things.

Grant's column also touches on Japanese stocks and the country's slowly changing corporate landscape. Regular readers know I have exposure to Japanese equities. So does Grant, who has a private investment fund called Nippon Partners:

As an investor in Japanese equities, I'll now talk my book. I believe that the yen is a worthwhile investment. It's a bargain in fundamental, purchasing-power terms, for one thing. And it provides low-cost disaster insurance, for another.

The yen is cheap for the merchandise it can buy today. It is also cheap for the corporate assets it could buy tomorrow, if only Japan's famously shareholder-unfriendly corporate managements would wake up to the best practices of the 20th century, never mind those of the 21st.

But more and more, they are. Late in February, for example, a Japanese fund manager did the heretofore impossible. Ichigo Asset Management, with all of $25 million under management, solicited more than 42% "no" votes to oppose the proposed acquisition of Tokyo Kohtetsu Co. by Osaka Steel, a union blessed by the two corporate managements and therefore, under the old rules, a done deal. But the rules have changed, and the merger is off.

Ichigo's success in blocking this transaction represents a bell-ringing first.

Grant goes on to write some things you've read here, among other places if you're a value investor. That many Japanese companies are cheap based on their assets. And that too many managements aren't exactly shareholder friendly.

His piece also discusses the "yen carry trade" and suggests an ETF that invests in yen.

Jim Grant has been wrongly written off as a "perma-bear" -- but he's actually a top-notch stock picker and his Forbes columns are real treats.

Comments

[ken:]

<em>Late in February, for example, a Japanese fund manager did the heretofore impossible. Ichigo Asset Management, with all of $25 million under management, solicited more than 42% "no" votes to oppose the proposed acquisition of Tokyo Kohtetsu Co. by Osaka Steel, a union blessed by the two corporate managements and therefore, under the old rules, a done deal. But the rules have changed, and the merger is off.</em>

Except, as far as I know, the 'Japanese fund manager' in question is actually Scott Callon, an American. I suppose it doesn't really matter, but it's a tad confusing. Should he be "The manager of a Japanese fund?" Is it necessary to mention that Ichigo is a Japanese fund under foreign management?

2007 Mar 19 03:21 AM

[Steven Towns:]

Ken, I think it does matter in a sense, since it was a foreigner (i.e. non-Japanese) behind the break-up. In another respect, this is a mere blip on the radar in terms of the size of the firms involved. In short, I like what Ichigo Asset Management is doing and think the quest to unlock shareholder value is a definite plus, with abundant opportunities. For more information on Ichigo, see: www.ichigoasset.com/en...

2007 Mar 19 06:59 AM

[ken:]

Steve, thanks for your comment. I guess I was wondering if it was something that Forbes should have mentioned in the article, ie, that there was a foreigner behind the break-up. You're definitely right about that aspect of it being a blip on the radar, there's no doubt that the transaction involved some very large firms in a deep-seated industry; I suppose the question that only time can tell is the extent to which shareholder value and activism will go. Thanks for the info on Ichigo.

2007 Mar 19 12:56 PM