Funds Face Challenge with Japan's Sluggish Performance

Japan's reluctance to shake off its sluggish economic performance is becoming an increasing concern for international funds, Dale Jackson reported in the Canadian Globe and Mail, only one week after China unseated Japan as the world's second-largest equity market. Even the Bank of Japan's decision to hold its benchmark interest rate at 0.5 percent until the fourth quarter has failed to elicit any enthusiasm:

"The Bank of Japan's monetary policy does not seem to have much impact on the economy" says J.P. Morgan chief economist and former Bank of Japan official Masaaki Kanno.

International equity fund managers are clearly feeling the effect, as Jackson notes: Mackenzie Focus Japan Class fund, with an 87-per-cent weighting in Japanese equities, sank 20.5% last year. Mackenzie Focus International Class fund, with a Japanese equity weighting of nearly 30 per cent, lost 1.4%, while the Mackenzie Universal Global Growth fund lost 1.5% with a Japanese equity weighting of 14 per cent.

"I am concerned that Japan has steadily lost relevance as a global superpower," Mackenzie's Mark Grammer was reported as saying, though he insisted that for long-term investors, there were still gains to be made, mentioning Nintendo (NTDOY.PK) and diesel filter makers NGK Insulators and Ibiden.

Paul Rodwell of AGF International Advisors concurred: "We haven't considered Japan an economic superpower for at least three years," he said. His AGF International Stock Class fund lost 6.7% last year with only a 3.5% Japanese weighting. His holdings include Mitsubishi Corp., Nippon Mining Co. and Nippon Oil Co.

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