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December 27, 2012 3:45 pm
Acquisitions of Japanese companies by foreign buyers fell to a 14-year low in 2012 as outbound deals touched new highs, highlighting the challenge facing the new government as it seeks to restore steady growth to the world’s third-largest economy.
According to data from Recof, a research group based in Tokyo, foreign companies will have acquired about 108 Japanese groups in 2012, down almost a third from last year, to make the lowest haul since 1998. Overseas acquisitions by Japanese companies, meanwhile, should rise to about 500, clear of the previous record of 463 set at the peak of the country’s bubble 22 years ago.
Liberal Democratic party leader Shinzo Abe, formally endorsed this week as Japan’s seventh prime minister of the past six years, has pledged to revive output by pushing for aggressive monetary and fiscal stimulus.
The Recof data underline the urgency of that task, indicating that both domestic and foreign companies continue to see better investment opportunities outside an economy that has shrunk in three of the past four years.
This year the strong yen was an additional deterrent to would-be acquirers of Japanese assets, while uncertainty over fuel costs triggered by the March 2011 Fukushima disaster provided another reason to focus investments elsewhere.
A deal such as Dentsu’s $5bn offer for Aegis of the UK, which was not much smaller than the bidder in terms of market value, shows how keen Japanese acquirers are to expand overseas, said Yoshihiko Yano, head of mergers and acquisitions at Goldman Sachs in Tokyo.
“You have to look abroad to invest if you don’t see any growth opportunities in Japan, where the market is shrinking and the population is rapidly ageing,” he said.
The outlook for inbound investment could be brighter, said analysts, if Mr Abe succeeds in taming the yen and implementing pro-business policies such as resolving the stalemate over nuclear power.
On Thursday the yen moved through 85.90 to the US dollar, its weakest level since September 2010, bringing its losses since mid-November – when Democratic party head Yoshihiko Noda called the election – to almost 8 per cent.
“If the yen/dollar rate continues to improve, Japan’s chances of attracting investment should improve,” said Akira Kajita, director of international economic research at Jetro, a government-affiliated trade body.
Greater policy cohesion could also spur investment. The LDP and its allies have achieved a two-thirds supermajority in the lower house, sufficient to override opposition from the legislature’s upper chamber, where no party holds a majority.
“Japan may be in safer hands,” said Yuichiro Nakajima, managing partner at Crimson Phoenix, an advisory boutique based in Tokyo. “Previously, people wanted change and got change. But it turned out the people in charge simply had no clue about running this country.”
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