In recent years, commentators have cited the strong yen and anaemic domestic growth as key drivers of surging investment by Japanese companies in southeast Asia.
With the yen having weakened by over 10 per cent against the dollar since prime minister Shinzo Abe was elected in December with a mandate to re-inflate the moribund Japanese economy, will the tide of Japanese investment into Indonesia, Myanmar, Thailand and Vietnam recede?
CLSA, the Asia-focused brokerage house, thinks not.
Japan is one of the biggest and fastest-growing investors in Indonesia, Vietnam and other southeast Asian countries so any slowdown would have a discernible impact.
Dee Senaratne, head of research at CLSA’s Jakarta office, believes that a weaker yen and a potentially resurgent domestic economy could prompt some Japanese companies to re-think their foreign investment plans.
But he told beyondbrics that the long-term structural trend of Japanese investment in southeast Asia is likely to continue regardless.
“Japanese companies will continue to come to Indonesia because they have cashed-up balance sheets and are looking for growth,” he said.
The other structural factor driving Japanese manufacturers to invest in southeast Asia is a desire to diversify away from China, where labour costs are rising as sharply as jingoistic hostility to Japan.
The impact on direct investment may be limited. But Senaratne thinks that portfolio investment in southeast Asia, which has been buoyant in recent years, may suffer if the economic prospects in Japan and the rest of the developed world continue to improve.
“Now it looks like there are green shoots in the US, eurozone break-up fears have subsided a bit and global trade appears to be recovering,” he said.
With many southeast Asian equities looking expensive, investors may be tempted to switch to Japan, which is the “most highly geared play on trade right now.”