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Japan: Nikkei awaits boost at home

The Japanese economic problem looks set to take a long time to solve, and analysts are remaining negative at least until year end, or first quarter of 1998.

Ronald Doeswijk, strategist at IRIS the research arm of Robeco and Rabobank ventures further to say, For the next 6-12 months we are absolutely pessimistic about Japan.

"Economic news is still negative. The sentiment on the equity market is influenced by a lot of bad news in the corporate sector. There are briber-ies and a lot of banktruptcies so domestic investors are not interested in Japanese stocks."

He continues "Domestic investors just don't come to the buying side and these in-vestors are needed to get the Nikkei substantially above the 20,000 level."

Masa Yoshikawa, executive director at Yamaichi in London, though, thinks the Nik-kei will only just manage around the 17,000 level, with even possibilities of it dropping to 15,000. He sees the upside potential in the market as "very limited", with the ex-port and capital investment seen as "very favourable at the moment" albeit weak. "It will take a long time to solve the financial problem," he says.

The large exporters are still fairly reliable bets though, and Doeswijk advises invest-ors who still want to risk Ja-pan to stay with the likes of Honda, Sony, Canon and Fuji. "Buy blue chips that will benefit from the depreciation of Japanese Yen," he says.

John Boich, senior portfolio manager at Montgomery Asset Management in San Francisco, however sees a far more positive picture, particularly with regard to the small caps market, an area he feels has been overlooked to date.

"It was down 25% in local currency terms in the third quarter and it is nearly at an all time relative low versus large caps in terms of evaluation. So there is a very strong value case in the Jasdaq."

Future returns will easily outshine the large caps market, and he estimates over the next 12 months, "it will have potential to return between 50% and 100% in the right stocks." However he advises caution on stock selection: "Out of 750 names in the Jasdaq, we only own about 12."

Equally, he sees the bond market set to improve by the 2nd quarter 1998, though concedes to possible moves downwards of 10 or 20 basis points before correction.

"You are likely to see an up-ward drift in long range over the next 12 months, but moderate, and you will see short range of 0.5% base lending rate which will stay where it is until we are clearly out of the recesssion and clearly out of the banking crisis."

Yoshikawa however expects that bonds will remain at the same levels for the time being: "We expect Japanese bond market will maintain the 1.7% level, maybe 1.6% or 1.8%, but it is very weak." Rachel Oliver"

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