For the £900m ($1.4bn) Vauxhall & Associated Companies Pension Funds scheme, Japan has been and still is a problem market" says Andrew Duthie, administrations manager and member of the fund's investment committee. And, he thinks, the worst is yet to come.

"Our sentiment is negative," says Duthie, "There are some profit downgrades appearing and certainly one of our managers feels there is the risk of a downside breakout in the market"

The Vauxhall & Associat-ed Companies Pension Funds scheme not only houses the Vauxhall Motors pension plan, but also that of General Motors Overseas Corporation (GMOC), Delco Electronics Overseas Corporation, General Mo-tors Retirees and the Car Care Pension Plan. All funds are included in a common investment fund, separated into sub funds, each with its own asset allocation. The Retirees plan is a closed fund, with the majority of its assets in an annuity and the rest in index-linked and bonds and a small amount in equity.

The scheme is currently underweight in Japanese eq-uities, and the larger funds, Vauxhall Motors, GMOC and Delco have "about 5.5%" of their allocation in the area which is a "strategic position" says Duthie.

This is based on the bleak outlook the scheme holds for the Japanese market as Duth-ie explains. "I think that wholesale price inflation is negative, putting pressure on retail margins, we've got the continuing problems with the banks, the government has fiscally tightened which has had an adverse impact, and trade surplus continues to expand which could lead to further currency problems."

As far as the bond market is concerned, he predicts one more dip in interest rates before they pick up to more respectable levels, even though the general consensus in the marketplace is that the Japanese interest rate situation couldn't get much worse. "Everybody keeps saying it can't go any lower and it continues to do so!" he says, adding, "I think giv-en that you have negative in-flation, then you can see where things are and as long as imports continue to grow, which has that sort of impact of bringing prices down, the level is obviously justified. At some point in time however, it has got to move back up again. One would say that the likelier move from here is that yield will go back up, but I wouldn't be surprised to see them just continuing to come down a bit further."

Not surprisingly, the fund is underweight in the bond sector for the time being. Rachel Oliver"