Currently, of the nearly $12trn in personal fi-nancial assets in Japan, more than half is invested in low-yielding deposits. Part of the 'Big Bang' process being promoted by Prime Minister Hashimoto is the at-tempt to encourage greater choice for investors. By the end of this year, banks will be able to sell mutual funds di-rectly in branches. The sole distribution route for funds up to now have been the networks of the big securities broking houses.

Of the $370bn invested in funds (so-called investment trusts) around $20bn is in international assets. Investment trust management companies (ITMs) are the only entities allowed to manage mutual funds in Japan, there being around 40 such companies. The ITMs attached to the big four houses (Nomura, Dai-wa, Nikko and Yamaichi) ac-count for over 70% of the market. Merrill Lynch is buying the business of the failed Yamaichi Investment Trust Management.

The funds themselves are either stock or bond oriented, and are either open-ended or 'unit' funds (closed-end). In addition, many funds have a closed period, in which redemption of funds is prohibited. Open funds calculate a daily NAV published in the Japanese press. Unit funds are priced on a weekly basis.

The offshore funds available are a mix of Hong Kong, Luxembourg, Dub-lin and Jersey funds. Samba Japan Equity, a Luxembourg fund managed by Samba Investment Management, has performed well over the short term, with a 16% gain in January alone. Daiwa TAA Japan, managed by Daiwa Europe also benefited from the recent Nikkei rally, as did HSBC Japan Equity Tactical.

Foreign managers with es-tablished bases in Japan in-clude Jardine Fleming, Schroders, Barclays, Mercury, Invesco and Fidelity. Pictet, Scudder Stevens & Clark and Franklin Templeton hope to get licences this year to act as ITMs.

The strongest reason for maintaining exposure to Japan is that the market is very cheap. It is well supported at current levels by interest from foreign buyers. But as Foreign &Col-onial's Arnab Banerji points out, We have been here before and as far as I can see, nothing has changed".

Beware, says Socgen Cros-by: "all signals point to a Nik-kei break of 14000 (ie a fall below this level). We are targeting the 7-8000 level (from a high of over 39000 in 1989). This would impact on the world economy and delay's Asia's recovery a full year.""