Japan, despite the financial crisis, should prove a good long term investment pros-pect, but with several internal and external variables, analysts will not be drawn on the timing of the turnaround.

James Hegarty senior fund manager at Invesco in Tokyo describes himself as near term very negative, medium term doubtful, longer term very optimistic."

Anita Lenseisen, investment analyst with Bayerische Landesbank in Munich, says that much depends on the new programme of reform.

"We think that in the next six to 12 months the Nikkei will show high volatility but will remain roughly at this level. We think that from 1999 onwards the situation will become better."

Koji Nagaoka, a director with Nicam UK in London is blunt about the government's record. "The Japanese government failed to take any meaningful measures to prop up the slowing economy, which was caused by a series of inappropriate economic policies. It also failed to calm down the panicky mood in the financial system, after the collapse of fragile financial institutions."

However change will come. Nagaoka, looking at the big picture says that the major drivers for the market will be changing demographics, de-regulation including Japan's equivalent of the Big Bang next year, technological in-novation and continuing glo-balisation.

Hegarty paints an improving picture although he cannot be specific on timing with variables including as how successful international aid is for Asia as a whole.

"The financial sector will be much smaller due to bankruptcy and mergers and acquisitions and will be better able to withstand overseas competition when Japan's big bang occurs." He also points out that for a quarter of the market, companies are valued at well below their break up value with some selling below the cash value on their balance sheets. He predicts that this could lead to previously unheard of take-over activity.

In terms of money flows, changes to investment rules should see more individuals investing on the markets while companies at these prices now present a reasonable dividend prospect of 3% (well above the 0.3% available from cash deposit) when previously investors were only expecting capital gains, says Hegarty.

In terms of sectors, Nag-aoka favours global technology companies adding that small innovative enterprises will fare better than traditional sectors such as banks, construction, steel makers and chemicals. Nicam will continue to overweight technology and underweight financials.

Hegarty favours "anything which has value, therefore cyclical stocks and machinery stocks. We are still negative in terms of consumption stocks namely those which are linked to the consumer."

Lenseisen believins that real estate and construction will improve because prices have fallen 80% in recent years and must have bottomed out.

She sees consumer linked companies as the weakest sector but also believes that in the high tech sector that the US may have establised a significant lead.

John Lappin"

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