Sun, Nov 25, 2007 - Page 9 News List

Japanese lose interest in US investments

By Martin Fackler  /  NY TIMES NEWS SERVICE , TOKYO

Many in Japan are starting to speak of "quitting America," but they are not talking about a rise in anti-US political fervor. Rather, they mean a move away from US investments that is altering global capital flows and helping to weaken the US dollar.

The move is seen in decisions of individual investors like Daijo Okudaira, a 66-year-old clerk at a Tokyo consulting company. Like many Japanese, Okudaira had long limited his overseas investments to the relative safety of securities from developed countries, particularly the US.

Starting late last year, however, Okudaira made drastic changes to his portfolio, putting US$50,000 into mutual funds focusing on stocks in China and other emerging economies. He said he had been drawn to these countries because they seemed to hold much brighter growth prospects than the US.

"People say the engine of the global economy is shifting from the United States to emerging countries," Okudaira said. "Emerging countries have growth and energy that America and Europe lack. They remind me of Japan 40 years ago."

Japan's legions of individual investors like Okudaira have emerged as a global financial force to be reckoned with, directing almost half a trillion dollars of their nation's US$14 trillion in personal savings overseas in search of higher returns. Until recently, much of this huge outflow of cash, known as the yen-carry trade, had gone into US stocks, bonds or currency, propping up the dollar's value.

Now, however, Japanese individuals are diverting more and more of that money away from the US and the dollar and into higher-yielding global investments, ranging from high-interest Australian government bonds to shares in fast-growing Indian construction companies.

Partly this "quitting America" -- called beikoku banare in Japanese -- reflects an increasing sophistication of Japan's investors, who embraced mutual funds only a decade ago and are still learning to diversify. But it also offers one more sign that the world does not depend as much on the US economy as it once did.

Recent figures on mutual fund purchases suggest this trend has accelerated since August, when subprime problems shook Wall Street -- and along with it, faith in the US economy. Since early August, the dollar has fallen almost 8 percent against the yen, a decline many analysts here say offers another indication of Japan's waning appetite for dollar-denominated investments.

"One lesson of August was the failure of American markets to recover," said Akiyoshi Hirose, head of research at Daiwa Fund Consulting, a research company based in Tokyo specializing in mutual funds. "On the other hand, Asia's emerging countries did recover quickly. So money is flowing out of the United States and Europe and into these newer markets."

Last month alone, Japanese individuals pulled ?33.9 billion, or about US$300 million, out of mutual funds that invested solely in North American stocks and bonds, according to Daiwa Fund. In the same month, it said, Japanese individuals put ?175.2 billion, or US$1.6 billion, into funds investing in stocks and bonds in emerging countries.

In the last 12 months, Japanese individuals invested ?1.97 trillion, or US$17.5 billion, into emerging market mutual funds, according to Daiwa Fund, and in the same period, they removed ?447 billion, or US$4 billion, from North America-only mutual funds.

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