INVEST IN JAPAN

Name:

0839715 Natrah Pula 0839383 Oliver Machwirth

Class:

IBMS109

Teacher:

Mr de Koe TABLE OF CONTENTS

Introduction Why Japan? Why investment in Japan? Project description Financial Part Risk Conclusion Sources

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Why Japan? Currently, the world's eyes are on Asia. Japan is full of business opportunities due to its strong ties with this rapidly developing region. In Asia, Japan (1) is recognized as a leading center for innovation and, (2) boasts highly attractive business and living environments, in terms of safety, medical services, etc. (3) is one of the world's largest economies, is also attracting increased global attention for its "soft power," i.e., positive view of Japan in the areas of fashion, contents, food and more. Japan offers foreign companies these three windows of opportunity: (1) Innovation Hub With its rapidly growing economy, Asia is becoming increasingly influential in the world economy. Japan, as a country in Asia, plays an important role as a "bridge nation" connecting Asia and the world, which contributes to Asia's growth. Japan has great potential to become a regional hub and a R&D center in Asia, as exchanges of personnel, goods and money accelerate within Asia.

(2) Business Platform Japan plays an important role as a "bridge nation" connecting Asia and the world, which contributes to Asia's growth.

(3) Trendsetter Japan is a huge market with one of the world's largest economies. In addition, sectors with large growth potential exist in Japan, including health and tourism markets. Japanese consumers are sensitive to fashion and make new fashion a part of their lives quickly. Therefore, Japan offers a market for test marketing before entering Asian markets. Japan also attracts attention as a country with "soft power," which sets trends for fashion and entertainment content in Asia.

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Why invest in Japan Investing in Japan is now at low costs due to the catastrophes. If you invest in Japan it is almost guaranteed to get your investment back in a couple of months. That has been proven in the past. Investing in the wake of tragedy can be emotionally difficult. But buying stocks in Japan right now is a vote of confidence in Japan's people, its companies and its markets. In the weeks after Japan's 1995 Kobe earthquake, stocks fell by a quarter, but then bounced back in a matter of months. After the 2001 bombing of the World Trade Center, U.S. stocks fell 11.6%, before rebounding 19.4% over the next six months. Foreign investors will be the key to a Japanese stock market revival but once prices start rising then local Japanese investors will join the party and push prices higher, according to John Millar, the manager of the Martin Currie Japan A fund. Japan's main index, the Nikkei 225, peaked just above 18,000 points in July 2007, before falling to 7,600 in March 2009. It now stands at around 10,300, after a 35% rebound. Well known UK fund managers including Jonathan Ruffer, Graham French and John ChatfeildRoberts have all taken bets on Japan in recent months. Despite Japan's recent downgrade by credit rating agency Standard & Poors, Millar believes a number of problematic issues have been resolved in favour of stock market investors. 1 VALUATION OF COMPANIES This was top of Millars list of positive factors for the stock market. He said that conditions had been so bad that Japanese companies were forced to become more efficient, but were still selling at 'book value' (the value of their assets). He said: Despite the strong yen, earning growth has been good. The fundamental value case is still very strong and the corporate sector is awash with cash. In contrast he said that companies in other Asian countries were selling at twice book value. 2 FOREIGN INVESTOR INTEREST Millar said that data from the Japanese stock market from the last quarter of 2010 showed an increase in foreign investing: Its starting to happen...I think its more in terms of institutional investors reducing their underweighting in Japan than making a positive call. He said a small rise in foreign investment would have a disproportionate effect on lifting the market and would create a virtuous circle by reigniting local investment. Japanese investors have been avoiding their own stock market through fear of losing cash in a deflationary environment, Millar explained. 3 EMERGING MARKET EXPOSURE

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Japans terrible World War II record is seen as a bar to good relations with its neighbours with occasional bouts of Japan bashing but Millar said relationships with emerging markets were excellent. While investors see Australia benefiting from the demand for commodities, Japan offers manufacturing exposure: When were picking stocks were able to find lots of companies that are big beneficiaries of emerging markets growth. He said Komatsu, which makes excavators, and Hitachi Construction were two examples and his fund holds Suzuki Motors which is the leading car maker in India.

4 RECOVERING DEMAND IN THE US CAR MARKET Millar said a recovery in US car sales would help Japan. Figures for January showed a good start to 2011 but Toyota, the worlds biggest car manufacturer, is still suffering from the effects of safety recalls. While US car manufacturers saw a 20% rise in sales, Toyota managed a 17% rise. 5 SHAREHOLDER RETURNS Millar said that Japanese companies were awash with cash and that this would either be spent on mergers and acquisitions or be repaid to shareholders via dividends and share buy-backs. Other fund managers, like Scott McGlashan, manager of JOHCM Japan Retail GBP, have noticed an increasing trend for Japanese companies to reward shareholders, with a resultant rise in share prices. 6 POLITICAL PROBLEMS CLEARING UP Japanese politics has been split between those politicians who say saying that the country must cut its way out of deflation and debt and those advocating spending their way out of it. Millar said that the cutters had suffered a number of political defeats. 7 GLOBAL INFLATION COULD PLAY INTO JAPANESE HANDS. While central bankers across the world ponder over raising interest rates Millar said that Japans deflationary state means that it will probably be among the last to react. While foreign investos might lose out if the yen weakens, a weaker yen would be good news for Japanese exporters who dominate its stock market.

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Project Description Kawasaki Eco-Town Project Kawasaki City Project overview/Main Concept Kawasaki City is home of one of Japan's oldest and largest industrial parks. Established in 1902, Kawasaki Coastal Industrial Area houses over 50 heavy industrial enterprises in a 250-acre area. Its largest tenants consist of oil refineries, steel manufacturers, power generators, and chemical manufacturers. The City of Kawasaki is located adjacent to Metropolitan Tokyo and has a population of 1.2 million. By the 1970's the city and the industrial park were considered one of Japan's most contaminated areas. Residents suffering from asthma and other respiratory diseases filed a lawsuit against the central government and industrial park tenants in 1982. Serious environmental problems, along with the restructuring and nationalization of certain industries, resulted in the closing of several plants and stagnation of the local economy. To resolve the situation, Kawasaki decided to redevelop the city by promoting its Project for Making Kawasaki City Environmentally Harmonious. This project is based on the concept of converting the city into a place where all actions, from people's everyday activities to industrial operations, are conducted in harmony with the environment and an eco-town project is one of its main components. The city government and local businesses have taken numerous steps to develop the area into an environmentally friendly production zone. Steps include establishment of recycling and material reuse programs between facilities, restrictions on emissions, and higher pollution abatement standards, as well as provision and promotion of logistical support and coordination of material exchange, research and development and public education1. The strength of Kawasaki City is that it has a well-established transportation infrastructure that includes ports, railroads, canals, and energy facilities, which are indispensable to resource-related companies. In addition, this area has a high concentration of Japan's leading large industrial firms, and also a large number of medium- and small-size
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Kawasaki City Homepage (http://www.city.kawasaki.jp/ecotown/ecoen.htm) 6|Page

enterprises in the field of resource recycling, and various environmentrelated facilities. Through the close integration of existing infrastructure and industrial elements, Kawasaki found an amazing opportunity to create an operationally competitive resource-recycling system.

OVERVIEW OF THE PROJECT The concrete operation plans are shown below. 1. Promote industrial firms efforts to make their operations and systems environmentally friendly and ecologically sound. Establish a model zero-emission plant, and achieve zero emissions of effluent water and zero production of waste from the manufacturing facilities. Actualize an environmentally sound transportation system. Construct and demonstrate the operation of a model plant.

2. Promote a program for creating a zero emission, environmentally friendly, and ecologically sound community. Establish environmental targets. Plan and develop a zero-emission industrial park. Create green-belt networks and promote the renovation of manufacturing facilities into community amenities. Introduce environmentally friendly vehicles. Implement recycling as a community activity by promoting joint activities for collecting and recycling of paper, glass bottles, cans, and PET bottles, and use of recycled goods.

3. Implement R&D programs to promote sustainable development. Develop co-generation systems for utilization of waste heat from plants and factories. Conduct studies to develop and commercialize recycling systems. Promote joint research and development of environmentally-related technologies.

4. Establish an Information System. Create a widely accessible database for information on environmentally-related technologies. Assess the region's achievement in terms of environmental protection.
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Accumulate in-house information concerning the environmental aspects of the Kawasaki Eco-Town. Disseminate the information to the communities outside the Eco-Town. Create an Eco-Town center as a place for environmentally-related human interactions and training, as well as for the gathering and dissemination of environmentally-related information.

The entire plan is to be completed by 2012.

PROJECT STATUS Some of the processes and technologies currently in place include ecologically sound cement production, which uses fly ash and bottom ash from incinerator plants as inputs. Waste oil is used for energy to heat the kilns for production. Electronic appliance recycling provides input for steel manufacturing. A new type of blast furnace utilizing municipal plastic waste as a reducing agent in place of coal was finished by NKK, one of Japans leading steel makers. This system received funding from MITI as a part of the Eco-Town project and is in operation with the capacity of recycling 40,000 tons of waste plastic every year. Zero Emission Industrial Parks infrastructure was located in an abandoned site of a steel manufacturing plant, in cooperation with Japan Environmental Corporation (JEC), and 7 tenants have already moved in. The Park serves as the hub of a resource-recycling society. The individual industrial firms within the industrial park not only will reduce their own emissions but also will effectively utilize or recycle into usable resources the emissions from other facilities located there. The tenants also will collectively integrate their energy use to improve overall energy efficiency. KEY INSIGHTS The Kawasaki Eco-Town is a joint effort between government and local business. While still in the early stages of development, it represents a promising example of the industrial area redevelopment model, focusing on environmental technologies and by-product utilization efforts. The City will benefit from the reduced burden of municipal waste treatment by having an advanced recycling facility on site, and private business can achieve cost savings by utilizing recycled materials, which in turn will result in revitalization of the local economy. The greatest challenge center on the coordination of activities necessary to achieve effective by-product and energy exchanges. Bilateral exchanges among the old tenants have always taken place as an
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efficiency improvement effort in the area. The City then analyzed material flows throughout the area to recruit new tenants that would function to close the material cycle and help achieve the optimal by-product exchange model. This attempt to facilitate new links, however, turned out to be a difficult task. Under the long lasting recession, most small and medium sized enterprises are reluctant to venture into a new investment, and some of the candidates for the Zero Emission Industrial Park decided not to move into the Park2. The plan to cascade the heat energy from a tenant next to the Zero Emission Industrial Park is also facing problems, because this tenant couldnt find any short-term economic benefit from this arrangement. These examples point out the potential difficulties in a third party facilitating new arrangements. The current economic circumstances in Japan encourage industries to increase energy efficiency and recycling efforts using an industrial ecology approach, but discourage them from taking risks by making new investments or new arrangements which dont give them immediate tangible economic return. Even though firms are recognizing environmentally-related business opportunities, their financial bottom line continues to be their first priority. Further assistance, such as business incentives or subsidies and education and information sessions conducted by local and central government will be needed to overcome this dilemma.

Financial statement

Amount invested Start dated Amount Returned? End dated

$3.000.000 24/juni/2011 $4.500.000 24/juni/2016

Gain or loss Percentage Gain or loss Total years

1.500.000 50.0 % 5 years

ROI and other financial metrics that take an investment view of an action or investment compare investment returns to investment costs. However
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Miyauchi, T.(2000) Director, Industrial Development Division, Kawasaki City. Personal Communication 9|Page

each of the major investment metrics (ROI, internal rate of return IRR, net present value NPV, and payback period), approaches the comparison differently, and each carries a different message e. This section illustrates ROI calculation from a cash flow stream for two competing investments, and the next section ( ROI vs. NPV, IRR, and Payback Period) compares the differing and sometimes conflicting messages from different financial metrics.
Now Return on investment x$1000 In % 3000 0% Year 1 2800 -6,7% Year 2 3200 6,7% Year 3 3550 18,3% Year 4 4000 33,3% Year 5 4500 50%

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Risk Japan is a volcanic island and is among the most active regions in the world. The earthquakes are caused by plate tectonics. The Pacific plate and Philippine plate dives slowly (a few centimeters a year) down below the Eurasian plate. This process can cause great tension. The locally over many years built up tension can create a sudden shift, earthquake. This active earthquakes brings us to the next risk, Tsunami. The tsunami is created by the earthquakes. And occurs several time in a century. 1) earthquakes 2) Tsunami

CONCLUSION The amount to invest is a fortune and to invest that amount of money, there need to be a lot of thoughts, trust and consideration taken. As we are trusted to find a project to invest in. The investment in Japan, would be very recommended. It has consequences of course, but the benefits takes over the risks. Japan in a few years, could end up stronger and more efficient than the period before the tragedy.

SOURCES

http://www.jetro.go.jp/en/invest/whyjapan/ http://online.barrons.com/article/SB500014240529702037576 04576204523501069008.html#articleTabs_panel_article%3D1 http://www.city.kawasaki.jp/ecotown/ecoen.htm http://www.kawasaki-net.ne.jp/eco/Ecoen.htm http://mandilo.com/2011/03/investing-in-japan-opportunitiesand-risks/ http://en.wikipedia.org/wiki/Japan

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