Japanese groups urged to raise capital efficiency

JAPAN WILL be forced to sell its assets cheaply to emerging economies such as China and India unless its corporations raise their capital efficiency and enterprise value, the head of the Tokyo Stock Exchange warned yesterday.

Atsushi Saito said it was his "personal fear" that within 20 years the world's second largest economy would have to tap overseas investors to finance its debt - now at 170 per cent of gross domestic product - by selling property and other national assets at rock-bottom prices.

"We will face a disastrous situation. Our grandsons and great-grandsons will carry very huge, tragic debt, thanks to their grandparents . . . [and will] have to rush to China, India, the Middle East [and say] 'please help us'," he said.

Mr Saito, a champion of good corporate governance as critical to raising the value of companies and boosting the national wealth, said those opposed to bringing Japanese corporate governance in line with the west's would "eventually dampen the future price of Japan".

The Tokyo stock market has seen the benchmark Nikkei average plunge more than 20 per cent since July.

About half of Japan's listed companies are trading below book value.

Mr Saito's warning comes amid growing concern that poor corporate governance, which has led to the adoption of excessive takeover defence measures and stymied mergers and acquisition activity, is sapping the competitiveness of Japanese companies and the vitality of the economy.

"At present Japan is alright, but it is like the Titanic just after ," said Takaaki Wakasugi of the Michigan Ross School of Business, University of Michigan.

"People are still singing and dancing but the Japanese economy is sinking."

The TSE is drawing up measures to improve the corporate governance of listed companies and guidelines for takeover defences to prevent them being used to entrench management.

This week a group of ruling Liberal Democratic Party parliamentarians presented a report to Yasuo Fukuda, the prime minister, proposing reforms to the management of the public pension fund to improve returns. Politicians and workers fear the pension situation could worsen in the coming years.

The Council for Fiscal and Economic Policy is calling for the break-up of Japan's Y149,000bn ($1,380bn) Government Pension Investment Fund into smaller units.

The council says these small units should be managed by investment professionals competing with each other to raise returns from the average 2.9 per cent between 2002 to 2007 - when Canada's public pension fund returned a 9.1 per cent average.