Masakazu Takeda: Overall I think Japan has been moving in the right direction, and progress has been made slowly but firmly. Bank of Japan has been pursuing a 2% inflation target, and five years have passed since the Central Bank initiated aggressive monetary easing policy. We have yet to achieve that 2% target to date, but with the recent reappointment of Mr. Kuroda as the next BOJ governor, we expect the current monetary policy framework to continue for the foreseeable future, and I think that's positive.
As for the economy, growth has been quite robust, but a lot of the incremental growth still comes from overseas. The domestic economy is reasonably strong, but I must say it's still quite fragile, and so that's why we need for the government to continue to make a push for structural reforms.
There have been many structural reforms, ranging from tax reforms, corporate governance reforms, as well as job market reforms. Some of them have been implemented and achieved positive results, while others are still a work in progress, and there are many more to come. More recently the government focus has been around job market reforms, especially in the area of white-collar employees. Japan has been notorious for low labor productivity, and so the government is keen on passing a law that will require businesses to reward their highly skilled white collar employees based on performance rather than the number of hours worked. There's also been a proposal for a revised corporate governance code recently, and the new proposal calls for three things: clear management succession plan, more diversity in the boardroom, and further reduction in corporate cost shareholders.
Strengthening of the Yen
I think when the Yen rises sharply, always the initial short-term reaction of our portfolio is negative, and that's because we are always invested in global Japanese companies. But I think our portfolio is naturally hedged against currency risk from a U.S. dollar-based investor's point of view. That is to say, when the yen depreciates, that would reduce the dollar return on equity, but it will enhance the international competitiveness of the businesses that we own, so investors are compensated by that. On the other hand, when the yen appreciates, it will enhance the dollar return on equity right away, while reducing the international competitiveness of the business. But, over time, well run, high-quality companies can overcome the currency headwind through the secular growth of their business. Corporate Japan has become quite resistant to currency fluctuations over the last 10 years.
Investing in Japan
I think Japan offers some of the most globally competitive companies in the world. Investors can gain exposures to not just developed countries, but also to developing economies through our portfolio. They can enjoy growth from emerging countries with better corporate governance and transparency of the companies that we own, and Japan is a very liquid market.
I think Japan continues to be a great place for active managers. If you look at the index, it's still dominated by large, old, mature companies, but if you look under the hood, there are a lot of exciting attractive companies, even in the large-cap universe.