Japan Leapfrogs U.K. in Business Ranking as Cash Trumps Cuts
Japan, printing money and bolstering national pride, swept past the U.K., which is trying to implement an austerity program and loosen European ties, in a ranking of the best countries to do business compiled by Bloomberg.
Japan rose four places to third, behind the U.S. and Hong Kong, which led for a second straight year, in an index based on six criteria including the degree of economic integration and readiness of the local consumer base. Japan’s advance coincides with a 14 percent slide in its currency against the dollar in the past year that has bolstered its export competitiveness.
Prime Minister Shinzo Abe has called for unlimited money- printing and a doubled central bank inflation target to help revive the world’s third-biggest economy that was overtaken by China in 2010. He also plans to adopt a more assertive approach in regional disputes, particularly with emerging superpower China.
“There’s been a huge groundswell for change in Japan to extract the country from its malaise of the best part of 20 years and Abe has been elected with an agenda to revitalize,” said Martin Whetton, interest-rate strategist for Australia at Nomura Holdings Inc. in Sydney. “In contrast, the U.K. is close to a triple-dip, with high taxes and uncertainty around its role in Europe.”
Bloomberg Rankings measured nations on a scale of zero to 100 percent based on six factors: the costs of setting up business; hiring and moving goods; the degree of economic integration; less tangible costs such as inflation and corruption; and the readiness of the local consumer base, a category that includes the size of the middle class, household consumption and gross domestic product per person.
Hong Kong (HSI) scored 79.6, eclipsing the U.S.’s 77 and Japan’s 75.6. Germany was the leader on the basis of economic integration, while the United Arab Emirates won on the movement of goods. Luxembourg led on less-tangible costs. Hong Kong was deemed best for setting up a business.
Japan scored highest for the price of labor and materials because its compensation as a percentage of total expenses was only 6.9 percent, compared with 11.9 percent in the U.S. and 23 percent for Hong Kong.
Canada, where unemployment reached a four-year low last month, was among the gainers, rising six places to sixth-equal with Australia. Switzerland, by contrast, fell to 17th, level with the U.A.E., which rose seven spots. The Swiss central bank introduced a currency cap of 1.20 francs per euro in September 2011 to help exporters and fend off the threat of deflation.
A quarterly survey on Jan. 17 of investors, analysts and traders who are Bloomberg subscribers showed they are the most bullish on Japan’s markets in more than three years and confident that Abe will weaken the yen to boost exports.
Japan’s currency is heading for an 11th straight weekly decline, the longest on record, according to data compiled by Bloomberg. It traded at 90.65 as of 8:41 a.m. in Tokyo.
Respondents who see Japan offering the best opportunities worldwide over the next year rose to 21 percent this month from September’s 5 percent, the survey showed. Fifty-four percent said they’re more optimistic than pessimistic on how Abe’s policies will affect Japan’s investment climate, up from 21 percent two months ago, when subscribers were asked about his predecessor, Yoshihiko Noda.
The Nikkei 225 Stock Average (NKY) increased for 10 straight weeks through Jan. 18, the longest rally since 1987. Goldman Sachs Group Inc., Bank of America Corp. and Nomura are predicting Japanese stocks will extend gains.
Japan still faces numerous challenges. A territorial dispute with China over eight uninhabited islands in the East China Sea has prolonged Japan’s recession and hurt a trade relationship of more than $300 billion. China dropped five places in the business ranking, to 24th.
The U.K. slid to 10th, from fourth, and is more expensive when it comes to setting up a business than France, which also dropped six places, to 14th.
Standard and Poor’s last month became the third ratings company to warn that Britain could be stripped of its top-notch ranking after Chancellor of the Exchequer George Osborne conceded it is taking longer than planned to repair public finances. Investors often ignore actions by the ratings companies, as shown by the rally in U.S. Treasuries after the nation lost its top grade at S&P in 2011.
In an autumn statement, Osborne said austerity will continue until 2018, three years later than planned when his Conservative-led government took office in 2010, vowing to tackle a budget deficit of more than 11 percent of GDP.
Prime Minister David Cameron has promised a referendum on whether Britain should leave the European Union, allowing U.K. voters to decide on breaking up the 27-nation bloc. He is responding to pressure from lawmakers in his Conservative Party for looser ties with the EU or an outright departure from the political union.
“There is uncertainty over the U.K.’s membership of the EU and even what will constitute the U.K. with Scotland looking to exit,” Nomura’s Whetton said.
Hong Kong, ranked as the best place for business, charges a corporate tax rate of 16.5 percent compared with the U.S.’s 35 percent.