Japan Is A Mess. Time To Invest?

The outlook has rarely seemed bleaker in Japan. The economy is expected to shrink for an unprecedented third year in a row. As corporations pursue American-style downsizing, unemployment is soaring by Japanese standards--hitting a record 4.6% in February and topping the U.S. jobless rate for the first time. Struggling banks are refusing to make loans so they can repair their balance sheets. Fearful consumers are sitting on their wallets to save for an uncertain future.

What should Americans think of all this? Time to invest, of course. Wall Street money managers, giant corporations such as General Electric Co., and other foreign investors are suddenly rushing into Japanese equities. A record $13.4 billion in new foreign money flooded the Tokyo Stock Exchange in March. The big bet: After eight years of stagnation, Japan is finally taking painful steps that will unleash a long-term expansion--and a bull market--come the millennium. "For the first time in six years, I feel Japan is on the right policy track," says Allen L. Sinai, chief global economist for Primark Decision Economics Inc. "A recovery is baked in the cake over the next year or so, though things may get worse before they get better."