In escape from Japan doomsday, capital takes flight

By Stanley White

TOKYO | Tue May 29, 2012 3:05am EDT

(Reuters) - Hiroshi Kosaka has an unorthodox pitch for his realty business: instead of pictures of swanky condominiums his website features Japanese debt statistics and budget meltdown scenarios usually left to credit rating agencies.

His firm is part of a cottage industry that has sprung up to help worry-prone Japanese savers get out of the yen and find property overseas that could serve as a safe haven in a financial disaster. The trend comes against the backdrop of a deepening pessimism about Japan's economic future that has made "Escape from Japan" a hot-selling business book and helped drive sales of second homes from New Zealand to Malaysia.

Dire statistics on Japan's public debt, which tops two years' worth of its economic output, make a convenient talking point at Kosaka's seminars in Tokyo. Many people are wary of the government's plan to raise taxes and have lost trust in high-tech Japan's nuclear energy after last year's devastating earthquake and tsunami wrecked a plant in Fukushima, causing the worst nuclear disaster since Chernobyl in 1986.

"A lot of people tell me they are worried about nuclear radiation. People also tell me they are worried about an economic disaster in Japan," Kosaka says.

Even if the outflow of funds remains a relative trickle, it challenges the consensus that Japan will avoid a Greek-style debt crisis because Japanese investors have shown a strong "home bias" and fund almost all of the government's $10 trillion in debt. But that could change if more Japanese become willing to plan a future abroad.

"At my age, I think a lot about having a family, and I also think about living abroad," Miki Akutsu, a 28-year-old employee at an advertising agency, said at a seminar on buying Malaysian real estate.

"If Japan's finances collapse, social order would collapse as well. That would be a tough environment to raise children."

The Japanese have been buying real estate overseas in the past, but what has changed since last year's earthquake and the Fukushima nuclear crisis is that it is no longer the province of the rich and the retired.

Increasingly, the middle class and younger people are opening bank accounts in Malaysia, New Zealand and Singapore to buy condominiums and homes that they plan to rent out for a few years before they eventually move in themselves.

"Since November, I've helped around 25 people buy condominiums at a development in Malaysia. I would classify only three of these people as rich," Kosaka says, pointing to a spreadsheet on his notebook PC.

The name of his firm, Kuratabi, means to live and to travel. Business has picked up for Kosaka, who first moved to Malaysia part-time five years ago.

LOW COSTS, NICE WEATHER AND GROWTH

Akutsu was one of 30 people who crammed into a small office in Tokyo to hear Takeshi Uchimura, managing director of Asia Network Research Sdn Bhd, explain how to obtain a Malaysian second-home visa to buy real estate near Kuala Lumpur.

The pitch is simple. The yen is strong and cost per square meter is about a third of what you pay in Tokyo. You can also borrow from a bank in Malaysia.

If you rent out and park that income in a Malaysian bank account, you will earn more than in zero-interest-rate Japan.

And if you decide to relocate to Malaysia, the cost of living is low, international schools affordable, crime is low, the weather is warm all year, the population is still young and there is more potential for economic growth.

Japan overtook Iran last year as the country that is applying most for Malaysian second-home visas. Japan also leads the pack as of March this year, Malaysian Tourism Ministry data showed.

For many, nuclear radiation leaks at Fukushima served as a catalyst to take another hard look at Japan's economic woes - massive public debt, an ageing population, low economic growth and deflation - and made them seem more insurmountable than before.

In the fourth quarter of last year, households poured 578 billion yen ($7.28 billion) into foreign securities, according to the Bank of Japan, the first outflow in two quarters.

That may be a drop in an ocean compared with some $15 trillion in Japanese household savings, but could mark a shift in perceptions about relative risks and advantages of moving assets abroad as opposed to keeping them at home.

"The government would be worrying about this the most because they would lose tax revenue," said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch in Tokyo.

"Flows out of the banking sector would mean banks have less capacity to invest in Japanese government debt, so we would see higher yields."

For now, capital is flowing both ways. Foreign ownership of Japanese government debt has risen to 6.7 percent of outstanding debt in December from a trough of 4.6 percent in early 2010 because many investors still see Japanese bonds as relatively safe. The concern is those flows can reverse quickly, driving up borrowing costs.

Yusuke Nozaki, chief executive of Nozaki Asset Management Inc which specializes in New Zealand properties, says interest in real estate around Auckland has increased threefold since the March 2011 earthquake.

"Our business is experiencing explosive growth," Nozaki said in a telephone interview from Fukuoka, southern Japan, where his company is based.

"In the past year and a half I've increased my staff threefold. I don't expect this growth to slow."

Since last year there has been a jump in inquiries from housewives, he says. The logic is they can take the kids and move abroad, even if only temporarily, and the husband can join later.

BOOM FOR GLOOM

Sensing a growth market, publishers have ramped up their offering of books telling readers exactly how to transfer their savings into foreign currencies, open overseas bank accounts and buy property, often with alarmist titles warning of sovereign meltdown and a mass exodus of personal assets.

To be sure, publications predicting doom and gloom for Japan have featured regularly in bookstores for decades. Sakkyo Komatsu, a science-fiction writer, had a hit in 1973 with "Japan Sinks," a novel that tapped into the pessimism around the time of the first oil shock with a plot that hinges on the efforts of Japanese to escape as the archipelago slips into the Pacific.

The new wave of books is touching a raw nerve in a nation still unsettled by the Fukushima crisis, publishers say, and advertisements for such "how to" books grow more prominent with each passing month.

One book that went on sale about a month ago, called "Escape from Japan," has been an instant hit for the publisher, Asa Publishing Co.

About 40,000 copies have sold so far, some three times as much as Asa Publishing normally sells when it launches a new title. The publishers expect sales to increase further and are considering publishing more books on the same subject.

"Publishers have issued books before that talk about Japan's dire economic situation, but these books are basically a bunch of economists who pose a lot of questions about Japan's future but don't offer any answers," said Yuiko Furukawa, an editor at Asa Publishing.

"That leaves people asking themselves what they should do. We wanted to try to provide people with a practical guide for what they should do."

($1=79.4150 Japanese yen)