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DoCoMo's new share issue, the largest in the history of Japan's equity markets, was well timed in February. Shortly afterwards, the Nikkei 225 hit a 15 year low. Despite the dismal markets of 2001, investors have continued to buy into new issuance and even new products, such as real estate investment trusts. Mark B Johnson reviews how successful the new issues have been, and concludes that for retail investors wealth erosion is unlikely to stop soon.

Japanese investors are struggling to pick up yield in their own domestic bond markets, where spreads on government agency, utility, corporate and even the weak bank sector are razor thin. Emerging market sovereigns have taken full advantage of the situation, issuing directly to them through the Samurai format. And now that investors have recovered their confidence following the Xerox crisis a year ago, foreign corporate credits are joining the party too. Mark B Johnson reports.

Unless there is a window of opportunity to achieve pricing at least level with the low spreads available in domestic debt markets, Japan's top credits have proved reluctant to venture overseas. They have even less reason to do so, when they find themselves paying a Japan premium on account of their nation's weakened finances. Mark B Johnson reports on the few deals that have taken place in 2001.

More than ten years after the bubble burst in Japan's property and equity markets, the erosion of wealth and of confidence continues. Government finances are weakening as one fiscal stimulus after another fails to kickstart the economy. The banking system remains largely dysfunctional, seemingly unwilling to tackle bad loans. Yet, ironically, this creates a wealth of opportunity for investment banks as prime minister Koizumi's new administration tries to recapture Japan's economic miracle. Mark B Johnson reports.

The more government debt that Japan issues, the greater the weighting of the yen in the global bond and currency indices becomes. To counter the danger of exposure both to the currency and to the government directly, international investors continue to diversify out of JGBs and into non-Japanese credits including lower rated names. Mark B Johnson reports.

JFM

Kreditanstalt für Wiederaufbau

Mark B Johnson interviewed some of the most prominent investment bankers working in Japan to get their views on the state of the markets, namely:

Originators are embracing securitisation as never before in Japan and investor demand at home seems almost limitless. The prospects for a vibrant RMBS market to finally develop are good. But competition for agency mandates is intense and new structures rapidly become commoditised. Only the smartest and most patient houses can stay ahead of the pack and make a solid return on their investment in the market. Mark B Johnson reports.

Investors in yen fixed income believe that the supply and demand equation is badly out of balance. Too much money, chasing too little paper. Mark B Johnson and Richard Morrow canvassed a range of investors to find out their strategies and how much risk they are prepared to take on board to gain some yield pick-up.

Trading in the European credit derivatives and equity options market ground to a halt Monday afternoon following the crash of a Dominican Republic-bound plane in the New York City borough of Queens. One credit derivatives trader in London said his firm had ceased making markets in all names "for at least an hour, maybe more, depending on what happens," adding that the team was awaiting word on whether the crash was terrorist-related. He added the airline sector is expected to be slammed when the default swap market reopens, as confidence will have taken a further battering followed the latest plane crash. Prior to the crash, five-year protection was quoted at 220-225 basis points for Lufthansa, 150-200bps for Air France and 600-700bps for British Airways. "The sector will be a lot wider" when the market reopens, he added.