Immigration policy under review by current government


Fund Commentary
26 Jun 2018


In May, the Fund gained 0.57%, led by companies that reported better than expected earnings results and forecasts, whilst the overall market declined slightly during the month, with the Fund’s benchmark losing 1.67%.

Investors were waiting for company earnings results, which in fact were better than expected. This said, new fiscal year earnings projections are slightly disappointing mainly due to currency forecasts and weak prospects for the global economy, with the majority of companies constructing earnings projections based on a dollar/yen rate of around 105 and a conservative macro environment.

During the month, small caps were continuously sold on the back of the remaining uncertainty surrounding the domestic economy. Investor concerns were however eased by progress on the geopolitical situation in the DPRK. The dollar continued to appreciate against the yen for the majority of the month, with oil prices rising to over $70/bbl during the same time. There were several reasons triggering these changes, with people feeling that the macro environment (specifically inflation) and the domestic economy are generally changing.​

Moving forward, the team will be focusing on foreign policies surrounding “The Future Investment Strategy 2018”, which will be approved by the Abe Cabinet in June. Prime Minister Abe is not expected to change the current immigration policy, which permits immigration by individuals who have certain qualification or skill sets. In the Investment Adviser’s view he will reform the policy to be able to respond to the rapidly increasing number of foreign workers, whilst balancing the needs of companies which are struggling to hire people in industries such as service, retail, and restaurants and hotels. Currently, the number of foreigners in Japan accounts for over 2 million, totalling 1.7% of the total population, with the number of foreign workers standing at 1.27 million. The current government is planning to employ 100,000 foreign workers in the agricultural industry, 300,000 in the construction industry and 85,000 in the hotel and accommodation industry by 2023, 2025 and 2030 respectively.


The limited population has capped Japan‘s growth for many years, but the government has finally decided to ease the immigration policy, thereby supporting the domestic economy. PM Abe has focused on the presidential election of the Liberal Democratic Party in September. Against this backdrop, he may implement further economic stimulus measures, which the Investment Adviser thinks will be positive.

RPA Holdings (6572), which has been added to the portfolio at the end of March 2018, develops, produces, and sells office version robots. RPA stands for “Robotic Process Automation”, improving productivity and taking away stress from people working in offices rather than factories. RPA received orders from Nissay Life Insurance for supporting the input of contract notes and other peripheral work. Like Nissay, large companies are struggling to hire freshmen or junior workers who can input data smoothly. RPA’s service extends from the input of contract notes to expense management and labour management. The Investment Adviser believes the Company’s bottom line may grow 90% in this fiscal year and more than 30% in the following year. The Company currently trades at P/E 228x, PBR 41.7x, and ROE 28.0%. The team will maintain the current portfolio for the time being.

The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 18/06/18 and are based on internal research and modelling.