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Week in Review

Japan Looks to Overhaul Financial Regulations

Japan is hoping to strengthen its financial services industry by fundamentally changing industry regulations that have stymied growth, reports The Wall Street Journal.

A proposal for a large-scale deregulation of financial institutions, stock exchanges and funds by the Financial Services Agency suggests the country wants to lose its reputation as an expensive, bureaucratic place for financial services.

The plan, for example, would abolish a rule that requires exchange-traded funds to be based on 13 designated stock indexes by allowing ETFs to be tied to any stock index or security, including bonds or futures. Currently, Japan prohibits the staff of banks and brokerages from sharing the same offices and customer information, but relaxing those rules could help banks generate more business.

The proposal would also allow foreign issuers to submit disclosure documents in English, removing the expense of translating documents into Japanese. Officials hope these changes will bring more foreign investors to Japan, where household assets far exceed those of the U.S.

Japan strengthened regulations after the 1980s asset bubble popped, but has recently seen its appeal diminish as money managers take their business to less-regulated centers such as Hong Kong and Singapore.

"It is absolutely in the right direction and further in that direction than the skeptics would have believed possible," said Mark Branson, head of the Tokyo unit of Swiss banking group UBS. "When I came here 2-1/2 years ago, people said that kind of change was impossible in Japan."

African Investments Top

List of 2008's Hot Issues

Of the 80 things that will dominate the nation's consciousness in 2008, foreign investments and development in Africa top the list, according to predictions by JWT advertising. And if that's the case, then interest in frontier emerging markets funds could continue to build, in spite of recent analysis that emerging markets funds are about to run their course.

Other financially oriented themes for the coming year include continued foreign government investment in U.S. companies (#25), humbling of hedge fund managers overexposed to subprime loans (#34), outsourcing to the Ukraine and other Eastern European countries (#50), social network service brand communities (#65) and the weak dollar and strong Euro (#79).

The list certainly is varied, with Keira Knightley coming in at number seven, followed further down the list by climate sightseeing, e-clutter consultants, eco-fatigue, Facebook suicides, mobile technology explosion, "radical transparency," smart cars and virtual gifting.

"These people, products, places, services and shifts will help to define 2008," said Ann Mack, director of trendspotting at JWT.

"Love it or hate it, technology continues to be a common thread on our list," she added. "It drives the serendipitous randomness that throws up chance connections, groundbreaking discoveries and great business ideas."

U.S. Economy Already

In a Recession: Bill Gross

Although Bill Gross, managing director at PIMCO and one of the most famous and successful fund managers in the industry, recently said that the U.S. will experience a mild recession sometime later this year, he now believes the downturn began in December. The good news is that he believes that with the right fiscal controls, it could last only four to five months, the Financial Times reports.

Because Gross expects GDP growth of a mere 1% in 2008, he is calling on the Federal Reserve to bring interest rates down to 3% and for the Bush administration and Congress to "take some rather unperceived and un-forecasted measures in terms of fiscal stimulation.

"If I had to be bold, I'd say we began a recession in December," Gross said. But if the government doesn't step in to effectively jumpstart the economy, the recession could last longer.

So far, Gross said, he has not been satisfied with the government's attempts to stabilize credit markets. "What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend and absorb the deficit, as opposed to pretending that you're fiscally conservative."

Gross also lambasted hedge funds, calling them nothing more than a "con, an unregulated bank. It's been a con on the government in terms of their unwillingness to regulate the industry."

SEC Investigation Into

Subprime Pricing Expands

Federal regulators aren't just looking into whether Bear Stearns hedge fund managers hedged their holdings in subprime paper by pricing their own holdings at a more attractive rate than those of their customers, The Wall Street Journal reports. The Securities and Exchange Commission is investigating more than three dozen firms over whether they should have warned the public earlier over their subprime investments, whether they disclosed their risks and how they priced the paper, as well as whether they gave themselves higher values for these securities than their customers.

"As in most investigations, the issue comes down to what did people know and when did they know it," said Mark Schonfeld, director of the SEC's New York office. In the past few months, investment firms have written down more than $80 billion in mortgage-related assets.

Among the firms being investigated are UBS, Morgan Stanley, Merrill Lynch, Royal Bank of Canada and Bear Stearns.

However, Walter Ricciardi, deputy director of the SEC's enforcement division, added, "The fact that we're investigating does not mean that we have uncovered wrongdoing. We don't know now that we will be recommending any enforcement actions in the subprime area."

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