Japan’s global multi-nationals are in the best position to weather the devastating effects of the recent earthquake and profit from any eventual recovery, Newton, the UK fund manager, argues.

“We maintain our conviction that the yen’s appreciation is not sustainable and firms with high overseas capacity and sales will do best. The foreign currency hedge remains in place on the Neptune Japan Opportunities Fund as the yen will fall – and will keep on falling – due to the country’s indebtedness,” Chris Taylor, investment director and head of research at Neptune, said in a note.

Taylor argued that the recent rally in the yen was more caused by market momentum rather due to investors repatriating assets in anticipation of reconstruction costs. In the aftermath of the disaster, the Japanese currency reached a high of Y76.25 to the dollar before pulling back. The yen’s rise sparked fears that Japan’s exports would become prohibitively expensive.

“There has been a seasonal [foreign exchange] inflow in the run-up to the end of the financial year, which we believe will be reversed. The rally has been further reinforced by speculators who borrowed in yen to buy non-yen securities. When these securities fell in value, they closed their positions and bought back yen. The Japanese do not appear to be selling their foreign assets to allegedly fund reconstruction,” Taylor continued.

“Only those individuals with foreign currency deposits – there is approximately $100 billion in Japanese banks – are likely to switch back into yen for reconstruction purposes. The government does not need to liquidate foreign currency either as the likely cost so far is much too small. Companies, on the other hand, already have funds in yen and will probably use this opportunity to relocate even more of their production outside of Japan to avoid further earthquakes, tsunamis, power cuts and a declining population,” he said.

Turning to the costs of reconstructing the quake-hit Tohoku costal region, Taylor noted that estimates range from Prime Minister Kan’s ¥5 trillion (around $60 billion) figure to the ¥20 trillion forecast by the Japan Centre of Economic Research. Taylor said that if Kan is right, that figure equals 1.1 per cent of Japan’s gross domestic product and 0.55 per cent of national debt. If the JCER is right, the estimate is equivalent to 4.5 per cent of GDP and 2.2 per cent of outstanding government debt.

Taylor’s commentary said that in the case of the transport sector, there “is not much actual damage to the manufacturing and transport infrastructure”; instead, the bigger problems stem from power outages that hit rail transport.

“A knock-on effect with regard to global supply chains and specialist parts made only in Japan is a possibility, but there are usually alternative suppliers, inventory can be as high as 4-8 weeks’ worth and these plants are not destroyed – though they may potentially operate at reduced rates Government debt vs. savings,” he said.

The Neptune Japan Opportunities Fund was set up in September, 2002 and holds around £126.1 million ($202 million) of assets (Source: Neptune). Taylor joined Neptune, which is part of US-based BNY Mellon, in 2004.