After a series of false dawns, Japan seems capable of introducing reforms to dismantle the antiquated keiretsu system

Japan had a system which worked miracles to revive the economy after World War II. But now it is finally wising up to the fact that the system needs to be torn down, Dean Cashman believes.

The post-war Japanese economy was directed by government planners and dominated by keiretsu - powerful industrial groups operating in diversified businesses centred on a bank. Keiretsu ties were cemented by a complex web of cross shareholdings.

'Japan has a system that functions pretty well for a narrowly defined brief,' said Mr Cashman, who oversees Principal Capital Management's IF Japanese Equity Fund.

'In this case, it was really the rebuilding in the 1950s and 1960s, the direction of scarce resources and paying the workforce on a promise. They had a young workforce and they couldn't afford to pay them a lot so they paid them on a promise of lifetime employment.

'The system clearly ran past its use-by date when you have an economy that matures and goes to a slower structural level of growth. That process that encourages asset accumulation and, ultimately, falling returns on assets just became completely unviable.'

The system of chasing market share and accumulating assets while offering lifetime employment culminated in the bubble years of the 1980s, when stock and real estate prices went through the roof. The bursting of the bubble in 1990 had led to a decade of stagnation with the government and corporate Japan refusing to face up to the reality that no amount of patching up could save the system.