Officially, Citigroup Asset Management is not enamoured about the prospects for Japan. The house rates it an ''underweight'' in its global portfolios and it is easy to see why. The country boasts an A to Z of economic problems, from banks on the verge of bankruptcy to deflation and huge government debt. The Nikkei-225 average closed at 9,686.06 points on Friday after hitting 18-year-lows during the week on fears the banking system was sliding into crisis. But Hans Goetti, who runs portfolios for Citigroup's high net-worth individuals, uses a historical perspective to see a glimmer of light where some of his clients cannot. ''Quite a number of my clients have changed Japan portfolios into global mandates,'' he said. ''At some point Japan will become a screaming buy but I don't know if it is with the Nikkei at 10,000 or at 5,000.'' The key to Mr Goetti's optimism is the interesting slant he takes on Japan's economic history. ''Since World War II what we have seen in Japan is a power struggle,'' said Mr Goetti, a Swiss who is based in Singapore. ''They have the Bank of Japan, which wanted to introduce a Western-style economy in Japan. On the other hand the bureaucrats - the vested interests - were dead opposed against reform.'' To get its way the Bank of Japan precipitated a crisis by inflating the 1980s bubble through aggressive expansion of money supply, ''then used that as a pretext to clamp down and this has been the story until this very day'', he said. ''In April 1995, the yen was at 80. That was clearly a form of the power struggle. If you push up the yen you hurt certain groups.'' The Bank of Japan has won ''because if you look at the Ministry of Finance today it has basically lost its powers. It is really a shadow of its former self''. Of particular interest was the parallels with 1998, which was the last time the Bank of Japan was expanding money supply at a rate of knots. That was in response to a banking crisis which saw the Government injecting new taxpayer's money as capital into some of the big names. ''The result was that in 1999 the economy showed 1.9 per cent growth. That year, remember, the stock market went up more than 50 per cent,'' Mr Goetti said. The clamps went back on the money supply in 2000 when it became apparent that reform was not on the way. The Bank of Japan actually briefly ended its zero interest rate policy and raised rates in 2000 with the express aim of encouraging corporate reform. Now money supply has been expanding again since June, the Bank of Japan's purchases of government bonds have risen 60 per cent on the previous buys while commercial paper purchases are up 270 per cent. When the Bank of Japan pays cash for something it is effectively putting new money into the system. Mr Goetti sees a link to the rise of Junichiro Koizumi as leader. ''The reason why the monetary expansion is happening here is because Koizumi came in March and the Bank of Japan, which wants a Western-style economy, sees a ray of hope,'' he said. ''They helped him by expanding the money supply.'' Liquidity creation generally had a 12-month lead time before it began working on the real economy, so benefits would not be seen until June this year, Mr Goetti said. If the Bank of Japan keeps pumping out money, that could override the negative sentiment surrounding the stock market. That would be an observation which would ring true with United States investors who were helped by a massive further easing from the Federal Reserve in the wake of the September 11 terrorist attacks. ''What the stock market needs really is liquidity, that's all. You can really forget about the rest,'' he said. One big problem facing the economy is the enormous load of non-performing loans weighing down the banks. That is preventing them extending new loans which can get the economy moving. The answer might lie once again in the Bank of Japan's hands, Mr Goetti said. ''They could buy those loans at par and maybe they are worth 20 cents on the dollar in the market. It sounds outlandish and it is not something that is being discussed.'' Some worry that it might catapult Japan from chronic deflation into rapidly rising prices. ''Of course some people say it is highly inflationary but I say it is like comparing it to a guy in the desert dying of thirst, and you are worried because you give him 100 litres of water he might explode because he drinks so much water,'' Mr Goetti said. For now the stock market is worrying that Mr Koizumi's reforms are being stalled by opposition from old-guard members of his Liberal Democratic Party. If this is proven, the Bank of Japan might turn off the monetary taps again, which would prompt Mr Goetti to become negative on Japanese stocks. ''If Koizumi for one reason or another fades and the Bank of Japan tightens again and creates another crisis, this is a possibility, I wouldn't rule it out,'' he said. Mr Goetti helps manage some global portfolios for Citigroup's private banking clients as well as masterminding Japan portfolios with the help of house analysts on the ground doing the ''leg work''. The stocks he likes are restructuring stories and some defensive pharmaceuticals and exporters. There is plenty of value out there for investors who look. Some 20 per cent of stocks in Japan with market capitalisations above 100 billion yen (about HK$5.87 million) are selling below book value. ''This has never happened before,'' said Mr Goetti. In addition, 20 per cent are on price-earnings ratios of below 20 ''which by Japanese standards is relatively reasonable''. Nissan is one of Mr Goetti's restructuring stories. The benefits of the tie up with Renault and the changes in management that has brought is well known. But Nissan is now seeing benefits on the bottom line, but it is still trading well below Mr Goetti's fair value of 950 yen. Overall it would pay investors to keep close tabs on Japan in the coming weeks and months. ''I highlight the risk. Our house view on Japan is negative. We have an underweight on Japan. But if somebody wants to diversify, the Japanese market is still one of the largest in the world, you cannot ignore it,'' Mr Goetti said.