Will Japan rediscover its vitality?
Gglobal investors I’m crazy about Japan again. Warren Buffett made his first trip to Tokyo in more than a decade this spring; he has built large holdings in five trading houses that provide insight into a cross-section of Japan Inc. CEO of BlackRock, the world’s largest asset manager, into the pilgrimage to the Japanese capital. “History repeats itself,” he told Kishida Fumio, the prime minister. He compared the period to Japan’s “economic miracle” in the 1980s. Even disappointment GDP figures released on November 15 will not inspire investors’ hope.
Skeptics would say that the same history repeating itself is outsiders falling for another Japanese fake bankruptcy. The miracle of the 1980s ended with the asset bubble bursting and the country sliding into decades of inflation, or very low inflation, and stagnation. Every decade or so since then, observers, including this newspaper, have warmed to a new prime minister, pointed to promising signs of change and claimed to have seen the sun rise. look over the horizon. Foreign investors flood back. Then a few years later they retreat, cold and disappointed. Is the last promised day different?
It really could be. Two external shocks and two internal trends have combined to change the landscape of Japan’s economy. The most obvious shock is related to prices. Although most countries have been concerned with keeping inflation down in recent years, Japan has been hoping that it will eventually pick up – and stay up. A global supply squeeze and a weak exchange rate have corrected the years of strong monetary easing that could not be achieved, and pushed the core inflation rate above the Bank of Japan’s target of 2%. Admittedly, that is not the demand-driven inflation that the BoJ would like to see. Nevertheless, it has changed the way companies, workers and consumers think about prices and, crucially, about wages. A path, albeit a narrow one, has opened to a healthier cycle of wage and consumption growth.
The other shock is geopolitical. The war in Ukraine and the superpower standoff between America and China have spurred new investment in critical industries and the reshaping of regional supply chains that Japan could benefit from.
The internal movements are worse, but no less important. Corporate governance reforms that began under former prime minister Abe Shinzo have stalled. In fact, they have entered a promising new phase, as Japanese institutional investors – and even the Tokyo Stock Exchange – put more pressure on large companies to increase their value.
Another underrated part of the story is generational change. At legacy companies, leaders wedded to ways of doing business that worked during the glory days of the 1980s are leaving the scene. Young entrepreneurs want a new company Japan Inc.
But much of Japan’s economy remains unchanged and unchanged. In order for Japan to make good on its current promise, policymakers, executives and politicians must do more to foster the green energy of energy. For starters, the BoJ must perform a complex dance in the coming year. He needs to loosen unorthodox monetary policies that have outlived their usefulness, such as his yield curve control, without suffocating older inflation. Over time the heavily indebted government may have to find a way to deal with rising interest rates.
The process of corporate reform must also continue. Japanese companies now know good management techniques, but they need to be better at the stuff. About 40% of companies in the Topix 500 trading below book value. In a volatile world corporate leaders must do more than just preserve the status quo. Fortunately they have plenty of room to maneuver, after years of accumulating cash on their balance sheets.
Mr Kishida has pledged to focus on “economy, economy, economy”. Compared to his predecessors, he has talked more about supporting start-ups. But his latest economic package, announced earlier this month, is heavy on one-off tax cuts and stimulus measures that appear designed to boost his popularity. , rather than long-term growth. He could turn words into action by revising tax codes to reward risk-taking investors and entrepreneurs and by withdrawing subsidies for zombie owners . The Prime Minister is right to trumpet the need to create new companies. But it must also play a part in clearing away physical dead wood. ■