Japan in focus

Much water has flowed under the bridge during the ensuing 30 years. 1989 saw the end of the most rapid period of economic growth in Japanese 
Harry Waight

Harry Waight

Portfolio Manager, Global Equities

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My recent trip to Japan coincided with the final months of the Heisei period. Heisei means “peace everywhere” – an appropriate motto for a nation which, with the death of wartime Emperor Hirohito, was bidding farewell to the last great visible vestige of its traumatic 20th century militarism.

Much water has flowed under the bridge during the ensuing 30 years. 1989 saw the end of the most rapid period of economic growth in Japanese history: the Nikkei hit 39000 on the last trading day of the year, before the country’s legendary bubble economy burst, triggering the so-called “Lost Decade” of deflation and GDP stagnation, which has since been expanded into a Lost 20 Years. Japan’s population started to age and grey, its rock-bottom fertility a cause of existential angst. Meanwhile, its gaming, manga and anime culture attained global appeal; women entered the workplace in unprecedented numbers; and the country experienced the strongest earthquake ever recorded in its history, triggering the Fukushima nuclear disaster.

So, with the conclusion of this tumultuous, sometimes troubled era, it’s worth reflecting on the key themes discussed at the Daiwa Conference this year – themes which may stand to influence the new Reiwa period, elegantly defined as “beautiful harmony”.

ESG – Governance in the spotlight

Japan has had a number of false dawns when it comes to ESG reform, but this year it felt as though governance issues genuinely loomed large. A number of companies I met with were in the process of reforming their boards, while cash is being returned to shareholders at record rates. This is not to suggest that it’s time for investors to uncork bottles of celebratory sake – other companies greeted questions of governance reform with indifferent shrugs or wry smiles. Nevertheless, there was an overall sense of changing tides. Importantly, there is a psychological shift occurring towards seeing better ESG as a ‘real’ value driver.
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Japan is ripe for reform and the value to be unlocked is enormous.

The digital society

Japan has a reputation as an early adopter of new technology, but in some critical areas it has actually lagged other societies, notably e-commerce and e-payments. However, the digital transformation is now gathering speed, and one of the major themes that emerged from the conference was the potential for e-commerce players to see growth many times higher than the broader Japanese economy.

Intricately linked to the digitalisation of life is the explosion in the volume of data in existence. Many companies I met with believe that the future belongs to those able to capture this data, interpret it, package it or store it.

Solutions for a shrinking nation

Japan was one of history’s great experiments in isolationism. Its Tokugawa shogunate, terrified of the destabilising influence of foreign ideas, prevented anyone leaving or entering the country. This all changed in 1853, when US Commander Perry steamed into Tokyo Bay, compelling Japan to open its borders to trade.

Modern manifestations of this insular past remain, most visibly Japan’s traditional aversion to immigration. The country is one of the most homogenous nations on earth, but this might gradually be changing.

One of the most frequent laments I heard during my trip was a shortage of labour – understandable given that the working age population is dropping by almost one million people a year. Japan’s foreign worker population has doubled in the last five years, now sitting at 1.28m. Prime Minister Shinzo Abe is quietly liberalising visa laws further, and easing language requirements for workers in sectors suffering the most serious labour shortages. The target is for another 500,000 overseas workers by 2025, but far more may come.

In parallel to the importation of workers is the investment in automation. Japan is one of the most automated nations on earth, with 303 industrial robots per 10,000 employees. Most of the companies I met with were in the process of automating significant parts of their operations.

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Japan is one of the most automated nations on earth.

Overseas revenue

Most growth-orientated Japanese companies have their eyes set firmly on greener, more international pastures, particularly their high-growth, populous Asian neighbours. Japanese businesses are now more willing to hire local talent, and carry a reputation for quality and safety that consumers value, especially in emerging markets.

Concerns on China

Given Japan’s gearing into the global economy, investors at the conference were understandably concerned about China, where trade wars with the US and an economic slowdown threaten to chill Japan’s economy. Most companies I spoke with were surprisingly sanguine on the matter, expecting the slowdown to be temporary, and backing themselves to have the necessary flexibility and cost-cutting capabilities to weather a storm in the region.
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Japan looks to be embracing the next stage of the international destiny foisted on it so shockingly by Commander Perry almost 170 years ago.


When I next visit Japan, the new emperor will be sitting on the Chrysanthemum Throne. As investors, we understand that change is a constant. But I think we can feel measured confidence in Japan as it navigates this change. Governance reform appears to finally be enjoying some serious attention, speared in part by a realisation that Japan must adapt or lose out to its fast-growing neighbours. And with its population changing, and its businesses ever more outward-looking, Japan looks to be embracing the next stage of the international destiny foisted on it so shockingly by Commander Perry almost 170 years ago. Let us look forward to a period of beautiful harmony.

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