Global Courant
The prime minister, Shinzo Abe, stood in front of the cameras in 2014 and said he was going to shake up the determined way businesses operated in Japan. It was a big assignment. Shocked by the years of economic malaise that followed the bubble of the 1980s, Japanese executives clung to the status quo for years. Increases for employees and returns for shareholders were scarce. The result was an economy that barely grew.
Now there are signs of a significant shift in the way the country’s businesses are run, changes that are helping to revive the economy. In recent months, Canon shareholders have had a diverse boardCitizen Watch has said it is up to a quarter of its sharesand Uniqlo’s owner has promised his employees pay raises up to 40 percent. The Tokyo Stock Exchange has begged companies to be “aware” of their share prices.
This year, combine a surprisingly solid economy, a weak currency, ultra-low interest rates – as many of the world’s largest economies raise them – and a plug of Warren Buffett and you have the world’s best performing major stock market.
The Japanese Nikkei 225 index is up nearly 30 percent this year, far outpacing the gains for the S&P 500, the benchmark in the United States. The Nikkei has not been this high since the early 1990s, when Japan sank into what is known as the Lost Decade.
Some observers are quick to warn that investors have burned down in the past by being overly optimistic about changing boardroom attitudes in Japan. But corporate earnings are improving and Japan’s economy, the world’s third largest, is bathed in a post-pandemic glow: inflation has finally returned, consumer spending is rising and foreign tourists are back.
“Basic economic conditions in Japan, including corporate earnings, are better than in the US, Europe and China,” said Yuichi Murao, chief executive of Nomura Asset Management in Tokyo. “In terms of GDP growth, Japan is going to do better.”
Japan’s gross domestic product increase for January through March was revised sharply upwards last week, from an initial reading of 1.6 percent to an annual rate of 2.7 percent. The overall picture remains mixed as the bump resulting from increased corporate spending has focused more on replenishing shelves and warehouses, not customer demand. Private consumption, a measure of how much people spend, weakened slightly.
Still, domestic demand remains strong, Murao said. Expectations are high that it will rise further, along the lines of the so-called revenge spending other countries saw after their lockdowns ended. Japan was one of the last countries to lift restrictions, and while tourist numbers are still much lower than before 2020, foreign visitors are pouring in.
“They are spending a lot more money than before,” partly because of the weak yen, Mr Murao said. The yen has fallen to its lowest level since the 1990s against the US dollar.
Japan has also made progress on two persistent issues, with wages and inflation improving in recent months. consumer prices, exclusive fresh foodrose 3.4 percent in April, the highest level in decades. Unlike in the United States and Europe, rising inflation in Japan is more welcome because it has been stuck at such low levels for so long, and the Bank of Japan has indicated it will stick to Monetary easing.
But inflation has largely been driven by post-pandemic supply shortages, said Chong Hoon Park, head of economic research for Japan and South Korea at Standard Chartered Bank in Seoul. “It’s not driven by wage growth,” said Mr. Park, adding that he expects inflation to fall below the Bank of Japan’s target of 2 percent next year.
The challenge is to sustain and broaden the rise in incomes that segments of the economy have experienced recently. A business group survey found that major companies agreed to raise salaries by one an average of 3.9 percent this year the highest percentage in decades.
The government is focusing on raising wages and making it easier for workers to switch jobs in pursuit of higher wages. Last week, Prime Minister Fumio Kishida repeated his economic priorities including “structural wage increases and labor market reform”.
Another leader in the drive to change corporate thinking is the Tokyo Stock Exchange. In March, the exchange drawn up a plan that would force companies trading below their book value to raise their share prices. Some of the easiest ways to do this are by paying bigger dividends and buying back more shares. While it’s unclear when the exchange will begin implementing the policy, it’s likely that giants like Toyota and Honda, which have said they plan to buy back shares this year, will have to make changes. (Toyota shares are up 27 percent this year and Honda’s shares are up 50 percent.)
The Nikkei 225 index rose 1.5 percent on Wednesday to 33,502, a new high for the year.
The shift to make companies pay more attention to earnings and stock prices has been apparent to Seth Fischer, a hedge fund manager who has been publicly advocating for change in Japanese companies for more than a decade, perhaps most memorably by pushing for Nintendo to get its games on mobile phones.
“We are seeing dramatic changes in senior executive behavior,” said Mr. Fischer, the founder of Oasis Capital, from Hong Kong.
An example to which Mr. Fischer refers is Canon, the camera and optical equipment company. Shareholders reprimanded the chairman and chief executive, nearly getting him removed from the board due to a lack of gender diversity among directors. And continued urging to invest more of the money they have in reserve has led Japanese companies to announce a record $70 billion according to the Nikkei newspaper in buybacks in the year ended March. Dividends for the current year are likely to hit another record, more than $100 billion. All these moves combined to put money into the real economy.
Then there’s Mr. Buffett’s endorsement, who recently said yes increased his possessions in the Japanese conglomerates of Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. In April, he told Nikkei that he intended to invest more at Japanese companies. Foreign investors have since poured money into Japanese stocks, some shying away from China as geopolitical tensions rise between Beijing and Washington.
Mr. Fischer is one of the bullish. And if companies take actions to improve their value, he said, they will help Japan’s overall economy by increasing incomes.
“Investors have finally noticed that there is an opportunity in Japan to change seas,” he said.
