Prime Minister Shinzo Abe stepped in front of the camera in 2014 and said he intended to change the rock-solid way companies operate in Japan. It was a difficult order. Shocked by years of economic stagnation after the bubble economy of the 1980s, Japanese management clung to the status quo for years. Pay raises for employees and returns to shareholders were few and far between. As a result, the economy barely grew.
There are now signs of a major change in the way businesses are run in this country, and those changes are helping to revitalize the economy. In recent months, Canon shareholders have demanded: Diverse Board of DirectorsCitizen Watch announced that it will buy back at Max. 1/4 of the stockand the owner of Uniqlo promised employees a raise of . up to 40 percent. The Tokyo Stock Exchange provides companies with “Aware” of stock prices.
A surprisingly strong economy this year, a weak currency, ultra-low interest rates (with many of the world’s largest economies raising interest rates), and Warren Buffett plugin And we have the world’s best performing major stock markets.
Japan’s Nikkei 225 index is up nearly 30% this year, well above the gains of the US benchmark S&P 500. The Nikkei has not been this high since the early 1990s, when Japan was in its so-called “lost decade.”
Some observers are quick to warn that investors have been burned in the past by being overly optimistic about changes in Japanese board attitudes. But corporate earnings are improving, and Japan’s economy, the world’s third-largest, is in a post-pandemic glow. Inflation is finally picking up, consumer spending is picking up, and foreign tourists are returning.
“Basic economic conditions in Japan, including corporate earnings, are better than those in the United States, Europe and China,” said Yuichi Murao, chief executive of Nomura Asset Management in Tokyo. “Japan will outperform in terms of GDP growth rate.”
Japan’s gross domestic product (GDP) growth rate for the January-March period was revised sharply upward last week, from an initial 1.6% to an annual rate of 2.7%. The overall picture remains complicated, as the increase in corporate spending was directed at replenishing shelves and warehouses rather than demand from customers. Private consumption, which shows how much money people are spending, slowed slightly.
Still, domestic demand remains strong, Murao said. Expectations are high that more will follow, similar to the so-called revenge spending other countries have seen since lockdowns ended. Japan was one of the last countries to lift restrictions, and although tourist numbers are still significantly lower than before 2020, there is an influx of international visitors.
Murao said he was “spending a lot more money than before,” partly because of the weaker yen. The yen fell to its lowest level since the 1990s against the dollar.
Japan has also made progress on two enduring problems, including improvements in wages and inflation in recent months. consumer prices, Excluding fresh foodRose 3.4 percent In April, it hit a multi-decade high. Higher inflation is more welcomed in Japan than in the US or Europe. This is because inflation has been at a low level for such a long time and Japan’s central bank has signaled its intention to keep inflation rising. monetary easing.
But Chung-hoon Park, head of economic research for Japan and South Korea at Standard Chartered Bank in Seoul, said inflation was largely driven by post-pandemic supply shortages. “Rising wages are not a factor,” Park said, adding that he expects inflation to fall below the Bank of Japan’s 2% target next year.
The challenge is to sustain and expand the recent income growth in each sector of the economy. Large companies agree to raise salaries year after year, according to a survey by economic groups. 3.9 percent average This year is the highest rate in decades.
The government has focused on raising wages and making it easier for workers to switch jobs for higher wages. Last week, Prime Minister Fumio Kishida repeated: economic priority It included “structural wage increases and labor market reforms”.
Another leader driving a change in corporate mindset is the Tokyo Stock Exchange. At the exchange meeting in March, made a plan That would force companies trading below book value to raise their stock prices. The easiest way is to pay more dividends and buy back more shares. It’s unclear when the exchange will begin implementing the policy, but it will likely force changes to giants like Toyota and Honda that have said they plan to buy back shares this year. (Toyota stock is up 27% this year, Honda is up 50%).
On Wednesday, the Nikkei Stock Average climbed 1.5% to 33,502, setting a new high for the year.
The shift toward making companies pay more attention to earnings and stock prices is clear to hedge fund manager Seth Fischer, who has been publicly instigating the transformation of Japanese companies for more than a decade, and perhaps most memorablely. , would have argued. Nintendo To get the game on your mobile phone.
“We are seeing a dramatic change in the behavior of senior executives,” said Oasis Capital founder Fisher from Hong Kong.
Fisher cites Canon, a camera and optics company, as an example. Shareholders reprimanded the chairman and chief executive for the lack of gender diversity on the board and nearly ousted him from the board. And as it continues to urge them to invest more of their holdings, the Japanese company has made the following announcement: record $70 billion According to the Nikkei Shimbun, share buybacks progressed in the fiscal year ended in March. This year’s dividend may set a new record, Exceeded $100 billion. All these moves combine to pump money into the real economy.
And with some endorsement from Buffett, he recently said: increased his holdings Japanese conglomerates include Itochu, Marubeni, Mitsubishi, Mitsui & Sumitomo. In April, he told the Nikkei newspaper that he was planning to: invest more in Japanese companies. Foreign investors have been pouring money into Japanese stocks since then, with some shying away from China amid rising geopolitical tensions between China and the United States.
Mr. Fisher is also one of the bulls. And as companies take actions to improve their own value, incomes will rise, helping the Japanese economy as a whole, he said.
“Investors have finally realized that Japan has a huge opportunity for transformation,” he said.
