Japan is back? Wrong question - Japan never left, and it’s preparing for a new era: Gearoid Reidy

Key topics:Japan’s economy rebounds: stocks, property, and wages hit long-term highsForeign investment and tourism surge, boosting deals and cultural exportsPolitical instability persists, but economic reforms and corporate growth continue.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Gearoid Reidy.Three of the most famously ill-fated words in investing are “Japan is back.”That was the phrase used by the late Prime Minister Shinzo Abe, who hailed the country’s return in 2013 during the international community’s brief flirtation with his Abenomics program. A decade earlier, during the premiership of the lion-maned Junichiro Koizumi, Newsweek headlined an article with the same language — which even back then was so cliché that the publication saw fit to append “No, Really!”Both moments flamed out, with interest fading when overnight solutions to Japan’s problems failed to materialise. And they were only the most notable of many such false dawns that have appeared ever since the economic bubble burst at the peak of the 1980s hype that Japan would soon dominate global trade.So despite the post-pandemic return of foreign money to Tokyo, it’s understandable that few are comfortable declaring this a definitive resurgence, no matter how enthusiastic the likes of Warren Buffett may be. He’s made a multibillion bet on the country’s trading houses — giant conglomerates including Mitsubishi Corp. and Mitsui & Co. But investors should understand that regardless of whether Japan is back, it’s changed. Those who briefly rode the waves of interest in 2013 or 2003 before seeking easier profits elsewhere will find a radically different country, one that has cast off almost every major feature of the long period of economic stagnation known as the Lost Decades..Read more:.Japan’s Nikkei hits record high: A crucial economic turning point.That was an era running from the early 1990s, characterised by anaemic growth, chronic deflation and elite dysfunction. Leaders attempting to recapture old glories instead merely kept the country anchored to the past. But now long-stagnant stocks and property prices have finally broken their three-decade highs. Once-protectionist Tokyo might now be the world’s most exciting place to make deals. And for investors pivoting away from China, Japan is starting to look a lot more attractive.A recent moment sums up how the Lost Decades are over. In July, SBI Shinsei Bank Ltd. repaid the last of the public funds used to keep it from going under during the 1998 financial crisis. It was the final bank that the government bailed out to do so, drawing a line under an episode which saw multiple financial institutions dither and then collapse as the value of the inflated assets on their books crumbled.These days, Japan’s banks are posting record profits. They’ve been aided by significant shifts in the domestic economy. The Bank of Japan has drawn down its massive stimulus program and is slowly normalising policy. Although interest rates remain low, with the BOJ’s main rate set at only 0.5%, that’s still the highest level in almost 20 years.After years of trying to kick falling prices, deflation has been conquered. It may have taken the external shock of the post-pandemic worldwide inflation surge, but almost three decades after prices first fell into negative territory, they’ve now risen every month for the past four years..Companies, now able to charge customers more for the first time in years, and also faced with an increasingly acute labor shortage, are lifting long-stagnant wages. It’s not yet enough to overcome inflation, but workers’ pay is rising by the most since the economic heyday. The minimum wage this year will surpass the psychologically important barrier of ¥1,000 ($6.80) an hour in every prefecture, and the mindset of persistent cost-cutting as the solution to the country’s problems is on the outs.That isn’t to suggest that the nation has fixed every problem it’s grappled with. Indeed, prices are a good place to start. Japan might be unique in having spent years encouraging inflation, but the public is no more content about the rising cost of living than are people elsewhere. That discontent has helped lead to the return of the political dysfunction that was common in the down years. After successive election drubbings, an internal revolt within the ruling Liberal Democratic Party led Shigeru Ishiba to announce his resignation as prime minister in September. A party leadership election was set for Oct. 4. One of the favourites to replace him, the conservative Abe protege Sanae Takaichi, has adopted as her slogan the familiar refrain: “Japan is back.”Political gridlock and the revolving door of leaders forced out of office were features of the Lost Decades. But ironically, the current political weakness is a sign for investors that this Japan moment might be longer-lasting. The booms of the Koizumi and Abe eras were based on hopes for reform, pegged to charismatic leaders who Westerners could understand. When change didn’t materialise immediately, they took their money elsewhere. By contrast, the recent surge doesn’t have a single author; neither Ishiba nor his predecessor Fumio Kishida can claim credit for it, with both men focused more on international relations than markets.Some may be spooked by the rise of the right-wing Sanseito party, a fringe group with MAGA-like “Japanese First” slogans that had a surprising performance in July’s upper house elections. Still, it holds only 15 of 248 seats in the largely powerless upper house, with far fewer in the lower house. It’s true that other nations have underestimated nascent populist movements, but a shift to a protest vote is common in Japanese elections when discontent grows with the dominant LDP. These movements, from the Japan Restoration Party a decade ago to the Democratic Party for the People last year, are rarely staying forces, as the public gets to know their policies (or lack thereof).Nonetheless, Sanseito’s appearance provides an opportunity to debate what is one of the country’s most visible changes. That Newsweek article from 2003 glibly declared that Japan “handles immigration badly.” But things look very different now: The de facto mass immigration policies of many Western nations is leading to public revolt, and Tokyo has been watching these mistakes as it in turn increases its foreign workers..This change has been building since the mid-2010s, when Abe made a push to boost labor from overseas. The population born outside the country more than tripled during the Lost Decades, with more than a million overseas workers added since 2015. Foreign staff are now found from convenience stores to boardrooms. But there was little open discussion over the policy. And with citizens unused to living in such proximity to outsiders, overseas labor is understandably creating political growing pains. Combined with the day-to-day annoyances of foreign tourists, it’s no wonder that this policy is a topic of debate.But Sanseito’s rhetoric, largely cribbed from social media overseas, will find little lasting purchase in a country that doesn’t have enough workers to support its aging residents. Crimes by foreigners, including visa overstayers, have plummeted. And though the native population shrank by almost 1 million last year alone, newcomers still account for only 3% of the total. There’s little concern they’re stealing natives’ jobs.The property market is also surging in major cities, which are still growing as people move from the countryside. Speculative real estate trades were a chief cause of the bubble bursting in the 1980s, and recovery came so slowly that Tokyo’s stagnant property valuations were once the punchline of jokes. But over the past year, residential and commercial values alike have surged to record highs, thanks in large part to a flood of foreign money. This feels very different from the speculative accumulation of the past; Tokyo remains incredibly good value compared with its global peers.Overseas investors in the 2000s looking to buy distressed assets were often dismissed as “vultures” feeding on the carrion of the Lost Decades. And their attempts were largely thwarted as boardrooms closed ranks and the state stepped in to block takeovers. Things couldn’t be more different now. Indeed, Japan might be the most exciting takeover market in the world. Some of the country’s most iconic companies have been targeted for takeovers, a shift made possible by a corporate governance code that encouraged executives to focus on shareholders. Activists are everywhere, and no boardroom, large or small, can feel safe.The $46 billion sale of Seven & i Holdings Co. to Canada’s Alimentation Couche-Tard Inc. didn’t go through, but it was a flawed deal. The more instructional example is Seven & i’s sale of the storied department store brand Sogo & Seibu Co. The chain was once such a cherished national asset that in the 2000s, it brought down a prime minister and stopped the BOJ from raising rates. In 2023 no one batted an eye when Fortress Investment Group snapped it up, with the Seven board yielding to pressure placed by an activist investor.Together with the vote of confidence from Buffett, who’s amassed stakes of around 10% in the country’s five largest trading houses, it’s a signal. Private equity funds have joined Buffett, seeing vast potential for deals. And stocks are responding, surging to finally surpass the peak set on the last trading day of the 1980s.What the nation’s companies make is shifting too. The economy was once known for building tape decks and television sets, but these days it’s increasingly selling something different: Japan itself..Read more:.Goldman Sachs boosts S&P 500 target to 5,200 on surging profit outlook.The first form this self-promotion takes is tourism. The country now gets more visitors in a month than it did in a year in the 2000s. For all the complaints of overtourism and bad behavior, the flood of foreigners is also leading to about $55 billion in spending. The country has a target of 60 million travelers a year by the end of the decade, which would make it one of the world’s top five destinations..This development feeds into the second form: Greater familiarity with Japan has boosted the popularity of its content, in the form of anime, manga and games. From 2015 to 2022, overseas sales of such content tripled. Netflix Inc. reports that one out of every two users of its platform watches Japanese animation. From the world’s fastest man, Noah Lyles, who whips out Yu-Gi-Oh cards before his races, to the viral cosplay of performers such as Megan Thee Stallion dressing up as their favorite anime characters, it’s already everywhere. And the government and the country’s largest business lobby aim to quadruple that reach, targeting annual content sales of $135 billion by the early 2030s. Together with a goal of $102 billion in tourist spending, the sectors combined would dwarf even the auto industry in their importance to the economy.Japanese consumer brands are less visible than they used to be. At events such as the World Cup, signs that once advertised the likes of Panasonic Holdings Corp. instead pitch Chinese brands such as Hisense. But this shift doesn’t mean these companies are dead. Instead, they’ve moved up the value chain into specialized, hard-to-make materials and products. Panasonic now produces high-density batteries for Tesla Inc. Hitachi Ltd. is reported to be putting its refrigerator-and-washing-machine division up for sale to concentrate on its surging Lumada digital solutions segment. Its stock has never been higher. The world’s semiconductor industry is dependent on Japan’s supply chain of wafers, chemicals and precision equipment, with the country making two audacious bets on restoring its dominance of the sector. The country invited Taiwan Semiconductor Manufacturing Co. to build a series of fabs in the southern island of Kyushu and backed a $33 billion bet on Rapidus Corp., in northern Hokkaido, with the hope that it can produce its own bleeding-edge 2-nanometer chips..Read more:.Japan’s record-high Nikkei 225 is just getting started as a global investment surge awaits.Japan, of course, faces many problems. The population is shrinking even faster than expected. The associated costs of the aging population will further swell the government’s considerable debt. The bright spots in the economy are large but concentrated in its city centers. For many rural areas, there’s no return. That bifurcation of the economy, exacerbated by the labor crunch, risks one of the Lost Decades’ big success stories: the impressive social cohesion and lack of inequality. And all that’s before even considering the risk of natural disaster and external threats, from China’s aggression to Trump’s tariffs.But notice the changing role Tokyo is playing. Within Asia, it’s the most vital partner for those looking to contain China’s rise. And with the US abandoning its role as the bastion of free trade, Japan, once harried for its trade barriers and protectionist attitude, is increasingly the champion of more open market access. Japan is back? Let’s not tempt fate. Instead, with the nation having been ignored for so long, let’s be content to say that Japan is here..© 2025 Bloomberg L.P.

Japan is back? Wrong question - Japan never left, and it’s preparing for a new era: Gearoid Reidy

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