By Rick Pitcairn, CFA®, Chief Investment Officer
March 21, 2017 – Japan’s policymakers and market influencers, from Prime Minister Shinzō Abe on down, remain steadfastly focused on one goal: growing the economy. So far, that growth has yet to be fully realized – and there’s no guarantee it ever will be. It’s a lot like Waiting for Godot. In Samuel Beckett’s classic play, the characters Vladimir and Estragon spend the duration of the show (and their lives) waiting for the character Godot to show up. Sorry to spoil it for you, but he never does. In Japan, it remains to be seen if recent actions will spur the growth needed to pull the country out of its 20-year deflationary trap or if the nation is simply waiting for Godot and growth that may never come.
During a recent trip to Japan for the bi-annual meeting of the Wigmore Association, I saw Japan’s singular focus on growth manifest itself in a number of issues, from labor reform and its commitment to negative interest rates to immigration and its reaction to a Trump presidency. As we met with Japan’s economic leaders and explored the sprawling metropolis that is Tokyo, we caught a glimpse inside the Japanese market today, both in terms of opportunities for the families Pitcairn serves and as a bellwether for international reactions to unpredictability in the US.
In many ways, the long-term easy money policy of the Bank of Japan has been like the Fed’s quantitative easing policies on steroids. I have often said politicians prefer inflation to riots, and Japan is counting on running off debt by growing the economy rather than cutting social services. In a refreshingly honest and unguarded conversation with our group, leaders with the Bank of Japan mostly spoke in support of policies like the oft-debated negative interest rates. One Bank of Japan official was quick to point out that negative rates have led to an uptick in bank lending. He did acknowledge complaints, however, likely tied to unforeseen consequences of the policy, like Japanese citizens simply hang on to their Yen – so much so that sales of safes have noticeably increased in Japan over the last year. Looking ahead, Bank of Japan leaders said they’ll worry about inflation when the data and trends point to an issue. Until then, they’re betting on an easy money policy driving growth.
Japan’s focus on growth is playing out in a number of other areas as well:
- Labor reform – Japanese policymakers are promoting strategies that get more citizens into the workforce while at the same time encouraging those who are employed to work less. Unemployment rates are low, but a significant portion of Japan’s workforce is part time or partial time, which has kept wages stagnant. What’s more, companies are passing over the so-called “ice age generation” – workers in their 30s and 40s – in favor of hiring workers fresh out college with lower salary requirements. Japan is actively working to get more women into the workforce and building childcare centers so working couples will continue to have children and grow the economy. At the same time, the government is limiting overtime, pushing back on the cultural expectation to work 12 or 14 hours a day. Japan is even encouraging employees to leave work early one Friday a month to go home and spend some of their hard-earned money.
- Immigration – While American corporations critical of President Trump’s recent tightening of immigration policy have pointed largely to the need to attract highly skilled workers, especially in the tech space, Japan recently loosened immigration policies in an effort to bring in more low-skilled workers. These relaxed policies are intended to attract immigrants from other Asian nations, like Indonesia, to provide childcare and other support services that will allow women to enter – and stay – in the workforce.
- Private investment – Despite the emphasis on growth, private investments remain almost non-existent in Japan. Outside of hydrogen fuel and robotics industries, there’s very little entrepreneurship or venture capital investing inside the country. Most investors are still looking to Silicon Valley and other areas outside Japan for growth investment opportunities.
Even Japan’s reaction to the election of President Trump in the US is driven largely by his potential ability to drive growth. While Mexico and most of Europe have had decidedly negative reactions to the election, Japan’s collective response has been more pragmatic. If Trump’s policies drive up the GDP in the US, that’s likely to drive growth internationally, including in Japan. Trump’s outspoken critiques of China also play well in Japan, which is eager for any chance to score a win over the massive emerging market China represents. The Bank of Japan sees the shifting geopolitical landscape as an opportunity to lure investments to Japan’s more developed market. Again, it’s all about growth.
This kind of frank, open discussion with Japan’s economic leaders is exactly what we envisioned when we helped form the Wigmore association in 2011. Bringing together our family office peers in a collaborative setting to get a macro view of Japan’s economic state serves as an opportunity for us to check our perspectives and philosophies on an international stage. We identified chances to add value to the families we serve, from capitalizing on Japan’s focus on growth to investments that could be bolstered by a relatively weak Yen.
While President Trump has created a divide in the US and internationally, Prime Minister Abe has made great strides in unifying Japan behind his push for growth at all costs – dubbed “Abenomics.” After a series of six prime ministers in six years, Prime Minister Abe has brought much-needed stability and was recently elected to his third term, which will run through 2020. In fact, 2020 seems to be something of a self-imposed deadline for Japan to realize some of the growth and revitalization it’s pushed so hard to create. As all eyes turn to Tokyo for the 2020 Summer Olympics, Japan may finally have to demonstrate that growth or admit that they have been waiting for Godot.