The Rising (Sun) Economy – What’s Next for Japan?

Global Head of Research

Recently, we attended a panel discussion at the Japan Society entitled “The Sun Also Rises?: Japan’s Potential in the Post-Crisis Global Economy.” The discussion was compelling and offered some of the most bullish and optimistic arguments we have heard in favor of looking at Japan today. Highlights of the discussion:   Tie Backs to the 1980s In December of 1989, Japan’s Nikkei 225 Index nearly touched 39,000.1 What we now know to have been a bubble started on a very positive foundation (as bubbles often do), namely: 1) one of the most stable policy regimes in the world; 2) Japan’s Income Doubling Plan; and 3) an overall attitude of collaboration between policy makers and business. Today, we look at how prime minister Shinzo Abe declared a snap election on December 14, 2014, to re-affirm public support for his government.2 Today, it is also very difficult to talk about Abenomics without talking about the bottom line impact on the wages of Japanese workers and on the point of a collaborative environment between government and business. One panelist noted that Japan is the most professional government in the G-20 right now. Over the last 20 years, this wasn’t always the case. The assumption is that Abe and his government want to turn Japan into a first-rate economic power again.   Japan’s Government Is Taking Action While it is common practice to dissect and debate the policy actions of many developed market governments, we think it is important to highlight the fact that Japan’s government is taking action. Prime Minister Abe’s regime is universally pro-business. Last year there was fiscal tightening due to the raising of the consumption tax, but further hikes have been postponed. We’re also starting to see some deregulation and some cutting of corporate taxes. The bottom line: The speed of the so-called "third arrow's" effectiveness can be debated, but it is crucial to note that the third arrow is making at least some progress, which is more than some other developed market country governments can say about their own policy regimes.   Japan’s Companies Are Innovative and Exciting As detailed by a panelist, Japanese companies have the cleanest balance sheets and strongest banking systems. Key economic developments include: • Approximately 60% of internal components of global smart phones come from Japanese companies and require a degree of precision that one panelist felt can only come from Japanese companies.   • Some of the world’s most environmentally friendly ships are being built by Japanese companies.   • In terms of robotics, one panelist noted that Japan is the undisputed global leader, and he expected the world to see some very exciting things on this front as robotic software is further developed.   Japan’s Labor Force Has Enormous Potential Approximately one-quarter of Japanese children grow up speaking both Chinese and English as well as their native language of Japanese. Other countries, especially those in Southeast Asia, look up to Japan as an example of a country with a strong system of education. Also worth noting: Japanese convenience stores change what is on their shelves three times daily. Think about convenience stores in the United States trying to implement this. The Japanese have the required systems and controls in place to make what sounds like an impossible undertaking not only possible but routine.   Introducing a Two-Part Series: Japan on the Rise We left the session so inspired that we wanted to share the themes of the discussion, so we’ll be writing a series of blog posts focused on the opportunity of Japan. Look for the other two in the coming weeks: 1) Why Companies Are Starting to Reinvest in Japan   2) Why It's Good to Be Young in Japan           1Source: Bloomberg. 2Source: “Japan Election: Voters Back Shinzo Abe as PM Wins New Term,” BBC News, 12/14/14.

Important Risks Related to this Article

Investments focused in Japan increase the impact of events and developments associated with the region, which can adversely affect performance.
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About the Contributor
Global Head of Research

Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he was based out of WisdomTree’s London office and was responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. In November 2021, Christopher was promoted to Global Head of Research, now responsible for numerous communications on investment strategy globally, particularly in the thematic equity space. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst Designation.