Japanese business & economic reforms
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The author is the Head of Investment in Japan at Fidelity International
In Japan, the strong and steady growth since Abenomics was founded nine years ago sounds like a watershed change since the last 20 years of the economy.
The economy added 5m jobs, companies boosted profits as profits went up and, everywhere, the country continued to grow. The Nikkei 225 has changed in price over the past decade.
It is a matter of real change. Yet Japan is a group that remains small and limited to foreign investors.
It is a vote next week to elect the next leader of the Liberal Democratic Party and the new Prime Minister of Japan, with the incoming leader looking forward and ensuring that the country continues to change.
Perhaps the biggest threat to the LDP in national elections later this year is what could happen to tired voters and frustrated by what they see as a sudden reduction in the epidemic with emerging monitors.
Indeed, Japan continues to experience temporary turmoil from the Covid-19. In the long run, in order for the economy to remain balanced, there are three key areas where progress is needed.
Monetary policy was the first rock to emerge in the last decade, but financial aid should significantly boost the next phase of growth.
Japan Inc sits at one of the largest corporations around. While the risks of an economic downturn are lessened and the increase in wages is more pronounced, conditions are stabilizing in a change for managers considering spending.
More and more, long-distance fundraising seems to be the best option. But in order to encourage this change and to show the extent to which new operating costs can be introduced, successors need to establish more recent financial strategies.
This requires the need for more tax incentives to promote growth in the areas that have been achieved, to integrate digital skills, and to improve the performance of companies, cultures and governments.
The second area in which the government should look is to accelerate environmental change. Outgoing Prime Minister Yoshihide Suga made a long start in October last year, when he used his preconceived notions to make a surprise promise that Japan wants to emit greenhouse gases by 2050.
But it will be up to the next Prime Minister to make sure the country is right. As the third largest economy in the world, Japan plays a leading role in the fight against global warming, but without significant purchases from companies and investors.
Advertisers need to do more with companies, using shareholders’ votes to ensure that executives live up to their promises by eliminating certain areas and other similar areas. Companies seem to be feeling it already.
The third most important factor in government should be gender equality. Apart from the benefits that people receive, this can bring significant economic benefits. Shinzo Abe’s supervisors put the differences between men and women at the start but the progress is enough to start. Japan is still lagging behind, with the highest paid men and women in the OECD.
In short, the Japanese traditional notion of “the best known for full-time employment” is inconsistent. In May, we sent letters to hundreds of companies in Japan to address our expectations. This includes representation of 30% women in corporate and supervisory organizations by 2030, 30% women among all employees in the same year and disclosing gender differences (which is not appropriate or is happening in Japan).
In conversations with foreign exchange brokers, I am amazed at how much they have missed out on a lot of recent updates. Granted, traders around the world pay close attention to Japanese markets where the yen is weak, but this is the only way they do not realize what is a “small” heritage in this country.
Regardless of who the next leader is, it is the working institutions, not the policy makers, that are essential to Japan’s economic growth. The next government should ensure that companies are more confident and motivated to spend money and develop skills; It should describe the representation of persons among women and the equality of men and women in the family; and to ensure that there will be more and more sustainable resources. This is Japan’s future.