“YOU CAN INVEST in Japan with confidence,” Fumio Kishida, the country’s prime minister, told an international audience at the City of London last week in a Japanese-language address, adding a three-word declaration in English almost as an exclamation point: “Invest in Kishida.”
The call seemed a throwback to speech by another Japanese leader — Shinzo Abe’s 2013 appeal at the New York Stock Exchange for investors to “Buy my Abenomics!” Abe’s rallying cry was, at least temporarily, a success. Foreign money flowed in during the early years of his premiership as investors bought into his narrative that Japan was back.
That story didn’t last as Abenomics ran out of gas. Only time will tell if Kishida will be more successful, though markets have so far paid it little heed, with the Nikkei 225 falling 2.4% since his speech amid a global market rout. But a comment by the world’s richest man just days after Kishida’s shows why the prime minister needs more than just a catchphrase to persuade investors of Japan’s long-term growth prospects.
“Unless something changes to cause the birth rate to exceed the death rate, Japan will eventually cease to exist,” Elon Musk warned on Sunday, tweeting a response to a story on Japan’s 11th straight year of population declines.
Musk, who has fretted before about the risks of global “population collapse,” might be exaggerating for effect. But his tweet triggered debate in Japan because it adds to a narrative bothering the country: that of a graying nation shrinking into irrelevance. Given that Musk is something of a Japanophile — he got a Shiba inu puppy last year and makes references to Japanese pop culture in his tweets — Kishida is going to find it hard to persuade less Japan-minded investors of the country’s merits.
Japan’s markets tend only to gain significantly when investors have a compelling narrative to latch onto. The reform-minded run of Junichiro Koizumi in the early 2000s was one such example; Abenomics another. Kishida needs one of his own.
“Invest in Kishida” could be a hard sell. First, many are rightly apprehensive over whether he’ll will be around in the long-term. His predecessor Yoshihide Suga, lasted just a year before becoming the latest of Japan’s short-lived leaders. “Is it worth remembering the name of Japan’s new PM or will he be replaced in three to six months?” asked the Fintwit account Zerohedge when Kishida was elected leader last year, summing up the disdain many have for a country where returns have long been thought to go to die.
Such scorn, though, is misplaced. Even after the glory years of Abenomics faded, profits continued to rise along with shareholder payouts. Corporate governance reforms triggered by Abe have made M&A easier. The country’s startups, which Kishida also vocally supports, are attracting increasing interest from foreign heavyweights. Private equity is bullish on the nation’s prospects. Banks are healthy. Money is still cheap. And the country weathered the pandemic better than most other nations without ever resorting to lockdowns.
Indeed, conditions seem better for Kishida to attract foreign investment than they were for Abe. Back in 2013, Abe was viewed with suspicion by many wary of his disastrous first term as leader and misplaced concerns about re-militarization. And the yen was coming off record highs. Indeed, China’s President Xi Jinping was seen in better light, still the sort to be invited to have pints at the UK prime minister’s local pub.
A decade later, China looks like a much riskier investment destination. Bankers have fled Hong Kong as its reputation as an international financial center has taken a bruising. Shanghai’s COVID lockdowns have given expats first-hand reminders of what living in an authoritarian state looks like. While Kishida didn’t invoke China in his speech directly, repeated references to Japan’s “stability” and its being “open to the world” made the contrast clear.
The weak yen should make investing in Japan and its companies appear cheap. And as for Musk’s population concerns, Japan is far from alone — merely the front-runner. Its fertility rate, while below replacement level, is still higher than Italy, Spain, or the current pop-culture haven of South Korea, the lowest in the world.
And yet, perhaps Tesla, Inc. itself tells a tale. While the automaker initially teamed up with Panasonic Holdings Corp. to source batteries for its cars, China’s Contemporary Amperex Technology Co. Ltd. has long since overtaken it, becoming the world’s biggest maker of EV batteries. Unlike Shanghai, Japan hosts no Tesla gigafactory, while sales of its cars in the country remain relatively minuscule.
Investors are unlikely to be convinced by an appeal to invest in a prime minister whose name they seemingly can’t be bothered to remember. Things haven’t been helped by the fact that Japan’s borders have been closed for most of the past two years. Getting into the country is still a hassle.
Abe found a simple way to sell his vision with his “Three Arrows” of Abenomics. Kishida’s signature policy, which he calls his “New Form of Capitalism,” is tough even for locals to understand. Explaining it took up 2,500 words of his Guildhall speech last week, his first real attempt to pitch the concept abroad.
Kishida, nonetheless, made some of the right noises. He trotted out a long-held goal of Japanese leaders to shift household assets from cash to investments, but also offered plans to expand tax-free accounts. His aims of increasing companies’ R&D and capex spending are on the right track.
But this can only be a start. Kishida has to change international perceptions. Investors want promises of structural reforms and productivity gains, something Kishida’s chief rival for LDP leader last year, Taro Kono, seemed to offer. Those promises then need to be backed up.
Ultimately it’s the Elon Musks of this world that Kishida needs to convince of Japan’s growth story. But that’s going to take more than a speech and a so-so catchphrase.