The call seemed a throwback to another Japanese leader’s speech – Shinzo Abe’s 2013 appeal New York Stock Exchange For Investors “Buy My Ebenomics!” Abe’s rallying cry was, at least temporarily, a success. Foreign funds flowed in during the early years of his premiership as investors bought into his statement that Japan had returned.
That story didn’t work out because Abenomics ran out of gas. Only time will tell whether Kishida will be more successful, although markets have paid little attention to it so far, with the Nikkei 225 falling 2.4% since his speech in global markets. But a comment from the world’s richest man just days after Kishida’s performance shows why the prime minister needs more than just a phrase to persuade investors of Japan’s long-term growth prospects.
Elon Musk warned on Sunday that “unless something changes to make the birth rate exceed the death rate, Japan will cease to exist.”
Musk, who previously worried about the risks of a global “population collapse”, may be exaggerating for the impact. But his tweet sparked debate in Japan because it connects to a story haunting the country: a gray nation shrinking into irrelevance. Given that Musk is something of a Japanophile — he got a Shiba Inu puppy last year and makes reference to Japanese pop culture in his tweets — Kishida will have a hard time convincing less Japan-minded investors of the country’s properties.
Japan’s markets only make significant gains if investors have a compelling narrative to look forward to. Junichiro Koizumi’s reform-minded campaign in the early 2000s was one such example; Abenomics another. Kishida needs one of his own.
“Investing in Kishida” can be a tough sell. At first, many are apprehensive about whether he 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 the new PM of Japan or will he be replaced in 3-6 months?” Asked by the Fintwit account ZeroHedge when Kishida was elected leader last year, many have a disdain for a country where returnees have long been considered to be dead.
However, such contempt is wrong. Even after Abenomics’ glory years had faded, profits continued to rise, along with shareholder payouts. Corporate governance reforms initiated by Abe have made M&A easy. The country’s startups, which Kishida also vocally supports, are attracting increasing interest from foreign giants. Private equity is bullish on the country’s prospects. Banks are healthy. Money is still cheap. And the country faced the pandemic better than most other countries without ever resorting to a lockdown.
In fact, Kishida’s position to attract foreign investment looks better than Abe’s. Back in 2013, Abe was viewed with skepticism by many about his disastrous first term and false concerns about re-militarization. And the yen was coming in at a record high. In fact, China’s President Xi Jinping, seen in a better light, was still invited to the UK prime minister’s local pub for a quip.
A decade later, China looks like a more risky investment destination. Bankers have fled Hong Kong, hurting its reputation as an international financial center. Shanghai’s COVID lockdown has reminded expats for the first time what it’s like to live in an authoritarian state. While Kishida did not directly invoke China in his speech, repeated references to Japan’s “stability” and its being “open to the world” made the opposite clear.
Weak yen should invest in Japan and its companies look cheap. And as for Musk’s population concerns, Japan is far from alone – only the frontrunner. Its fertility rate, while well below replacement level, is still higher than the current pop-culture havens of Italy, Spain or South Korea, which are among the lowest in the world.
And yet, perhaps Tesla Inc itself tells a story. While the automaker initially sourced the batteries for its cars in collaboration with Panasonic Holdings Corp., China’s contemporary Amperex Technology Co., Ltd. has long since overtaken it, becoming the world’s largest manufacturer of EV batteries. Unlike Shanghai, there is no Tesla Gigafactory in Japan, while sales of its cars in the country are relatively low.
Investors are unlikely to be convinced by the appeal of investing in a prime minister whose name they 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. Coming to the country is still a hassle.
Abe found an easy way to sell his sight with his “three arrows” from Abenomics. Kishida’s signature policy, which he calls his “new form of capitalism”, is difficult even for locals to understand. Explaining that his Guildhall speech last week took 2,500 words was his first real attempt at introducing the concept abroad.
Still, Kishida made some perfect sounds. He touted the long-standing goal of Japanese leaders to shift domestic assets from cash to investments, but also offered a plan to expand tax-exempt accounts. Their target of increasing R&D and capex spending of the companies is on the right track.
But this may be just a start. Kishida must change international perceptions. Investors want promises of structural reforms and productivity gains, something Kishida’s main rival for the LDP leader, Taro Kono, offered last year. Then those promises need to be backed up.
Ultimately, it is the Elon Musk of this world that Kishida needs to explain to Japan’s growth story. But it’s going to take more than a speech and a very catchy phrase.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.