Thoughts from Japan (2): Changes afoot and takeaways

Management Insights

Continuing on from the initial blog on Japan last month

The Japanese still enjoy a good standard of living, but the economy has largely stalled out for the last 3 decades, driving down the value of the yen and currently making Japan very good value for the international visitor. Excellent sushi can be had for a fraction of the price in London.

However, we are now seeing increasing concern from authorities in Japan in relation to financing future demands, primarily linked to demographic trends.

Like the UK and much of the Western world, there is an increasing elderly community, an extending lifespan, a significant proportion of which is needing some form of care. As with other countries around the globe, new treatments are extending life but adding to the pressure on the health system. However, with a lower birth rate and low immigration (close to net zero), Japanese policy makers are being forced to consider the impact of a reducing working population on tax receipts against future health expenditure and increasing concern over the need to reinforce defence, an area that has seen a noticeable uptick in spending as a % of GDP since 2017.

Against this backdrop, a recent initiative taps into Japanese psychology, to “shame” the boards of Japanese listed companies into being more expansive. With a demographically challenged home market, the intention is that flagship businesses will move away from being comfortable with the status quo, a phenomenon reflected in share prices that often hover near or below their net asset value (“NAV”). Rather than incentivising boards, the psychology is to tap into the Japanese sense of shame to instigate change, by requiring boards to write a formal public explanation where their share value falls below their NAV.

Our Orion colleagues at Reimei in Tokyo are already starting to see this initiative promoting increased buyside search activity as these listed businesses look to acquisitions to access international markets with better growth potential. With, in many cases, strong balance sheets and deep pockets, we are likely to see a sizeable uptick in interest in international assets from the East, both by parties seeking to deploy funds in such a way as to access growing end markets for their existing products and from those looking for new products and services with a more international appeal.

Reflecting on my very brief visit to Japan, it is perhaps interesting to focus on three contrasts between Japan and the UK and consider what prompts these may give us to change our approach here:

Life expectancy – Whilst, as noted in part 1 of Thoughts from Japan”, Japanese life expectancy at 84.5 years is slightly, but markedly, better than the 80.7 of the UK, the real difference comes when we compare healthy life expectancy, the expected lifespan free from disease. In Japan this is 73.4 years, still generating an average period requiring medical support of 11.1 years. By contrast however the UK’s average is 62.5, meaning the NHS has to support the average Brit, to some degree, for 18.2 years of old age, close to 25% of their lifespan or 50% of their working life.

As we have commented in various healthcare related blogs[link], something needs to change in our health approach, to help people to help themselves before long term trends overtake affordability. Medical advances are to be applauded but simple measures such as promoting through-life fitness, diet and health and whether incentive based or, as Japan has done with the directors of listed boards, tapping into something that grabs the UK psyche, are surely a better use of funds than having to provide extended end-of life care?

Quality of life – When I was learning bits about Japan in school (a few years back!) Tokyo had a reputation for being a heavily smogged city with high pollution from vehicles. However, whilst it is clearly still a busy city and lags behind other countries in pure EV uptake, the majority of cars are hybrid and public transport provides efficient options, meaning the air, at least when I was there, appeared relatively pollution free. The Japanese way of life does place notably more emphasis on an individual’s impact on others. Taking responsibility for your own actions, such as the example of taking your litter home (albeit along with overnight cleaning) which does keep the environment refreshingly clean. Politeness and respect, which carry no cost to the giver are also traits that are very much in evidence.

Immigration – Whilst the UK worries about immigration as a concept without always appearing to consider the economic benefits it can bring, the Japanese government is actively incentivising immigration, paying people willing to move there in some cases. Whilst a complex range of factors differ markedly between the two countries, the point is that not all immigration is bad (or good) and that it deserves a better, more considered hearing than the soundbites we see across the press and social media.

Finally, Sushi – We can get good sushi in the UK, but there it’s much more widely available, better value and really fresh…we just need to work out a plan to move the UK closer to the Pacific – how hard can it be?!

By Richard Hall on 03/07/2024