Macroscope | Is Japan’s economy well and truly ‘back’? Not so fast
- The country’s sizzling stock market and high-profile push for governance reforms are spurring optimism that the economy is finally turning around
- However, investors would be well advised to look more closely at its economic fundamentals
Is Japan “back” as a rising star in the economic firmament even as China’s light appears to be dimming? Or are we being dazzled by the blaze of attention being directed at the apparent Japanese conversion to Western (specifically US)-style capitalism?
Thanks to capital flow deregulation, a vast amount of money is washing around the world following monetary expansion in the wake of the global financial crisis and then the Covid-19 pandemic. Those funds are fleet-footed and fickle. Much of the money has alighted on Japan because of perceived problems in China and because Japan is on what some people regard as the right side of a debate about the relative merits of democracy versus autocracy.
It also coincides with the fact that, for a number of years, Japanese prime ministers, including current leader Fumio Kishida, have been nudging the country towards becoming a fully fledged market economy.
Japan boosters, not least those in the public-private promotion body known as FinCity.Tokyo, are making bold claims that Japan is not only “back” from its long, post bubble-economy trauma but also that it is moving into a new era of market capitalism.
Some rather extravagant claims are being made, in places from New York and London to Tokyo itself, and these are transforming Japan’s international image, at least in a superficial sense. As David Semaya, executive chairman and representative director of Sumitomo Mitsui Trust Asset Management, says, international investors now have “an unbelievable interest” in Japanese stocks, while veteran Japan analyst Jesper Koll notes that “Japan is at the forefront of every global investor’s thinking”.