SEOUL — Prime Minister Shinzo Abe stood on camera in 2014 and said he was going to subvert the age-old way business in Japan operated. Shaken by the years of economic malaise that followed the bubble of the 1980s, Japanese executives had clung to the status quo. Increases for employees and returns for shareholders were scant. The consequence was an economy that barely grew.
Now, there are signs of a significant change in the way the country’s corporations are run, changes that are helping to bring the economy to life. In recent months, Canon shareholders have called for a diverse board of directors, Citizen Watch has said it will buy back up to a quarter of its shares, and the owner of Uniqlo has promised its workers raises of up to 40 percent.
The Tokyo Stock Exchange has implored companies to be “aware” of their share prices. Combine a surprisingly strong economy this year, a weak currency and ultra-low interest rates and you have the world’s most important stock market. Japan’s Nikkei 225 index has risen nearly 30 percent this year, far outpacing the gains of the S&P 500, the benchmark index in the United States.
Corporate profits are improving and Japan’s economy, the world’s third-largest, is basking in a post-pandemic glow.
“Fundamental economic conditions in Japan, including corporate earnings, are better than in the US, Europe and China,” said Yuichi Murao of Nomura Asset Management in Tokyo.
The overall picture remains mixed because the increase in business spending was geared more toward replenishing their warehouses, not customer demand. Private consumption weakened slightly.
Still, domestic demand remains strong, Murao said. Expectations are that it will rise further, in line with the spending other countries saw after their lockdowns ended. Japan was one of the last countries to lift restrictions and foreign visitors are pouring in.
“They are spending a lot more money than before,” in part because of the weak yen, Murao said. The yen has fallen to its lowest level against the US dollar since the 1990s.
Japan has also made progress against two perennial problems, improving wages and inflation.
Consumer prices, excluding fresh food, rose 3.4 percent in April, the highest level in decades. Inflation is more welcome in Japan than in the US and Europe because it has been at such low levels for so long.
The challenge is to amplify the increase in income that various segments of the economy have recently experienced. One survey found that big companies agreed to raise wages an average of 3.9 percent this year, the highest rate in decades. This month, Prime Minister Fumio Kishida repeated that the priorities included “structural wage increases and labor market reform.”
Another leader driving change is the Tokyo Stock Exchange. In March, he introduced a plan that would force companies trading below their book value to raise their share prices.
Seth Fischer, founder of Oasis Capital, said that as companies take steps to improve their value, they will help Japan’s overall economy by raising revenue.
“Investors finally realized that there is a breakthrough opportunity in Japan,” Fischer said.
By: VIVEK SHANKAR
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6769412, IMPORTING DATE: 2023-06-20 21:00:07
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