Unlocking Japan (part 1)

A lot of people ask me what I “think about Japan”. It’s a broad question, but usually it implies, do you think Japan will grow again?

At that point, I typically point out macro-level trends. Shrinking and aging population. Significant use of temp labor that is paid less than full-time employees, something which has likely suppressed the birth rate even further and has certainly suppressed consumption. People without long-term income stability don’t invest in houses, kids, furniture, prep schools etc. They stay childless, thus perpetuating the cycle. Unwillingness, unlike Germany or England, to fill the gap with immigration. Think about London. Who is driving up housing in the City? Probably not natives of England. They are bright people who’ve moved there from elsewhere to find opportunity.

The graphic below shows projections for how Japan will age and shrink.

Viewed this way, Japan *not* growing should be the default. (The Economist is only media I’ve seen that has called this for what it is. Is it really reasonable to expect growth here?) Japan has tried to spend its way to growth, and now has the highest debt to GDP ratio of any G7 nation. This chart is dated, btw. Economywatch puts the ratio at 143% of GDP. In either case, it still is tops in the G7. And while Japan’s ended up with a lot of concrete poured as a consequence of debt spending, this hasn’t spurred systemic growth.

Meanwhile, telcos like KDDI and SoftBank are reporting record profits. Is there a disconnect here? Or are we at the high water mark? Do record profits mean Japan is now in the cash cow quadrant? If x (population) is going to down, and Y (ARPU) is going down due to competition, is this sustainable? This is why SoftBank is fascinating. It is an investment company that happens to own a service delivery infrastructure, i.e., fixed and mobile business units. It appears determined to buy its way to growth ex-Japan, using Japan’s enviably cheap debt. DoCoMo is now branding itself as an integrated provider of mobile centered services, which, while a mouthful, looks strategically and directionally correct, as it points to delivery of services beyond connectivity. If X is shrinking, then Y must grow to hold course.

Back to macro themes, and the subject of this post. This is a theme I want to revisit. If Japan is in the cash flow quadrant, what can it do to unlock growth? An underutilized female population seems like an obvious answer, as does immigration. More to come.

– Jon