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Speaker 1: Japan's economy gets a bad rap, and for most of

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Speaker 1: the past twenty seven years, the so called lost decades,

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Speaker 1: that's largely been deserved. But don't let the past blind

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Speaker 1: you to what's going on in Japan right now. It's

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Speaker 1: still the world's third largest economy. And in case it

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Speaker 1: escaped you, the stock market is a stone's throat from

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Speaker 1: its highest level since the nineties. Japan's jobless rate is

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Speaker 1: about half that of the United States, and corporate profits

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Speaker 1: have never been better. And look at bank lending, it's

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Speaker 1: growing the most since again the nine nineties. Look, I know,

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Speaker 1: I know, we've had false dawns before I even believed

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Speaker 1: in one myself in nine during the two years I

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Speaker 1: spent editing economics for Bloomberg in Tokyo. So if things

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Speaker 1: are looking up, why isn't Japan getting credit? Why does

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Speaker 1: everything always have to be about China. Welcome to Benchmark,

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Speaker 1: a show about the global economy. I'm Daniel Moss, executive

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Speaker 1: editor for Economics in New York. My guest co host

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Speaker 1: this week is Chris Anstey, a managing editor for Bloomberg

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Speaker 1: in Tokyo and resident of that city for seven years. Chris,

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Speaker 1: it's great to have you on the show. Great to

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Speaker 1: be here, Dan, And your experience with Japan pre dates

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Speaker 1: you'll move there seven years ago. Well, that's right. I

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Speaker 1: was here as a teenager in the late nineteen eighties.

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Speaker 1: My dad was working here, UH, and I went to

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Speaker 1: an international school. I also came back after college and

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Speaker 1: taught English for a year before I went back to

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Speaker 1: the United States and spent the bulk of my year

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Speaker 1: in the US and UK. UH. And it's it's been

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Speaker 1: fascinating to see Japan uh, you know, the past seven

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Speaker 1: years compared with uh the eighties. It does feel, though,

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Speaker 1: doesn't it Like China just sucks all the oxygen out

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Speaker 1: of the room when you have a conversation about Asian economics.

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Speaker 1: And if Japan is discussed today, it's in the context

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Speaker 1: of a long struggle with deflation and a shrinking population.

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Speaker 1: And as we'll learn, that obscures what's been happening lately.

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Speaker 1: But don't just take our word for it. Peter Tasker

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Speaker 1: has been in and around Japan since the nineteen seventies.

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Speaker 1: He's a founding partner of Arcus Investments Limited, established in

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Speaker 1: He also dabbles in Japanese detective fiction. Peter, Great to

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Speaker 1: have you, Good to be here. What's different this time?

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Speaker 1: What is the popular narrative missing? Most of the indicators

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Speaker 1: that I look at are showing levels that we haven't

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Speaker 1: seen since the mid nineties or even before. And if

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Speaker 1: we look at, for example, the Japanese labor market, which

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Speaker 1: you've touched on the job offer to applicants ratio has

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Speaker 1: not been this high since the early nineties seventies. So

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Speaker 1: even even though the the rate of growth, the natural

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Speaker 1: rate of growth has declined due to the the population issue,

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Speaker 1: we have a kind of high pressure economy developing here.

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Speaker 1: And as a result, we're seeing a virtuous circle develop

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Speaker 1: in which you've got more consumption and I think we

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Speaker 1: will see more corporate investment and better improvement in the

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Speaker 1: in the economy as a whole. Just the standard metrics

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Speaker 1: that we look at are far better than anything we've seen.

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Speaker 1: And this goes to, you know, even some of the

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Speaker 1: sort of social mood that we we look at in

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Speaker 1: as you As you said, the two Lost decades were

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Speaker 1: really dismal period for Japan, and one of the things

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Speaker 1: very sad indicator of that was the very large rise

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Speaker 1: in the suicide rate, particularly after the first banking crisis

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Speaker 1: in we saw a significant rise almost in the suicide

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Speaker 1: rate over the next five or six years, ah, and

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Speaker 1: it was concentrated on the sort of middle aged male population,

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Speaker 1: for many of whom found themselves out of work or

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Speaker 1: under employed. Well over the past ten years that has

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Speaker 1: gone right back down again. There's been a huge decline

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Speaker 1: in the in the suicide rate. It's gone right back

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Speaker 1: down to where it was before that bank crisis. So

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Speaker 1: this seems to be a sort of happier vibe socially.

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Speaker 1: And that's no surprise when you see that there's a

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Speaker 1: very high proportion of the population which is now employed.

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Speaker 1: And I think that's an absolutely key metric, is that

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Speaker 1: everybody who wants to work is working, you know, Peter,

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Speaker 1: like you, I really enjoy looking at the historical trend

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Speaker 1: of of indicators, and one great thing about the Bloomberg

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Speaker 1: is you can track some of these way back to

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Speaker 1: the seventies or eighties, or in some cases even before.

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Speaker 1: And what really kind of caught me onto something changing

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Speaker 1: in Japan was when I looked at indicators like nominal GDP,

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Speaker 1: which of course is uh, you know, unadjusted for for

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Speaker 1: price changes. That's the actual yen that's produced in the

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Speaker 1: economy every year. Nominal GDP at a record. Again, you

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Speaker 1: look at again UH employment, You look at UH income

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Speaker 1: across the economy UH, and UH is pretty striking. The

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Speaker 1: past few years. The trajectory has been much better than

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Speaker 1: it was. You know, a phrase we like to use

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Speaker 1: a Bloomberg is size and scope. The size and scope

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Speaker 1: is the highest in decades. But why, Peter, do you

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Speaker 1: think that you know these headlines? You're obviously aware of this. Um.

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Speaker 1: You know, some folks who followed Japan closely are aware

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Speaker 1: of this, But the world seems to have largely forgotten

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Speaker 1: about Japan. What do you think, um is the reason

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Speaker 1: that people don't really recognize this story more widely. Well,

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Speaker 1: I think there are a couple of reasons. One is

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Speaker 1: sort of long history of the relations and the image

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Speaker 1: of Japan globally, going back to the war, and then

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Speaker 1: in the ninet eighties when it appeared that Japan was

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Speaker 1: going to be of the economic superpower of the twenty

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Speaker 1: one century, and many very very smart people brought into

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Speaker 1: that and there was a huge flood of books about that,

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Speaker 1: and Michael Crichson's film um Um what was it called? Again?

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Speaker 1: The Rising Sun was what was marked a sort of

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Speaker 1: peak of that, and then after the bubble burst it

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Speaker 1: turned out to be a bubble economy and the foundations

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Speaker 1: were built on sand. There was a sort of audible

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Speaker 1: sigh high of relief and a bit of chardon freuder

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Speaker 1: if you like. That. Japan was actually doing pretty badly,

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Speaker 1: and so the worst could say, well, look at this,

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Speaker 1: they're not doing it the way they should do they

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Speaker 1: and they're doing it their own way, and it's all

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Speaker 1: going wrong. See I told you so. I think you're

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Speaker 1: just being diplomatic, Peter. Triumphalism is the term that comes

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Speaker 1: to mind, triumphalism. Yes, indeed, So what what happened after

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Speaker 1: that is that Japan has recovered, I believe, but it's

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Speaker 1: recovered in a sort of stealth fashion, and it's now

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Speaker 1: neither a challenger nor a disaster. It is what it is.

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Speaker 1: Even so I think that it's it's it's something that

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Speaker 1: the rest of the world should pay a lot more

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Speaker 1: attention to because many of the issues they're dealing with,

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Speaker 1: particularly the aging economy, the need to bring more people

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Speaker 1: into the labor force. As we know, the labor participation

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Speaker 1: rate in the US is dismally low, whereas Japan has

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Speaker 1: been very successful not just in bringing the the the

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Speaker 1: the the actual sort of technical working population which is

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Speaker 1: fifteen to sixty five, but also bringing many seniors into

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Speaker 1: the labor force as well, so we have over of

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Speaker 1: the over sixty in the labor force. Um. So there

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Speaker 1: are many things that Japan is doing which we could

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Speaker 1: all learn from and probably will need to go there

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Speaker 1: before too long, because aging, though we we present it

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Speaker 1: as a as some kind of disastrous democraphic situation, is

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Speaker 1: in reality a kind of triumph because it means that

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Speaker 1: we've extended people's lifespans. And Japan has the second largest

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Speaker 1: second longest lifespan for males and females or second or third.

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Speaker 1: It's all it's always been there or there about. So um.

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Speaker 1: What we what we need to do in in most

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Speaker 1: of the developed countries is to recognize that people live longer,

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Speaker 1: they should be economically active longer, and they should work longer. Uh.

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Speaker 1: And Japan is is moved, I think quite in quite

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Speaker 1: a constructive way in this direction. Europe hasn't moved that

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Speaker 1: way at all. I think America's is sort of in

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Speaker 1: the middle, but Japan is is way ahead. It's interesting

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Speaker 1: you mentioned Rising Sun. Both the book and the movie,

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Speaker 1: they did seem to capture the zeitgeist of the moment,

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Speaker 1: the sort of Japan as Number one industrial complex. I wonder, though,

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Speaker 1: you make me think, are we making the same mistake

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Speaker 1: in the way the West views China now that it's

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Speaker 1: destined to be on top, it's destined to be the

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Speaker 1: economic superpower of the twenty one century, and some of

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Speaker 1: the potential for problems such as demographics, you know, they're

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Speaker 1: just being swept under the carpet at the moment because

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Speaker 1: it's the current mania. Well, that's a good question, don

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Speaker 1: And obviously my experience in Japan is that never make predictions,

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Speaker 1: especially about the future. And all those smart people who

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Speaker 1: who who wrote that century was going to be Japanese

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Speaker 1: supremacy again got egg on their face very very quickly.

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Speaker 1: So we should we should always challenge the assumptions, and

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Speaker 1: we should always think of all the different scenarios that

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Speaker 1: are out there and realized that our ability to to

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Speaker 1: be certain about them is very limited. And I think

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Speaker 1: you're you're right that if if you're sitting in in Beijing,

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Speaker 1: in Xijing Ping's seats, you would see a whole world

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Speaker 1: of problems that you've got to face and not easy

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Speaker 1: to deal with. Having said that, of course, China has

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Speaker 1: made fun unbelievable progress in many areas, and particularly in

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Speaker 1: moving up the value added chain in technology, and so

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Speaker 1: as a result of that, country like Japan, has moved

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Speaker 1: out of any of the consumer brand icons but sell

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Speaker 1: directly to the consumer that they were famous for in

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Speaker 1: the seventies and eighties. Most of the Japanese high tech

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Speaker 1: we see these days, apart from in autos, is in

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Speaker 1: capital goods which go into somebody else's branded products. So

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Speaker 1: I think that's that's a change in the industrial structure,

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Speaker 1: which also means that Japan is less visible as as

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Speaker 1: a sort of brand owner than it was going back

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Speaker 1: thirty years ago. But in fact does it a huge

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Speaker 1: amount of trade with China, and a lot of intermediary

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Speaker 1: goods and capital goods and key components go into uh,

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Speaker 1: you know, your iPhone or many of the other key

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Speaker 1: products of today. So, Peter, if I like your your

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Speaker 1: term that Japan is neither a challenger nor a disaster.

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Speaker 1: So if that's the case, what sort of opportunities does

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Speaker 1: this new kind of stealth dynamism in Japan create for

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Speaker 1: investors and businesses outside Japan. Yeah, well, talking about financial investment, UM,

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Speaker 1: one of the things that people find very hard to

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Speaker 1: to to get their brains around is that the high

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Speaker 1: growth economy does not necessarily produce the best returns for investors.

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Speaker 1: There are a number of reasons for that, which I

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Speaker 1: won't go into, but there's long studies a hundred years

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Speaker 1: of stock market history have shown that if anything, the

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Speaker 1: the the the the correlation is the other is the

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Speaker 1: other way around a bit so, UM, we should we

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Speaker 1: don't need Japan to grow rapidly in order to be

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Speaker 1: an okay investment destination. What we do require is good

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Speaker 1: value of good values and good profitability from the companies,

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Speaker 1: and I believe that we do have both those elements

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Speaker 1: in place. Um. And just to give you an example,

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Speaker 1: the Topics Index, which is sort of the major index

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Speaker 1: of the of the stock market here equivalent to the

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Speaker 1: S and P. When it was peeking out right at

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Speaker 1: the start of this century with the I T bubble,

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Speaker 1: the EPs on Topics was about twenty five yen a share.

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Speaker 1: Right now it's a hundred and ten yen a share

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Speaker 1: and is expected to rise to about a hundred and

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Speaker 1: thirty year and over the next couple of years, so

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Speaker 1: in other words, there's been a huge improvement in profitability

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Speaker 1: over that time. Now the market itself is actually blow

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Speaker 1: where it was then, though the the EPs on the

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Speaker 1: market is four or five times higher, So obviously that's

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Speaker 1: a much better investment environment with in terms of evaluations

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Speaker 1: and company profits. I think you also need a more

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Speaker 1: stable macroeconomic environment. To some extent, the policy makers have

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Speaker 1: a role to play here, and being generally a more

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Speaker 1: accommodative and easier in in in in the macro policy

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Speaker 1: settings have led to more confidence for companies and actually

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Speaker 1: this sort of environment that we're seeing now, again we're

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Speaker 1: talking about small numbers here, but Japan has been growing

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Speaker 1: well ahead of its natural rate of growth, which is

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Speaker 1: simply productivity growth, because the working population is not rising

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Speaker 1: year after year. Therefore you are soaking up all the

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Speaker 1: used capacity, and we're starting to see some wage rises,

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Speaker 1: particularly in the part timer space. They're not huge, but

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Speaker 1: you're talking about two point five two point six pc

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Speaker 1: with a very lower inflation still, so a much a

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Speaker 1: much better environment and for investors, I think we've got

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Speaker 1: a more stable macro environment and we've got better profitability

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Speaker 1: and valuations than we've seen for I would say probably

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Speaker 1: since the sixties. You know, Peter, you mentioned the labor

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Speaker 1: force UH and running out of of spare capacity. There

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Speaker 1: one thing that I've started to think about is UH.

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Speaker 1: You know, if you look at the past couple of decades,

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Speaker 1: there were periodic UH episodes of a very a very

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Speaker 1: strong exchange rate in Japan, which really kind of shook

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Speaker 1: out the exporters. UH. It forced them to become more productive. UH.

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Speaker 1: It sent some of them out of business. UH, it

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Speaker 1: sent many of them UH pushing manufacturing and jobs overseas. UH.

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Speaker 1: And arguably it left those that survived the toyotas and

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Speaker 1: and others UH in in stronger shape. And I'm wondering

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Speaker 1: if their labor shortages and the emergence of of labor

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Speaker 1: cost pressures domestically will do the same thing for the

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Speaker 1: domestic economy that you will see a shakeout with some

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Speaker 1: not able to survive the increasing UH costs UH and

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Speaker 1: others left in stronger position with more productive workforces. Yeah,

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Speaker 1: I think you're right, because I think the you know

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Speaker 1: that this sort of tight labor market is driven by

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Speaker 1: two things. One is sort of decent economic performance. But

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Speaker 1: the other is the demographic uh limitations. So what I

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Speaker 1: think we'll see over the medium term is this really

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Speaker 1: forcing all kinds of shakeouts and consolidation of industries. So,

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Speaker 1: you know, many industries in Japan have got a huge

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Speaker 1: number of players in the industries, and you don't have

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Speaker 1: that situation many mature economies, you would have the top

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Speaker 1: four or five companies that have an overwhelming share of

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Speaker 1: that market. That's not really the case in Japan. You

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Speaker 1: often have hundreds and hundreds of companies. I think we're

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Speaker 1: going to see over the next decades, in fact, a

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Speaker 1: great deal of consolidation there and mergers, mergers and acquisitions

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Speaker 1: as well. We also see a great deal of automation

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Speaker 1: of activities that are done by people, and there's a

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Speaker 1: tremendous room for that, particularly in the service sector. I

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Speaker 1: would say, particularly in things like the banking sector. If

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Speaker 1: you go to a branch of a bank in Japan,

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Speaker 1: you'll see that they're still got a large number of

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Speaker 1: personnel in there despite all the you know, the potential

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Speaker 1: that we have these days for reducing that. So I

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Speaker 1: think what we're going to see is bigger companies emerge

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Speaker 1: in many of the service sectors, which so far have

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Speaker 1: been very overpopulated company wise, and we're going to see

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Speaker 1: more innovation in terms of personnel reducing technology sort of

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Speaker 1: robotization if you like. We've we've just looking at one

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Speaker 1: company which has got share in small scale sushy robots.

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Speaker 1: I mean that this is perhaps one of the way

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Speaker 1: things are going to go over over many years to come.

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Speaker 1: What does a sushi robot do, Peter, Well, it can't

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Speaker 1: actually put the fish in, but it can make a

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Speaker 1: nice sushi thing for you, and then you have to

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Speaker 1: put the fish in yourself. You need a bit of

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Speaker 1: human skill to do that. But yes, it rolls the

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Speaker 1: sushi for you. But again I would say that these

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Speaker 1: are all phenomenon which if you look at this overall

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Speaker 1: growth rate, it will be average. Nothing much will change,

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Speaker 1: but the quality of it will will be much improved. Peter.

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Speaker 1: Before we close, let's talk a little bit about your

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Speaker 1: other occupation, writing detective fiction. And I understand this is

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Speaker 1: based around an antihero called Maury. How has he navigated

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Speaker 1: Japan's economy in the past a couple of decades and

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Speaker 1: what does he make of this optimism right now? Is

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Speaker 1: he feeling it. He's been at the raw end of deflation. Actually,

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Speaker 1: like many people in service industries, he's found that the

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Speaker 1: kind of fees that are available for him for the

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Speaker 1: work he does have gone down and made it very

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Speaker 1: difficult to cover his costs. So though he's not really

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Speaker 1: an economic person in an economist, yes, he suffered from

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Speaker 1: the lost decades, and yeah, he The other thing about

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Speaker 1: Maria is, of course the way I constructed him that

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Speaker 1: he was basically a sort of nineteen sixties guy, our

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Speaker 1: early seventies guy. So he's getting on a bit now.

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Speaker 1: But of course in Japan, that is no barrier to

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Speaker 1: being cool and doing your stuff. So people carry on

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Speaker 1: doing all kinds of things, whether it's climbing, everest or

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Speaker 1: whatever else. It may be well into their seventies and eighties.

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Speaker 1: So I think that Marius can still keep going and

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Speaker 1: he can challenge the stereotypes of the problem of demographics

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Speaker 1: actually being instead an opportunity. What's your favorite detective novel ever?

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Speaker 1: Favorite one ever? Well, of course there are so many classics.

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Speaker 1: Chandler is really wrote the book, but I'm very fond

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Speaker 1: of Ed McBain. Actually, his is stuff is great. Do

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Speaker 1: you like Philip Kerr's character Bernie Gunter. Yes, yes, yes,

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Speaker 1: I do, I do, I do. I do like that

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Speaker 1: some a bit more modern stuff. Yes, thats good, Peter.

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Speaker 1: It's been an absolute treat to have you here on

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Speaker 1: this show and we hope you'll come back again. My

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Speaker 1: pleasure entirely well. Benchmark will be back next week and

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Speaker 1: until then, you can find us on the Bloomberg terminal,

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Speaker 1: Bloomberg dot Com, our Bloomberg app, as well as Apple Podcasts,

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Speaker 1: pocket Casts, and Stitcher. While you're there, take a minute

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Speaker 1: to rate and review the show so more listeners can

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Speaker 1: find us and let us know what you thought of

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Speaker 1: the show. You can follow me on Twitter at Moss Underscore,

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Speaker 1: Echo and Chris you are at ampty Asia and and

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Speaker 1: s t e y Asia. Benchmark is produced by Sarah Pattison.

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Speaker 1: The head of Bloomberg Podcast is Alec McKay, a shameless sinophile.

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Speaker 1: Thanks for listening, See you next time. The Sundered by

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Speaker 1: an enterp