Since April 2023, the Japanese stock market has outperformed major global markets. From the beginning of April through June 29, the Nikkei 225 rose 18.5%, while the tech-driven Nasdaq gained 11.2%, compared with 7% for the S&P 500.
Low inflation, low growth and stagnant wages that plagued Japan since the burst of the bubble economy are seemingly eased. Will the rise in the Japanese stock market last, and will the Japanese economy emerge from the "lost three decades"? NBD had an interview with Jesper Koll, who has been deeply engaged in the Japanese financial industry for more than 30 years.
Jesper Koll: I think it"s very simple. You have both the Bank of Japan and prime minister Kissinger, very much committed to easy policy.
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Prime minister continues to put new fiscal stimulus into place from the global perspective. Japan is one of the very, very few countries where money and fiscal policy is still very much on the accelerator.
It is the macro stand out that Japan is with the government continuing to be very stimulative. Then the fact that Warren Buffett is buying Japanese stocks. But I think that the key factor is that in Japan, the policy continues to be very easy and very much pro-growth.
NBD: Warren Buffett is buying into five Japanese companies, which signals that Japanese stocks are valuable. Then why they have been overlooked for the past few years?
Jesper Koll: Yeah. If you look at the price-earnings ratio, even now after the strong up move, Japanese companies trade on about 13, 14 times earnings, and about 50 % of Japanese companies trade below the book value. Japan is cheap.
But the most important thing is that you"ve got leading companies, like Sony, like fast retailing, like she said, or now building new factories here in Japan for the first time in 30 years.
NBD: You mentioned that corporate governance reform and capital efficiency improvement of listed companies in Japan are reasons for the stock market rise. Can you explain it?
Jesper Koll: It"s effective that Japanese companies have a lot of cash on their balance sheet, right? How do I use that cash? Do I increase the dividends? Do I do some share buyback? Or do I invest in new companies or new equipment? Finally, the corporate governance, Japanese balance sheets, and corporate balance sheets are very lazy with so much cash on the balance sheet they have. The cash is almost 1. 3 times GDP for example, in China, it"s about 40. 4 %.
NBD: Japan"s economy has been characterized by no investment, or as an equal economy put it. Are we out of that cycle?
Jesper Koll: I think that the cycle will be the positive cycle will be a long one. The reason ultimately is that there"s a lot of catching up that Japan needs to do because for 30 years, Japanese companies did not really invest. So now they are catching up to actually invest.
NBD: So what do you think is the reason that they are now doing the catching up?
Jesper Koll: I think the biggest reason is the generational change that there is.
Now, if you look at the CEO"s age 5 years ago, on average, it was almost 70 years. Now. It is 52 years. There is a new generation, a younger generation, that younger generation is not just focused on cutting costs, but is also focusing on investing in new and better capacity and do it better factories, and new and better technology.
so I generally think that the most important thing is not the geopolitics, not the exchange rate, is not the Bank of Japan, all of that obviously helps and is important.
But the most important thing is a young generation of Japanese.
Now leading the companies and investing in the business by building new factories, and new technology. And also very importantly we didn"t talk about, but also paying there are people paying the engineers more money, mhm.
NBD: Can we say wages went with a general wage rise in Japan?
Jesper Koll: When the richest man, mister and I who is the head of fast retailing unicode? Yeah, and he started the year by saying I will increase my starting salary for young graduates. For university graduates by 40%. Was incredible. It"s incredible.
This was also, you should know, you probably remember it was the first time in 40 in 30 years that they actually increase the salary at all.
So for 30 years, the salary was stable, flank, no growth. But now it goes up by 40 %. That was quite a big signal that indeed the young generation that corporate leaders in Japan are changing.
NBD: So what do you think this physical stability comes from?
Jesper Koll: I think at the end of the day, there are many different reasons. But I think that at the end of the day, it is this generational change. And it"s interesting, right? What is funny? You"re not gonna believe me, but the average age of a Japanese politician is now 54.
In America, it is 65. So this alignment of a young generation being in charge. One in four people is over the age of 70, but this big adjustment has already happened. But finally, the younger generation is allowed to be in charge of the government and in charge of the companies. And that"s a very, very positive thing.
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