Japan: automatically appealing?

Fri 11 Aug 2017

By Brian Dennehy

Access Level | public

Market commentary


techA recent note from First State Stewart Asia – managers of the First State Japan Focus fund – raised a number of interesting points.  For investors ignoring Japan, it’s worth taking a minute to consider the opportunities. 

First State says:

“The slow pace of change in Japan and the meagre improvements made so far have been a difficult pill to swallow for Abenomics supporters. On top of the lack of reform, there is the ageing population, a deflationary environment and negative interest rates to contend with.”

While Japan is suffering from poor wage growth (in common with most other developed economies) there are positive signs, with the number of applicants per job opening hitting a 25-year high.

And there are plenty of opportunities that lie hidden from most investors.  Many companies in Japan are innovative, developing industry-leading technology, and they are changing the way they do business and becoming more responsive to shareholder interests.  

“This is easily recognised by travellers coming to Japan – not only by the attractions of Japan’s modern cities, such as zero traffic jams, highly-developed infrastructure and a cleanliness far above any other country’s norms – but also by the increasing number of Japanese firms that have shifted the focus to quality driven growth and innovation, away from the quantity-oriented philosophy that once defined the post-war period. Though the changes seem incremental, we believe one should not underestimate the rationality behind incremental change, nor neglect the fact that such increments usually add up to more radical changes in the long run.”

What many onlookers miss is that the Japanese culture is very different to that in Western Europe or the US.  By properly appreciating the difference you can see where Japan can excel and where it will tend to lag.  For instance:

“Japanese companies are particularly good at cumulative rather than radical innovation – a notion which reflects the current positioning of Japanese firms in the value chain: Japanese firms may have lost the smartphone battle (where new models overtake old ones at lightning speed), but they dominate the key component markets (where technology advances on a more incremental basis).

In Japan, a society of deference and adherence to rules, either management quality or an idiosyncratic corporate culture is key to the success or otherwise of a company’s performance and, by extension, its potential investment return…In Japanese culture, employees have other reasons [than cash] to perform well, such as perfectionism, or a sense of mission, or the pursuit of harmony. 

Overall, the Japanese proclivity towards excellence and product obsession, combined with more than two trillion US dollars of cash sitting on companies’ balance sheets, present an appealing investment opportunity.”

Japan’s culture of pursuing excellence may be about to reach a turning point, particularly in the realm of robotics and automation.  As First State point out, it took 30 years for the global stock of industrial robots to reach 1 million, which happened in 2010.  By 2019, this should grow to 2.6 million.

This isn’t just industrial robots but also smaller, collaborative robots (co-bots), designed to work alongside humans.  Their size makes them suitable for small and medium sized businesses.  These robots are becoming smarter, faster learners with ever-improving ability to hear, see and understand.  And Japanese companies are at the forefront of these developments.  

In 2015, the world’s first robot hotel was opened in Japan.  While it may not be 100% automated it’s an exciting prospect, illustrating the depth of Japanese innovation. 

Last but not least, do you ever buy takeaway food? Have a look at this and ponder if the takeaway sub-culture will last.


  • Don’t ignore Japan
  • It has its challenges but also opportunities for long-term investors
  • Consider our Trade of the Decade, still going strong (more here).



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