Media watch: Nothing new in Kishida’s new capitalism

Prime Minister Kishida talking in London (Asahi Shimbun)

The amount of cash that Japanese people keep as savings is legendary. At present, it roughly totals ¥1 quadrillion, an enormous sum and one that many people interpret as being a sign of frugality. Japanese people are averse to risk, and thus are anxious about investing. 

These views have been discussed anew after Prime Minister Fumio Kishida gave a speech in London earlier this month to drum up foreign investment. The gist of Kishida’s speech was that he will actively promote a substantial shift from savings to investment, and thus he encourages foreign businesses to invest in Japan as well. The response in the media has been skepticism, mainly over Kishida’s air of confidence, which was similar in tone to that of a speech given by then Prime Minister Shinzo Abe in 2014 on Wall Street when he asked members of the New York Stock Exchange to “buy my Abenomics.” Kishida simply said, “invest in Kishida,” but the intent was the same: Trust me personally to help you get what you want. 

What Abe was selling wasn’t bought; or, at least, not enough that it made a difference in the long run. In a widely circulated opinion piece, Bloomberg’s Gearoid Reidy pointed out that Abe’s entreaty was “temporarily” a success but eventually “ran out of gas.” Thus, Kishida’s speech is expected to have even less of an effect, especially when you count the fact that the Japanese stock market has lost 2.4 percent of its value in the meantime. Nevertheless, Reidy is relatively bullish on Japan as a haven for investment for various reasons, including the liberalization of financial services, “healthy banks,” the decline of China as an investment destination, the weak yen, and the country’s relative success in limiting the harmful effects of the COVID pandemic.

Local media seem more pessimistic, but not necessarily because they think Kishida himself is ineffective, which, in essence, goes without saying. Their main point of contention is Kishida’s focus on that enormous savings pool, which they don’t think he properly understands. The market already assumed he doesn’t understand since it also dropped significantly last fall after he was elected president of the ruling Liberal Democratic Party, thus making him prime minister. As pointed out in an article he wrote for the May 13 edition of Business Insider, chief market economist for Mizuho Bank, Daisuke Karakama, this market correction was quickly dubbed the “Kishida shock” by the media, and likely it prompted the new premier to come up with a plan (or, more likely, to get bureaucrats to come up with a plan) that would show he was working toward getting Japan back on the growth track, and the easiest means for doing that would be to target all the cash that was so famously “sleeping” in bank accounts. Some commentators, such as Yuko Shimizu on the popular YouTube talk show “Hitotsuki Mansatsu,” cynically saw Kishida’s speech as a gambit to push up the stock market ahead of the Upper House election this summer, but if that’s true then it failed spectacularly. Karakama thinks differently, seeing Kishida’s speech as something that sounded dramatic but was nevertheless sincere.

The dramatic part is that Kishida thinks that if Japanese people parlay their savings into investments their assets will double. Since Kishida did not outline in detail how this would be accomplished, Karakama doesn’t see it happening, especially without a time frame. As a way of showing the potential for growth that this saving represents, Kishida mentioned that over the past 10 years, American household assets have tripled, while those in the UK have increased 2.3-fold, but in Japan they’ve only increased 1.4 times. In order to tap this potential and increase the growth factor to 2.0 he would fiddle with capital gains taxes (without mentioning a previously announced plan to increase capital gains taxes, which would seem to defeat the aim of encouraging new investment in stocks and mutual funds), as well as implement policies that spur wage increases (regulate the buying back of own shares by companies; prioritize stakeholders over shareholders). As it stands, 53.6 percent of Japanese savings is in cash, while 10.5 percent is in financial instruments like stocks. This ratio, Karakama explains, has remained the same for several decades, so Kishida has his work cut out for him. Moreover, even if more people do start to invest, it isn’t guaranteed that the money won’t go overseas. Lots of Japanese people who already invest have foreign bank accounts and purchase foreign stocks and bonds, which requires buying foreign currency, thus further pushing down the value of the yen, which is already extremely low. Will foreign investors see such a trend as “growth-oriented”? And what about the Bank of Japan’s monetary policy, which relies heavily on all that cash savings that banks use to buy Japan Government Bonds? If the government couldn’t sell bonds to buy stocks, what would happen?

The other important variable, as Reidy pointed out, is all those old people and Japan’s extremely limited future in the eyes of Elon Musk, who predicts that if Japan’s birth rate continues apace, it will cease to exist someday. The elderly make up a considerable portion of the population, and what money they have right now they need to hold onto, especially in the current economic environment, where risk seems even riskier. Old people don’t trust the Japanese economy. “If there were genuinely promising opportunities,” writes Karakama, “the elderly wouldn’t need instructions from the government to shift their savings into investments.” 

These concerns were presented more prosaically during a Q&A session in the Diet prompted by Japan Communist Party lawmaker Mikishi Daimon on May 10. Daimon asked representatives of the Financial Services Agency what exactly Kishida meant in his speech when he said Japanese investors could double their money. He wanted a simple explanation of how such a miracle would come about, and the representative passed the buck by saying it was something the Cabinet came up with to “create an environment” where “even lower income people” could invest easily to ensure a comfortable life in their old age. 

Daimon demanded specifics, and when the JSA bureaucrat talked about increased dividends and capital gains, Daimon replied, “The prime minister went all the way to London to say that?” He asked the Minister of Finance, Shunichi Suzuki, if he knew about the content of Kishida’s speech beforehand, and Suzuki admitted that he hadn’t. So it was off the top of his head? asked Daimon, and Suzuki said that was probably right. 

So Daimon endeavored to enlighten the JSA and the finance minister about how investments work. If one assumes that an average portfolio returns 3 percent a year in capital gains and dividends, it would take 20 years to double the principal. As Kishida pointed out in his speech, over the past 10 years average Japanese household financial assets have not increased at the same rate as those in the US and UK. And why is that? Could it be that in the US only 14.6 percent of the population is over 65 while in Japan the portion is 26.6 percent? A basic economic truism is that older people shouldn’t be expected to carry long-term risk.

Daimon’s point was that Kishida’s speech was rhetorically meaningless. Or maybe it just revealed his general ignorance of Japan’s economic situation and how it arrived there. 

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