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The Middle East is in flames. There is a war in Europe. America is in turmoil. Fortunately, I am in Japan. Here, the cherry blossom season is coming to a gentle end.
The idea that Japan is a haven in troubled times has obviously occurred to a few other people. Jack Ma, the billionaire founder of Alibaba, moved to the country after falling out of favour in his native China. Shortly after arriving in Tokyo, I passed Roman Abramovich — the much-sanctioned Russian oligarch — on a side-street in Omotesando, a fashionable shopping district. (It was just a brief glimpse, but those listless, unshaven features are hard to mistake.)
It is not just billionaires who have decided that, all things considered, Japan looks like a good bet at the moment. The country is currently undergoing a tourist boom — as travellers flock in, attracted by the cheap yen (which recently hit a 34-year low), as well as the food, culture and shopping.
Investors are also taking a fresh look. A visit to Japan by the legendary investor Warren Buffett last year was seen as an endorsement. The Nikkei share index has risen by about 30 per cent over the past 12 months — finally surpassing the level it last reached in 1989, at the height of the bubble years. That symbolic moment has prompted hope that, after 30 years of torpor, the Japanese economy is finally on the move.
The deflation of the Japanese bubble happened around the same time as China was throwing open its doors to foreign investment. Japan’s subsequent 30-year stagnation can be mapped on to the contemporaneous decades-long boom in China — as the irrational exuberance of Tokyo in the 1980s migrated to Hong Kong and Shanghai.
But now, as concerns about the future of China and Hong Kong rise, so the attractions of Japan are coming back into focus. American firms such as Microsoft, Oracle, Micron and Blackstone have all recently increased their investments in Japan. Western executives who currently feel nervous about moving their families to China — or even travelling there — have no such reservations about Japan.
Finding the right workforce remains a problem because Japan’s population is shrinking and ageing — and immigration is low and discouraged. But the country’s technological prowess, industrial base, infrastructure and huge pool of savings remain formidable assets.
This year TSMC, a Taiwanese firm that is the world’s leading semiconductor manufacturer, opened its first plant in Japan and also announced plans to open a second. The Japanese hope to see a resurgence of their semiconductor industry — as they become a key part of a global supply chain that skirts mainland China.
Anxiety about the future of China is also helping Japanese service industries. Two prominent British private schools — Malvern and Rugby — have both recently opened campuses in Japan. Many of their newly enrolled students are likely to come from mainland China. Chinese investors are also increasingly keen on buying property in Tokyo.
But concern about the future of the Chinese economy — and rising geopolitical tensions between Beijing and the west — are not a straightforward plus for Japan. China is also a huge market for Japanese companies. A slowing Chinese economy will mean lower sales. Many Japanese companies regard talk of “decoupling” from China as commercial folly and a threat to their futures.
The Chinese mainland is also a major production base for Japanese firms. If the US and Europe decide to put protectionist barriers in the way of electric vehicles made in China, that would hit Japan’s Nissan, as well as Chinese champions such as BYD.
There are clearly opportunities for Japan in the American-promoted idea of “friendshoring” production among like-minded democracies. But the Japanese also know that the Americans can be capricious — particularly when an election looms. Nippon Steel’s effort to take over US Steel is currently being blocked by the Biden administration.
If Donald Trump returns to the White House next year, the US would probably become even more protectionist and unpredictable. That prospect is now something of an obsession in Tokyo. There is even a single Japanese word, moshitora, that translates as “what if Trump?” — tora also translates as tiger.
If America looks unpredictable and unsettling, China looks downright scary when viewed from Japan. A relentless military build-up over the last 20 years means that Beijing now has the largest navy in the world. Japan and China also have an unsettled territorial dispute — and Chinese ships continue to harass the Japanese around the disputed islands, known as the Senkakus in Japan.
Tokyo’s response has been to increase its defence spending and to draw closer to the US. But among national security specialists, there is a sense of a gathering threat. One official argues that Japan faces a more dangerous environment than any other G7 nation — because it has China, Russia and North Korea as close neighbours.
The Japanese like to say that the cherry blossom is all the more beautiful because it is fleeting. I feel the same way about the current moment in Japan. We should enjoy the country’s status as a haven from the troubles of the world because — sadly — it is unlikely to last for ever.
gideon.rachman@ft.com
Source: Economy - ft.com
