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“Investing in Kishida”? Japan must convince Elon Musk first

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“You can invest in Japan with confidence,” Fumio Kishida, the country’s prime minister, told an international audience in the City of London last week in a speech in Japanese, adding a three-word statement in English almost like an exclamation mark: “Invest in Kishida.”

The call seemed a throwback to another Japanese leader’s speech – Shinzo Abe’s 2013 call to the New York Stock Exchange for investors to “Buy my Abenomics!” Abe’s rallying cry was, at least temporarily, a success. Foreign money poured in during the first years of his premiership as investors bought into his narrative that Japan was back.

This story did not last because Abenomics ran out of gas. Only time will tell if Kishida will be more successful, although markets have so far paid little heed, with the Nikkei 225 having fallen 2.4% since his speech amid a global market rout . But a comment from the world’s richest man days after Kishida’s shows why the prime minister needs more than just a slogan to persuade investors of Japan’s long-term growth prospects.

“Unless something changes so that the birth rate exceeds the death rate, Japan will eventually cease to exist,” Elon Musk warned on Sunday, tweeting a response to an article about the 11th consecutive year of decline. population in Japan.

Musk, who has previously worried about the risks of a global “population collapse,” might be exaggerating. But his tweet has sparked a debate in Japan as it adds to a narrative that bothers the country: that of a graying nation becoming insignificant. Given that Musk is something of a Japanophile — he got a Shiba inu puppy last year and references Japanese pop culture in his tweets — Kishida will have a hard time convincing less Japanese investors of the country’s merits.

Japanese markets tend to gain significantly only when investors have a compelling narrative to back them up. Junichiro Koizumi’s reform run in the early 2000s is an example; Abenomics other. Kishida needs one of his own.

“Investing in Kishida” might be a tough sell. First, many are rightly worried about its long-term presence. His predecessor, Yoshihide Suga, only lasted a year before becoming the last of Japan’s short-lived rulers. “Is it worth remembering the name of the new Japanese Prime Minister or will he be replaced in 3 to 6 months?” the Fintwit Zerohedge account asked when Kishida was elected leader last year, summing up the contempt many have for a country where returns have long been thought to die.

Such contempt, however, is misplaced. Even after the glory years of Abenomics ended, profits continued to rise along with shareholder payouts. Corporate governance reforms triggered by Abe have facilitated mergers and acquisitions. The country’s startups, which Kishida also backs with voice, are attracting growing interest from foreign heavyweights. Private equity is optimistic about the country’s prospects. Banks are healthy. Money is still cheap. And the country has withstood the pandemic better than most other countries without ever resorting to containment.

Indeed, conditions seem better for Kishida to attract foreign investment than they were for Abe. In 2013, Abe was viewed with suspicion by many wary of his disastrous first term as leader and misplaced concerns about remilitarization. And the yen had just broken records. Indeed, Chinese President Xi Jinping has been seen in a better light, always one to be invited for pints at the British Prime Minister’s local pub.

A decade later, China looks like a much riskier investment destination. Bankers fled Hong Kong as its reputation as an international financial center took a bruise. Shanghai’s Covid lockdowns have given expats first-hand reminders of what life in an authoritarian state is like. Although Kishida did not directly invoke China in his speech, the repeated references to Japan’s “stability” and its “openness to the world” clearly highlighted the contrast.

The weak yen should make investing in Japan and its businesses look cheap. And when it comes to Musk’s demographic concerns, Japan is far from the only one – simply the favorite. Its fertility rate, although below replacement level, is still higher than that of Italy, Spain or the current pop culture haven of South Korea, the lowest in the world. .

And yet, perhaps Tesla Inc. itself is telling a story. While the automaker initially partnered with Panasonic Holdings Corp. to source batteries for its cars, the Chinese Contemporary Amperex Technology Co. Ltd. has long since surpassed it, becoming the world’s largest manufacturer of batteries for electric vehicles. Unlike Shanghai, Japan is not home to any Tesla gigafactories, while sales of its cars in the country remain relatively tiny.

Investors are unlikely to be convinced by a call to invest in a prime minister whose name they don’t seem to bother to remember. Things haven’t been helped by the fact that Japan’s borders have been closed for most of the past two years. Getting into the country is still a problem.

Abe has found a simple way to sell his vision with his “three arrows” of Abenomics. Kishida’s signature politics, which he calls his “new form of capitalism”, is difficult for even locals to understand. Explaining this took 2,500 words of his speech at Guildhall last week, his first real attempt to introduce the concept overseas.

Kishida, however, made some of the good noises. He outlined a longstanding goal of Japanese leaders to shift household assets from cash to investments, but also offered plans to expand tax-exempt accounts. Its targets for increasing R&D spending and business investment are on track.

But this can only be a start. Kishida must change international perceptions. Investors want promises of structural reforms and productivity gains, which Kishida’s main rival for LDP leader Taro Kono last year seemed to be delivering. These promises must then be confirmed.

Ultimately, it’s the Elon Musks of this world that Kishida has to convince of Japan’s growth story. But that’s going to take more than a speech and an average slogan.

More from this writer and others on Bloomberg Opinion:

Ukraine becomes a wake-up call in faraway Japan: Gearoid Reidy

Rise Is Grounds for Outrage by Marcos Jr. But Hold the Shock: Daniel Moss

The West has forgotten the islands of the Pacific. China didn’t: Ruth Pollard

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg News editor covering Japan. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.

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