The Year Ahead 2024: Forecasts and Surprises

Ten twists and turns that could make for an interesting Year of the Dragon.

Forecasting is both an art and a science. Quantitative forecasts are based on probability models that cannot escape the assumption that the future will be a replay of the past. Qualitative predictions are based on a combination of experience and intuition. Like a beautiful Bach sonata, the former follows a predictable logic. Like an inspired jazz solo, the latter delivers a genuine surprise that you did not expect but cannot live without once you’ve heard it. The only certainty we have is that 2024 will bring both—existing trends evolving and genuine surprises.

I wish a happy, prosperous, and healthy New Year to you! And now here are my forecasts and possible surprises for 2024:

1. Japan’s inflation and growth outpace the United States.

We will see a full decoupling of the US–Japan business cycle in 2024 as America faces a sharp slowdown due to the 2023 US rate hikes cutting down both consumption and capital expenditure. In contrast, Japan’s economy will stay surprisingly strong, as neither the Bank of Japan nor the Ministry of Finance tighten.

2. Japan’s M&A boom goes global.

With the US recession creating opportunities to buy US companies and assets at significant discounts, Japan’s merger and acquisition activity will expand. Surprise: a major Japanese financial institution will buy a US bank, insurer, or payments company.

3. Japan’s MBO/LBO boom accelerates.

Spurred by pressure from shareholders and stock exchange, as well as low debt financing costs, management buyouts and leveraged buyouts will continue. Surprise: 2024 may be the first year when more companies go private and delist from the stock market than new startups going public and listing via IPOs.

4. Japanese CEOs step out of their comfort zone.

Rather than just relying on in-house R&D teams, Japanese CEOs will start to buy startups for future growth. One reason for US corporate dynamism is the aggressive use of “outside” innovation to supplement, improve, or disrupt “inside” businesses. Ninety percent of US startup exits are acquisitions, while in Japan, 90 percent are IPOs. Mark my words: Japan’s new generation of CEOs are taking risks and are not afraid to try and make 1 + 1 = 3 … or 4.

5. Japan’s corporate governance goes global.

So far, Japan’s corporate governance reform has been one-way, importing US “best practices” into Japanese boardrooms. A Japanese CEO appointed to a Wall Street firm’s board would be proof that Japanese governance has truly become world class. A positive surprise, yes. But if US multinationals are serious about multi-stakeholder governance, there is much to learn from Japan’s corporate leaders.

6. Japan launches its own Defense Advanced Research Project Agency.

Rising defense spending demands a fundamental rethinking of collaboration among universities, scientists, private enterprise, and public policy. Without fundamental change, the risk is that high defense spending will bring little or no positive benefit to Japan’s global competitiveness or domestic economy. The sooner Japan’s elite can agree on the rules and institutional governance for dual-use technologies and their scalable commercialization, the greater the certainty of both private and public spending on defense yielding positive multipliers.

7. Japan deregulates home-helper visas.

The combined problems of a growing labor shortage, a falling birthrate, and more Japanese women aspiring to professional careers cannot be solved without outside help for families. A very positive surprise would be if Japan followed the Hong Kong and Singapore model. There, professional couples can sponsor home helpers, with proper supervision and governance by local authorities. This is a pragmatic solution to reverse the declining birthrate and to reduce the runaway costs for public social and medical support for children and the elderly.

8. China synthetic biology moonshot delivers domestic food security.

China is the world’s largest importer of food. Dependence on the global food supply is the single biggest challenge for China’s leaders. Public and private investment in synthetic biology and the development of lab-grown and tech-assisted food is huge. The question is not if, but when, a supermassive scale-up solution will be announced by China’s biotech leaders. A science-based breakthrough on food-security for China—and thus the world—would supersize China’s credentials as the rightful global leader she aspires to become.

9. Elections shift alliances.

While all eyes are on the 2024 US presidential election in November, the vote in India in April or May could bring a big negative surprise. If Prime Minister Narendra Modi loses reelection, the impact could be far-reaching—not just for the Quad alliance comprising Japan, the United States, Australia, and India, but also the leadership of the emerging alliances around the Global South.

10. Germany wins Euro 2024.

Sunday, July 14, will bring the final of the UEFA European Football Championship. I am German, so naturally, I support Team Germany. But they have been playing shockingly poorly, and their performance has only gotten worse after they lost to Japan in the 2022 World Cup. So, the biggest positive surprise for me in 2024 would be Germany actually winning the Euro 2024 championship—especially since the final is played on the French national holiday, Bastille Day.

A Matter of Demographics

Connecting four megatrends that will shape Japan’s future.

Yes, Warren Buffett had already started buying Japanese companies two years earlier, but it was in 2023 that the global mainstream followed. The combination of cheap yen, geostrategic realities, and a newfound can-do attitude among domestic leaders has put Japan back in play as a global contender. Leaders in finance, industry, and innovation around the world are now pressed by their boards to develop concrete Japan strategies. Yokoso! Welcome back! What took you so long?

This Time Is Different

Before we get too carried away by the current Japan hype, let me outline some key forces that, in my view, will work to create sustainable Japan opportunities over the next decades, for both global and domestic companies. Here are the four Japan megatrends you and your corporate strategy must seek to exploit.

1. Demographics Forces Industrial Consolidation

Japan has about 3.6 million companies, 2.5 million of which are owned and run by founders who will be over 70 years old next year. Of these, 1.6 million do not have a successor, a son or daughter interested in taking over.

This demographic reality has unleashed a growing tsunami of mergers and acquisitions (M&As). Businesses that were never for sale are now up for grabs. Your chances of partnering with or buying a Japanese company have never been better. The M&A wave will get bigger. Roll-ups and industrial consolidation will create unprecedented opportunities for global players to raise their market share and profit from increased economies of scale.

2. Freeing Up Household Wealth

Japanese households have accumulated some $30 trillion of wealth. About $20 trillion of this is in financial assets. The remaining $10 trillion is stashed away as tansu yokin, the famous mattress money.

Again, demographics is key to unlocking real structural change. About $12 trillion of these household financial assets are owned by people aged over 70.

This means $5 or 6 trillion—or 1.3 to 1.5 times Japan’s current gross domestic product—will become unfrozen over the next decade. Even after inheritance tax, this implies a significant boost to the purchasing power of Japan’s younger generation.

Make no mistake: the legacy of the legendarily high savings rate of Japan’s baby boomers will significantly boost next-generation purchasing power. Most economic forecasts completely ignore this wealth transfer effect, thus underestimating the potential growth in domestic demand.

3. From Seniority-based to Merit-based Pay

The war for talent is intensifying and will only get worse. Japan’s young generation feels its power, and the tables have turned. Graduates are no longer begging for jobs. Companies are begging increasingly scarce graduates to join. And retention of employees is becoming tough. According to several studies, as many as one in five University of Tokyo graduates now quit their initial employer within the first five years.

Importantly, employees don’t just want higher pay. They also seek greater responsibility and impact. If you joined a top Keidanren company in the 1960s, it took on average 13 years for you to become the general manager. Today it takes 24 years.

Companies which inspire and empower their employees will pull away from those that insist on the old ways. Labor mobility will surge, and companies that offer genuine and transparent career planning and merit-based compensation are poised to move ahead. Here, global companies still have a lead, but as local Japanese companies adapt, the war for talent—and thus the need for increasingly creative leadership—will intensify. The net result? Productivity will surge, and so will employee incomes—yet another reason why standard economic forecasts are too pessimistic on domestic demand.

4. Open-Door Japan

Japan will become an immigration powerhouse. Before the pandemic, the country was on track to accept about 150,000 new non-Japanese employees per year. This more than doubled to almost 350,000 in the first half of 2023. There are now approximately 3.2 million non-Japanese residents of Japan, up from barely half a million 30 years ago. Visa and permanent-residency requirements continue to ease. Most importantly, the biggest obstacle to employing non-Japanese talent—seniority-based rather than merit-based compensation—is beginning to change. All said, it is now perfectly reasonable to expect that about 10 percent of employees will be non-Japanese by 2030. That’s more than double the current rate of just below four percent.

Common Theme

Underlying these four Japan megatrends is demographics. Far from being a negative—fewer people must equal lower consumption—Japan’s demographics will turn out to be a catalyst for positive change.

• Industries will consolidate, thus allowing greater efficiencies and economies of scale.
• The mattress-money wealth of Japanese households will be freed and reenter economic circulation.
• Increasingly scarce labor will be empowered and gain purchasing power.
• And global talent will build careers and make their fortunes here in Japan.

Importantly, all these forces represent real structural change that will remain in place for the foreseeable future.

Predictable. Reliable. Full of opportunity.

Welcome back, Japan.

Bridging Nations

On 75 years of shaping US–Japan business relations and our evolving role.

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The 75th anniversary of the American Chamber of Commerce in Japan (ACCJ) is an important time to reflect on all we’ve accomplished, how far we’ve come, and how much more there is to achieve.

The ACCJ was founded in 1948 by 40 companies. Today, the chamber comprises nearly 600 companies and 3,100 members.

The mandate 75 years ago was clear: to further commerce between the United States and Japan, to support Japan’s economic recovery following World War II, and to improve the international business environment in Japan. Today, the two nations have one of the world’s most important alliances. Based on shared values, the bilateral relationship is the cornerstone of peace and stability in the Indo–Pacific region.

As we find ourselves in a much more complex world—one that is changing rapidly—the ACCJ must be agile and adapt if we are to continue serving our purpose and our members.

State of the Chamber

Over the past year, through strong advocacy and high-caliber speaker and networking events, the ACCJ has proven why it is known as the voice of global business in Japan. This is a tribute to all the contributions of our members, who are the lifeblood of the chamber and drive its activities.

We’ve made significant progress on the four priorities tied to the ACCJ core pillars that I outlined at the start of the year:

• Maximize advocacy impact
• Increase in-person networking
• Improve committee efficiency
• Deepen community service

We’ve seen great strides in key advocacy areas: strengthening the US–Japan security and economic partnership, digital transformation, and promoting diverse talent, including marriage equality in Japan.

Our many engagements with US and Japanese government officials—including during both the DC and Diet Doorknocks—highlighted how policymakers trust the ACCJ as a resource on US and international business issues in Japan. We’ve strengthened relations with stakeholders across both sides of the Pacific and continue to make our positions heard on key issues impacting US–Japan relations.

Act Fast and Be Decisive

As I mentioned, the world is changing and the ACCJ must continuously improve itself to remain effective. I started my career as a fighter pilot, and the key to winning in aerial combat is to make decisions in an ever-changing environment. We called it the OODA loop—observe, orient, decide, act. The pilot with the faster cycle was usually the winner. The same applies to business and the chamber.

The US–Japan relationship is at its highest point ever. Good times like this present the best opportunities to get the most done and have the difficult conversations, and the ACCJ and our members have a critical and relevant role to play.

This year also marks the end of my presidency. I thank all my fellow board members, committee leaders, and ACCJ members for their contributions and support. Personally, and professionally, it has been a privilege to work alongside you. I learned so much from our members and made many friends.

I’m honored to pass the reins to Victor Osumi. I know he will do an amazing job as your next ACCJ president.

I strongly encourage more members—especially our newest members—to participate and get involved. We need your passion, expertise, and voice to continue effecting much-needed change.

Seven-and-a-half decades after its founding, the chamber continues to thrive and grow, and I’m confident that, whatever challenges lie ahead, all of you will advance our strong 75-year legacy and further enhance the US–Japan business environment as well as our alliance and friendship.

I wish you all a safe, healthy, and prosperous New Year, and look forward to participating in the ACCJ’s success in the future!

In Praise of the Salaryman CEO

Japanese corporate leaders are much better than their reputation.

They are not really part of the global Davos jet set. They don’t fly around the world in their private jets. Many still proudly print the office fax number on their business cards. And in the age of the short quip, they lack a strong (or any) presence on social media. They even very much prefer to stay silent in investor-relations or press meetings.

But if you’re looking for extraordinary resilience and all-around competence to get the job done, Japan’s salaryman CEOs and their teams actually have a very impressive track record.

In fact, the data strongly suggests Japanese salaryman CEOs have absolutely nothing to be ashamed of in comparison with the superstar CEOs of Wall Street.

Decades of Growth

Since 1995, Japanese listed companies have seen their top-line sales basically stagnate, up a mere 1.1 times in 2022 from their 1995 level. But there was a whopping 11-fold surge in profits over the same period.

Anyone who has ever invested in or run a business knows how impossibly difficult it is to grow profits without the tailwinds of rising top-line sales. For one year, maybe. But for 30 years? Clearly, Japanese salaryman CEOs must have done something right.

Meanwhile, since 1995, superstar CEOs in the United States delivered a 6-fold increase in profits, generated by a tailwind of top-line sales rising 3 times. Of course, the Wall Street superstar CEOs deserve to be proud of having delivered such profits over the past 27 years. But compared with the 11-fold surge produced by Japan’s salaryman CEOs, the US superstar performance looks rather unimpressive—particularly since the salaryman CEOs got no tailwinds from rising sales. No wonder Warren Buffet is impressed by Japan’s Wall Street counterparts.

Pay for Performance

Interestingly, the impressive performance of Japanese salaryman CEOs has been reflected in their compensation. Since 1990, pay for the top CEOs has almost tripled. So, there is pay for performance in Japan for CEOs—profits up 11 times, compensation up a more modest 3 times, but still in sync with performance.

Meanwhile, in the United States, the link between corporate performance and CEO compensation is much tighter. CEO compensation has mirrored the rise in profits, both basically marking a 6-fold jump since 1990.

The biggest difference between the salaryman CEO and the superstar CEO is, of course, the absolute gap in compensation for the chief executive position relative to average employee pay. In Japan, this is now just about 12 times on average, with the top 50 CEOs making 50 times.

On Wall Street, it’s a different world altogether; the average annual salary of a CEO now is just under 400 times that of their average employee.

Put another way, a Wall Street CEO earns in one day what one of their employees earns in a year. But in Japan, it takes the 50 highest-paid CEOs about a week, and the average CEO a month to bring in what their staffers make in one year.

Don’t get me wrong. This piece is not about whether US-style or Japanese-style corporate leadership is better. It is about highlighting some of the actual performance indicators and, most importantly, demonstrating that Japanese corporate leaders did in fact deliver what had been asked of them. They focused on profits, profits, profits.

Future Focus

So why was this tremendous achievement by salaryman CEOs not reflected in higher share prices? Unfortunately, the answer is very simple: salaryman CEOs did not invest in their businesses. Since 1995, the capital expenditure (capex) of listed companies in Japan has declined by more than 10 percent. In contrast, capex for US listed companies has surged by more than 150 percent over the same period.

Also, Wall Street CEOs raised their employees’ compensation by about 90 percent since 1995, while Japan’s salaryman CEOs actually managed to decrease employee compensation almost 25 percent over the same time frame.

“Since 1995, Japanese listed companies have seen their top-line sales basically stagnate, up a mere 1.1 times in 2022 from their 1995 level. But there was a whopping 11-fold surge in profits over the same period.”

Make no mistake: share prices reflect potential returns on future corporate performance, and dreaming about future performance is basically impossible without corporate leaders investing in both human and productive capital.

The good news is that there’s absolutely no reason that salaryman CEOs cannot become great investors in their companies. In my view, because there has been a change in three parameters—human capital, technology access, and economic security—a capex and investment super-cycle is on the horizon in Japan.

A labor shortage and war for talent are forcing a complete rethink of human-capital deployment. One result is rising wages, but more important will be the growing focus on pay for performance and a shift towards genuine career development, i.e., a break with the lazy pay-for-seniority culture.

As workers grow increasingly scarce, machines and artificial intelligence will be deployed more broadly.

Ironically, the previous reluctance of salaryman CEOs to invest in better IT may turn into a classic backwardness advantage. If you’ve never embraced cloud computing, you now can go straight from hanko to blockchain. Japan’s DX protocol has a good chance of becoming best in class in the same way shinkansen bullet train technology set the global standard for high-speed railways.

National economic security and changing geopolitical realities will force new investment in supply chains and production facilities, as well as research and development centers.

Japan should be proud of its salaryman CEOs. For the past 30 years, the focus has been on growing profits by cutting excess costs (and debt), which has delivered in impressive ways. Now, the goals have been reset. You must invest and accelerate the growth of your business. Like Warren Buffet, I have no doubt they can deliver.

Equal and Secure

Charting a path to a diverse, digital future.

The ACCJ Board of Governors gathered for their November meeting in Nagoya on November 18 prior to the ACCJ/TJCS Champagne Ball.

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The May meeting of G7 leaders in Hiroshima has focused efforts across the American Chamber of Commerce in Japan (ACCJ) to ensure that our voice is heard—and the importance of the chamber reinforced—as Japan and the United States work to coordinate critical policies.

Of particular importance are all matters digital. For Japan, digital transformation has become a core part of the government’s push to prepare the country for a prosperous future. The ACCJ is dedicated to being a leading voice and partner, representing the global business community, and I am pleased that the Board of Governors confirmed our new Digital Forum in April.

Led by Chair Mitsuhiko Ida, and Vice-Chairs Scott Warren and Kristopher Tate, the forum will enhance the coordination of the chamber’s array of digital committees. As a central hub from which to promote policies and advocacy with one voice, the Digital Forum will no doubt boost our effectiveness in addressing key digital issues in the US–Japan partnership, keeping us at the center of the action.

Equality for All

Also high on our priority list are LGBTQ+ rights. Just before this year’s Tokyo Rainbow Pride event, held in Yoyogi Park April 22–23, the ACCJ issued an open letter calling on the Government of Japan to join its G7 peers in legalizing marriage equality and enacting anti-discrimination protections.

It is vital for the government to bring these protections in line with those of other G7 nations to bolster Japan’s ability to attract global talent, further economic potential, and create a more inclusive living and working environment.

Diversity truly is key to business success, and we were honored to celebrate the completion of the Women in Business Committee’s Transforming Ourselves Together: A 2x4x4 Formula series with US Ambassador to Japan Rahm Emanuel and more than 200 members and guests at Tokyo American Club on April 11. Programs such as this are critical to developing champions of diverse leadership. They also encourage workplace policy changes that benefit all employees and attract a more diverse workforce that will contribute new innovations and ideas that positively impact society.

Economic Security

Also critical to a prosperous society are free trade and economic growth, and the US–Japan bilateral partnership is key to driving regional collaboration on these issues in the Indo–Pacific region and beyond.

Through our relationship with both governments, the ACCJ continues to focus on our core advocacy area of enhancing economic security as the foundation for flourishing business.

In particular, we must deepen collaboration in the promotion of digital infrastructure development. At the heart of this is the need for enhanced cybersecurity within Japan’s critical industries. With underinvestment in this area now being addressed, there are greatly increased prospects for more US–Japan cooperation that we, as a chamber, need to be at the center of.

I, along with the ACCJ Task Force on Economic Security, specifically discussed the issue of security clearance classifications with Minister of State for Economic Security Sanae Takaichi on April 19. We look forward to continuing this dialogue and engaging with the Government of Japan to further strengthen the US–Japan partnership on key issues related to economic security as we step together into a digital future.

Finally, I’d like to thank each of you for all your contributions to the ACCJ. Together we have made great strides this year. I look forward to seeing you in person around the many activities of the chamber.

Committee Matters

Together we can harness the energy of 2022 and advance ACCJ advocacy

The ACCJ Board of Governors gathered for their November meeting in Nagoya on November 18 prior to the ACCJ/TJCS Champagne Ball.

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Looking back at 2022, it was a year of great progress for the American Chamber of Commerce in Japan (ACCJ). I was honored to represent you as president and am humbled to have been reelected for a second term. This year, I look forward to building on our progress, harnessing the energy of our members and leaders who so generously share their time and expertise.

At the heart of all we do are committees. They are the lifeblood of the ACCJ. As I began my first term, I met with each committee leader. That was time well spent, as I learned where the action happens and saw firsthand where our energy emerges.

I learned your challenges. It was also a good reminder that all of us who serve on the Board of Governors must represent all members as our primary mission. What better way to do so than to have firsthand contact with the committee leaders? That is why we established the committee liaison program.

One ACCJ

The Board of Governors also took to heart building bonds of friendship across the entire chamber. Our board meetings have typically been in Tokyo, but the Chubu and Kansai chapters are key parts of the chamber and where a lot of critical business activity occurs. To strengthen our One ACCJ family, this year we also held meetings in Nagoya and Kobe.

As a board, we focused on transparency—transparency into what we discussed at board meetings and how decisions are made. To that end, I’ve enjoyed delivering video updates immediately after each meeting.

We also made changes to the Constitution to allow members easier access to the minutes.

Government Engagement

Our advocacy efforts with US and Japanese government officials often result in the greatest value the chamber brings to all its members. Unfortunately, the pandemic forced these interactions to become virtual. Resuming and reinvigorating these engagements in person was another highlight of 2022. We had more than 85 meetings with the Government of Japan, including a Diet Doorknock. We also took a delegation to Washington in June for our critical DC Doorknock after a two-year hiatus. It made quite a difference to have eye-to-eye contact and person-to-person conversations.

It was an honor to be in the room with US President Joe Biden and Japanese Prime Minister Fumio Kishida for the launch of the Indo-Pacific Economic Framework (IPEF) on May 23, but more importantly it highlights what an important voice of US business we represent to Japan and the United States.

Looking Ahead

There are big events on the horizon, with Japan hosting the G7 Summit in May. The ongoing rollout of IPEF and the continued focus on economic security will also be front and center this year. I look forward to an exciting year ahead as we continue to build connections, engage with government, and help US businesses thrive. I encourage everyone to harness the energy we built up in 2022 and take the ACCJ to new heights in 2023.

On a personal note, one of the best parts of 2022 was getting out there and meeting all of you in person at our networking forums, at the Charity Ball and Champagne Ball, and at our numerous other in person gatherings. I look forward to building more mutual energy with each of you in the coming year!

Out on the Town Once Again

Live sports and in-person gatherings bring back a sense of normalcy

The scoreboard in Aoyama Gakuin Memorial Hall read 95–94 with 0.5 seconds remaining. The visitors had the lead. After a hard-fought game, it seemed that the Sunrockers Shibuya of Japan’s pro basketball B.League would fall a point short. The crowd cheered and then held its collective breath as a quick pass and a long three-point shot whooshed through the net and sent the Ibaraki Robots home with a 97–95 loss.

It was an exciting way to spend a Sunday in late November, and a reminder to me that life was starting to return to normal. Having spent most of the past three years in my countryside studio, peering through a screen to talk to friends and colleagues—and to watch sports—it was refreshing to take in a game in person.

It was also a chance for me to meet one of our new American Chamber of Commerce in Japan (ACCJ) company members, Sunrockers, Ltd., who joined the chamber in September. They provided courtside seats as part of the ACCJ’s Member to Member Offers and put us so close to the action that I even caught a stray ball!

Chamber events have also added to the feeling of normality. The ACCJ Charity Ball returned to its in-person format at the Hilton Tokyo in Shinjuku, where the Charity Ball Committee put together a spectacular Chicago-themed bash. It’s clear from the photos that all who attended had a blast, including US Ambassador to Japan Rahm Emanuel, a Chicago native.

January brings us the ACCJ Shinnenkai at the Imperial Hotel for the first time since 2020. I remember that last gathering on January 29 and the energy that filled the room as we did not yet know of the pandemic that would soon come. It will be wonderful to properly kick off a new year together once again! The Kansai chapter will host their Shinnenkai in person for the first time in three years as well.

And perhaps the biggest sign that we’re getting back to normal is the number of people traveling again, in and out of Japan, heading home to see loved ones, and arriving to do business. It took a long time and a lot of effort to get to the point where Japan’s borders reopened, but the benefits are already being felt. We look back at that journey, and to the path ahead, in our cover story. Here’s to a happy, prosperous, and healthy 2023!

Japan Surprises 2023

Ten twists and turns that could make for an interesting Year of the Rabbit

Surprises are the spice of life that make us perk up and challenge our baseline assumptions. And what better time to sprinkle them on than the start of a new year? Of course, there will always be a surprise or two, but here is my annual list of possible surprises that could add up to a heaping load for Japan in 2023. Whichever may come to be, I wish a happy, healthy, and prosperous new year to all!

1. Growth of Japan’s gross domestic product (GDP) outperforms that of the United States, Europe … and China.

It has been more than 30 years since Japan’s economy last outperformed that of the United States and the Europe Union, so it would be a real surprise if Japan climbs back up this year to become the top G7 growth performer.

Chances are better than ever. While both the United States and the EU poised to be pulled towards recession by the combined effects of rising interest rates and high inflation, Japan has kept interest rates stable and boosted fiscal spending while private business investment has been accelerating. Thus, outgrowing the United States and the EU should be easy. And if, as I suspect, Japan’s consumers open their wallets after three years of austerity, the country’s GDP could even outperform China’s in 2023.

2. The Bank of Japan (BOJ) maintains zero rates, but the Ministry of Finance insists on raising taxes.

By April, the BOJ will have a new governor. Many expect the new leader will, perhaps sooner rather than later, end Japan’s extraordinary monetary policy. Of course, the BOJ will only change policy and step on the monetary brakes if the economy needs slowing down. A real shock would be if the Ministry of Finance insists that the policy braking must come via tighter fiscal policy in general and higher taxes in particular. In Japan, fiscal policy priorities tend to dominate monetary ones, no matter who runs the central bank.

3. Keidanren promotes pay-for-performance compensation.

For the past six years, prime ministers have been lobbying Japanese business leaders to increase wages. A positive surprise would be if the country’s biggest business lobby, Keidanren, agrees not only to a three-percent hike in base pay for 2023 but, more importantly, endorses a push for a structural change in Japanese employment culture: merit-based compensation where possible.

Business leaders agreeing to a simple rise in base pay for workers would be good for one year only. Business leaders pushing for reform of employee incentives, however, would create credible prospects for multi-year, productivity-led growth.

4. Prime Minister Fumio Kishida loses a vote of no confidence, calls a snap election.

In politics, Japan is a bastion of stability. In many ways, Kishida appears so much better off than most of his democratically elected peers. His Liberal Democratic Party (LDP) has a de facto supermajority in the Diet and he faces no national election until 2025. A surprise would be if Kishida were forced to call a snap election in 2023. Typically, prime ministers exercise their power to dissolve the Diet for one of three reasons:

• They are riding high in the polls and think they can gain even more seats for the LDP
• They are threatened by a revolt from within and need to keep party members in line
• They want to minimize losses as the opposition begins to capitalize on growing voter dissatisfaction with LDP rule

For Kishida, the time of maximum pressure is poised to be right after he hosts global leaders at the Hiroshima G7 Summit in mid-May. If this event does not deliver the expected bounce in his popularity, he may well be forced to take dramatic action to keep his party in line.

5. Young LDP leaders promote the abolition of the inheritance tax.

Over the coming 15 years, an estimated ¥500–750 trillion of household wealth will become unstuck due to inheritance. That’s 1–1.5 times GDP. Much of this will be used to pay down the national debt.

At more than 50 percent, Japan’s inheritance tax rates are famously high. While this makes the accountants happy, it does not create growth nor does it drive investments in future prosperity. A long-overdue, positive surprise would be if Japan’s next-generation leaders started to demand reform of the inheritance tax.

Japan could take a clue from the otherwise much-admired Nordics. Recently, Sweden cut its inheritance tax to zero and Denmark dropped its to 15 percent—policies promoting ways to channel the accumulated wealth of the baby boomers into future investments. Now that’s worthy of being called New Capitalism.

6. Japan wins major global defense contract.

Japanese national security policy made a clear turn in 2022, and the defense budget will be more than doubled, from one to two percent of GDP. A real surprise would be if, on top of increased defense spending, Japan won a major global defense contract. The greater the evidence that Japan’s spending on national security is actually an investment in global competitiveness, the happier taxpayers and investors will be.

7. Japan corporate governance goes global, Japanese on Wall Street boards.

Corporate governance reform continues to be on everyone’s agenda, yet cross-national corporate board representation has basically been a one-way street. There are now just over 70 non-Japanese serving on the boards of Japanese listed companies—a healthy if small increase from last year’s 60—but you can still count on one hand the number of Japanese nationals serving on the boards of US listed companies. There’s Oki Matsumoto at Mastercard Inc., Jun Makihara at Philip Morris International Inc., Hiromichi Mizuno at Tesla, Inc., and Yu Serizawa at the Renault Group. A righting of this imbalance would be a real surprise.

Japanese corporate governance reform has gathered considerable momentum over the past decade. In my view, a good way to judge whether true progress has been made is by whether (or when) US companies begin to appoint Japanese to their boards. At the very least, it would prove that Japan’s leaders have become more global, more open-minded, and are now capable of demonstrating to global peers how Japan-style corporate stewardship can be very relevant when building a better, more sustainable, and inclusive world. Perhaps an even bigger surprise would be US CEOs actually listening to their advice.

8. Japan develops a working quantum computer.

While the world is obsessed with speculating on whether the United States or China will win the race for technological supremacy, Japan has the potential to become a surprise champ in at least one big category: quantum computing. Specifically, Toshiba’s engineering team is, by many accounts, consistently on the cutting edge of all things quantum computing, be it the manufacturing of a physical machine or the software needed to control it. Success in creating a scalable quantum computing solution would certainly mark a welcome return of the former crown jewel of Japan’s engineering prowess.

9. China starts an Asian currency war.

My biggest worry for a negative surprise in 2023 is China being forced to dramatically devalue its currency. Why? Unemployment is rising, the economy is slowing and, since last summer, China has been trying to stimulate growth by easing both monetary and fiscal policy. If China’s economy does not respond and does not begin to accelerate by late spring, pressure will rise to use currency devaluation to help kick-start growth. China starting a currency war in Asia would force a dramatic disruption of the prospects for prosperity in Japan and around the world.

10. Kyoto receives more Michelin stars than Paris.

Since 2007, Tokyo has been the world’s culinary supercity, consistently beating Paris in the annual Michelin star rankings. The 2022 tally was 263 stars for Tokyo versus 152 for Paris. Less known is that Kyoto has been gaining on Paris and, after receiving 129 stars in 2022, could well surpass the French capital in 2023 for a well-deserved Japan one-two finish in the gourmet world cup. Of course, the real surprise would be if this double defeat were to trigger a change in Parisian waiters’ attitudes. How do you say omotenashi in French?

Dynamic Times

From advocacy to events, Japan and the ACCJ see change and progress

From left: ACCJ Economic Security Task Force Vice-Chair Shuichi Izumo, then-Economic Security Minister Takayuki Kobayashi, ACCJ President Om Prakash, task force Chair Arthur Mitchell, and Vice-Chair Megumi Tsukamoto

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The past few months have been an incredibly dynamic time for Japan and the American Chamber of Commerce in Japan (ACCJ). The chamber has continued to be very active in its engagement with the US and Japanese governments through meetings with congressional delegates.

I want to start with a moment to honor Shinzo Abe. As Japan lays the former prime minister to rest, I’d like to acknowledge his many accomplishments during a lifetime of contributing to the US–Japan relationship. As the longest-serving prime minister, he was a source of stability that allowed the alliance to grow in depth and strength.

Many of his structural reforms reinforced the ACCJ’s advocacy pillars. Abe was especially devoted to the advancement of women, and spoke at the 2015 ACCJ Women in Business Summit to reinforce his support for women’s empowerment.

He was a leader who stood out in a chaotic world. Here in Japan, he was a supporter of the chamber and the international business community, and a personal friend of many members. We honor him and extend our sincere condolences to his family, colleagues, and the people of Japan.

Easing Entry

We have all been heartened by the progress made on the easing of entry restrictions, and Japanese Prime Minister Fumio Kishida announced on September 22 that Japan will fully reopen on October 11.

Over the past two and a half years, our members have shared with us how the entry restrictions have impacted them, their companies, and their families. With the full reopening, Japan can kickstart the recovery of its economy and reestablish itself as a leading global financial center.

I’d like to express my gratitude to ACCJ Special Advisor Christopher LaFleur for leading the chamber’s advocacy efforts, and the many other members who have helped. Chris personally has regularly engaged the Japanese government and media, including earlier this year when he represented the ACCJ at a press conference hosted by the Foreign Correspondents’ Club of Japan. His contributions have helped bring about the progress we’ve seen, and have directly benefited members who have been impacted by the restrictions.

Economic Security

Another key area in which the ACCJ has been active on the advocacy front is economic security. We’ve collaborated closely with the Japanese government and, in April, announced the ACCJ Principles for the Promotion of Economic Security. The ACCJ Task Force on Economic Security discussed these directly with then-Economic Security Minister Takayuki Kobayashi, since when it has issued a new viewpoint on ensuring a level playing field for cloud services. The task force also met with the Ministry of Economy, Trade and Industry to discuss the Economic Security Promotion Act, which was approved by the Diet on May 11.

These were productive meetings, with the ACCJ introducing our recommendations and the Japanese government expressing its appreciation for our support of the issue.

Economic security among like-minded nations is vital to sustainable economic growth, which in turn enhances economic security. Our engagement on the issue is just one of many examples of how the chamber plays a key part in helping to set a regional and global standard for protection of people, businesses, and governments.

Exciting Events

While the chamber is very much about advocacy, it’s also very much about networking. I’m happy to see that fall is full of exciting opportunities for our members to come together in person and online. I encourage all members to join us at the virtual Ordinary General Meeting on November 2 for an update on all that the chamber and our members have accomplished this year. We are also planning an in-person gathering right before so we can capture the best of both worlds.

On my last note, I just got a new tuxedo so that I’ll be ready for the return of the in-person Charity Ball! This is one of Tokyo’s most important community-oriented events, which we are planning for December 3. This year’s special theme is Chicago: An Evening in the Windy City.

I look forward both to seeing many of you at our upcoming events, and to your continued contributions and personal efforts on our ever-important advocacy.

Japan’s Energy Alignment Goals

Charting a route to greater energy independence and net-zero

It has been 11 years since the Great East Japan Earthquake and Tsunami triggered a nuclear disaster in Fukushima that would change the country’s energy landscape. Today, another energy shock is upon us, with the cost of imported energy commodities driving electricity prices to their highest level in a generation.

Japan’s electrical system was strained nearly to breaking point this summer, and the outlook for winter energy supplies remains unclear. At the same time, the crisis presents opportunities to reevaluate priorities, redirect investments, and focus on decreasing Japan’s exposure to international energy markets while also driving decarbonization.

Additional opportunities are arising as Japanese businesses—on a global and domestic level—are chasing aggressive carbon-reduction goals that will necessitate a massive increase in installed renewable energy capacity in the country.

For several decades, Japan has executed a successful strategy of importing its energy via long-term contracts and relationships. Meanwhile, renewable electricity supply has expanded greatly under the feed-in-tariff and feed-in-premium systems, known as FIT and FIP. But current circumstances pose a challenge that necessitates a new approach.

We are in a very difficult position due to these and other factors, with the global energy marketplace never having been as competitive as it is now and the security of energy suppliers in question.

Aggressive Carbon Reduction Goals

Japan’s carbon reduction goals have been described by observers as bold and ambitious, and marked by three key milestones.

The first is Japan’s commitment, under the United Nations Framework Convention on Climate Change, to reduce greenhouse gas (GHG) emissions by 26 percent from 2013 levels by 2030.

The second is to promote the development of innovative technologies by 2050. They would enable Japan to contribute to the global reduction of accumulated atmospheric CO2 to a level the Japanese government has dubbed Beyond-Zero.

The third and most ambitious milestone, unveiled by former Prime Minister Yoshihide Suga in 2020, is for Japan to achieve net-zero GHG emissions by 2050. This would set the nation on a course to becoming carbon neutral in just 30 years.

But with the first milestone just 92 months way, action is needed now.

Demand for Change

Today, Japan-based corporations and international companies, including many members of the American Chamber of Commerce in Japan (ACCJ), are leading the market towards decarbonization.

This can be seen from the sheer number of companies taking part in key corporate environmental initiatives. And, while nuclear energy is likely to play a role in a low-carbon future, many Japanese companies have already committed to increasing their consumption of renewable energy.

Japan represents one of the top three participating countries in each of the following global efforts:

• CDP (formerly the Carbon Disclosure Project): a reporting framework for carbon emissions
• RE100: a push by companies to use 100 percent renewable electricity in their operations
• The Science Based Targets initiative: a pathway for companies committing to specific carbon reduction targets
• The Task Force for Climate Related Financial Disclosure: a framework for divulging climate-related risks

There is also the Japan Climate Leaders’ Partnership, in which 217 companies, including World Kinect Energy Services, participate.

Time to Align

To meet the goals of these organizations, participants require direct access to renewable electricity supplies. This can be achieved by a variety of pathways, including the tracking and tracing of environmental attributes.

Unfortunately, in Japan, the main system for tracking, auditing, and trading environmental attributes—called non-fossil fuel certificates (NFC)—is one of the most complex procedures in the world. Simplifying the system and bringing it more in line with international standards, such as the International Renewable Energy Certificate system, could help companies in Japan report their progress on reducing carbon emissions with greater confidence.

“Simplifying the system and bringing it more in line with international standards, such as the International Renewable Energy Certificate system, could help companies in Japan report their progress on reducing carbon emissions with greater confidence.”

Another key tool for reducing electricity-related carbon emissions is the renewable corporate power purchase agreement (CPPA). This enables a corporate end user of electricity and a developer to reach a long-term agreement on renewable energy for one or more projects.

CPPAs are considered a high-quality pathway to reducing carbon emissions and can help to drive private capital into the energy system. The ACCJ Energy Committee has been working closely with stakeholders to identify and reduce barriers to CPPAs.

Japan needs to improve its policy allowing renewable energy to connect to the grid as well as expedite the approval process for new projects which will provide short-term benefits.

For longer-term benefits, physical grid improvements will need to continue in an expedited and transparent manner, while including flexibility to integrate new technologies and grid-level storage.

Benefits for All

Whether supporting our clients with a CPPA or supplying energy attribute certificates, increased investment in renewable energy resources benefits not only the end user, but also the nation on its road to net-zero.

We recognize that the Government of Japan is making an effort to address these issues, but it needs to move faster to ensure that the nation remains at the forefront of evolving international standards.

In addition, Japan must consider and support to the fullest an array of technologies—including wind and geothermal—to meet future demand.

We want to see Japan be successful, and we invite ACCJ members to become more involved in the Energy Committee to help support the expansion of renewable energy opportunities in Japan.

Who Will Buy Japan?

The yen’s rapid fall may bring deep-rooted change and rising returns

Currency markets move in the direction of maximum pain. I received this insight from one of the most successful currency-market speculators in recent history, the leader of the team that broke the Bank of England 20 years ago, on September 16, 1992.

Now that yen depreciation is accelerating toward my ¥150–160 to the dollar parabolic overshoot target, outlined in the spring 2022 issue of The ACCJ Journal, it is worth thinking about where the maximum pain threshold might be, and what forces will arrest the yen’s fall from grace. Who will buy Japan?

Land of Bargains

It is now very easy to demonstrate that Japan is cheap:

• A Big Mac costs ¥390 in Tokyo versus $5.50 in Los Angeles, making your dollar’s purchasing power double this side of the Pacific
• Japanese labor costs are down to $33,000 per year on average, less than half the $69,000 payout in the United States
• A Tokyo-based software engineer now comes about 30 percent cheaper than one based in Ho Chi Minh City, Vietnam
• And at ¥150 to the dollar, a nurse in Manila would earn more than one in Tokyo

Importantly, even without the exchange rate, Japanese companies are cheap, with 49 percent of listed companies trading below book value, their assets worth more than what you must pay in the market to buy them.

Japanese companies trade on a 12-times price-to-earnings (PE) multiple, which is cheap compared with the 24-times PE multiple commanded by those in the United States.

When buying Japan Inc., you basically earn back your investment in half the time—corporate earnings alone will let you recoup your investment in just 12 years in Japan, while you must wait 24 years in the United States. So, the costs of buying and operating productive assets has become very attractive in Japan.

Land of Opportunity?

Where, exactly, are the opportunities, and who will seize them? Here it gets interesting because, in my view, the forward-looking dynamics are poised to force much more deep-rooted change than old-style models of inward investment would suggest.

This is because the coming investment wave will be primarily in the service sector, not the industrial or manufacturing sectors.

Clearspeak: neither Japanese nor global manufacturers will begin to build significant new factories or add production capacity here in Japan. Against this, all aspects of the domestic service sector are poised for an unprecedented investment boom.

Why? For manufacturing, labor costs are an increasingly minor factor in deciding where to build a factory. Much more important is proximity to market, proximity to suppliers, and full end-market reach. Moreover, national economic security forces an additional steep discount on produce-for-export strategies. Specifically, recent US legislation has made it uneconomical for global carmakers to compete in the US market unless they produce onshore. The new subsidies and incentives to redirect energy and environmental consumer preferences in the United States dictate as much.

“When buying Japan Inc., you basically earn back your investment in half the time—corporate earnings alone will let you recoup your investment in just 12 years in Japan, while you must wait 24 years in the United States.”

To wit, within mere weeks of US President Joe Biden’s new economic policy bill having been passed, both Honda and Toyota, as well as electric-vehicle battery maker Panasonic, announced plans for new US-based production sites and research-and-development facilities totaling more than $15 billion. All this to ensure that their “made by Japan” products are eligible for the new US industrial and consumer-policy incentives. I have no doubt that the industrial onshoring wave in the United States is only just beginning.

In contrast, Japan’s service sector is poised to be swept away by its own wave of onshoring. Unlike in manufacturing, labor costs are a dominant factor driving service companies’ performance. And here, Japan has become cheap and, now, has a competitive advantage. Watch for a pickup in direct investment, with more global service giants buying into Japan following PayPal’s $2.4 billion acquisition of Tokyo-based startup Paidy last year and the growing success stories of Salesforce, Inc., Amazon Japan G.K., Yahoo Japan Corporation, Google G.K., SAP Japan Co., Ltd., Aman Resorts Ltd., and law firm Morrison & Forester LLP in Japan, to name but a handful.

All said, I am very much looking forward to seeing more and more US and global service companies buying into and expanding business here in Japan. Most important, developing a service business in Japan has become more attractive than ever, labor market mobility having increased greatly, primarily because the pandemic has freed many from traditional corporate loyalties and unlocked a quest for better opportunities and higher pay. Potential employees are available, cheap, and motivated.

Zombie Killer

What does this have to do with the yen? Well, if I am right and global investment in Japan starts to pick up, this is one potential source of demand for yen. However, in the end, it will always be Japanese investors who hold the key to the yen’s fortunes. Japan is, after all, the world’s largest creditor nation, so where Japan invests matters.

So far, Japanese investors have not been investing in their own markets. They will only do so if and when Japanese domestic companies present credible business plans and productive investment strategies. Clearly, Japanese investors do not believe the value proposition outlined above, namely, that half the companies are trading below the value of their assets. They think the assets are underutilized, are not sweated hard enough, and that Japan is a heaven for zombie companies rather than a breeding ground for corporate excellence and best-in-class performance.

Can Japanese Prime Minister Fumio Kishida’s new capitalism deliver the end of zombie capitalism? There is no question that, since the end of the bubble economy in the early 1990s, Japan’s model of capitalism has become increasingly focused on providing more-or-less-free capital in a bid to shelter local companies from the forces of asset deflation, technology-induced disruption, rising capital costs, and other forces of creative destruction.

Twenty years on, rather than having global top performers, the result is a capitalism marked more by zombie companies that drag down industry, macroeconomic performance, productivity, and financial returns. This is where Kishida’s promise of a new capitalism could have real meaning.

If new capitalism marks a departure from zombie capitalism, and actually seeks to incentivize sector-by-sector industrial reorganization and streamlining, then prospects for a true productivity-led growth spearheaded by the service sector come into sight. The combination of global entrepreneurs wanting to seize unprecedented attractions and opportunities offered by Japan’s domestic service sector, combined with domestic political capital invested in accelerating the long-overdue consolidation and reinvention of local service providers, could be an incredible force for future prosperity.

I know this is a big if, but let’s give optimism a chance.

Clearspeak: if the current pain of yen depreciation feeding cost–push inflation delivers both long-overdue industrial reorganization and the emergence of true Japanese service-sector national champions, Japan’s investors will be rewarded handsomely. This will be not just from a tactically expedient increase in yen equity allocations because, say, the United States enters a recession, but from a strategic Japan overweight position, where yen companies deliver rising returns based on, yes, the domestic service sector.

The S in Sustainability

How human rights due diligence is expanding the dialogue on social impact

Environmental, social, and corporate governance (ESG) has become another fixed feature of a company’s operating landscape. As such, it requires increasingly specific rules and requirements regarding ethical accountability, transparency, and disclosure, together with tough questions about where and how companies are generating revenue.

So far, the ESG agenda has primarily focused on the E, as companies tackle climate change, largely by reducing emissions and carbon footprints. However, the spotlight is also moving to the S, which includes the social impact of our value chains.

This task is more challenging compared with that of the E, in the sense that we are now being asked to take responsibility for practices and issues over which we may have little control, and for which we cannot offer sufficient transparency.

Increased Governmental Oversight

Meanwhile, social impact regulations are developing swiftly. The drive for human rights due diligence (HRDD) has gained pace since the United Nations issued its Guiding Principles on Business and Human Rights (UNGPs) in 2011. Known as the Ruggie framework, because it was developed under the leadership of then-Assistant Secretary-General for Strategic Planning John Ruggie, the UNGPs are based on three pillars:

• Protect
• Respect
• Remedy

Let’s look at these in more detail.

Duty to Protect against Human Rights Abuses
Government action, in the form of new legislation and regulation, is prompting companies to take human rights more seriously. Based on the UNGPs, national action plans (NAPs) have been developed by many countries. These include the United States and Japan, which published its NAP in October 2020.

In Europe, measures are moving toward enforcing human rights culpability. Germany’s Supply Chain Due Diligence Act will come into effect in January 2023 and require companies to conduct due diligence for human rights and related environmental risks throughout their supply chains. It also will require measures to prevent and mitigate human rights abuses, as well as the establishment of grievance and reporting processes.

In June this year, the US Customs and Border Protection law enforcement agency implemented provisions of the Uyghur Forced Labor Prevention Act, which prohibit imports into the United States of products related to forced labor in Xinjiang. And recently, the US Securities and Exchange Commission issued two regulatory drafts for publicly held corporations and investment funds, requiring mandatory disclosure of ESG aspects of their business operations.

“An organization’s policy is not sufficient should human rights issues be alleged or identified. Operational frameworks which activate these policies and make them meaningful and effective are necessary.”

In July, the Japan–US Economic Policy Consultative Committee Meeting pledged to coordinate efforts to foster an environment in which companies uphold human rights and, in September, Japan’s Ministry of Economy, Trade and Industry (METI) issued its HRDD guidelines, which include expectations regarding due diligence processes, remediation, and stakeholder engagement.

Corporate responsibility to protect human rights
Companies are being compelled to demonstrate a commitment to protecting human rights. An organization’s policy is not sufficient should human rights issues be alleged or identified. Operational frameworks which activate these policies and make them meaningful and effective are necessary, and identification of adverse impact on human rights requires that companies remedy such a situation.

Even if not involved directly, a company is still expected to act on the information and, ultimately, to consider whether to continue business with the party in question should no remedy be found.

Right of victims to access effective remedies
Similar to the structure of whistleblowing and ethics hotlines, there are likely to be mechanisms to enable claims from all tiers of supply against companies at the top of the chain.

This would inevitably require changes to the relationships companies have with suppliers, and implementation of specific onboarding policies, due diligence protocols, and corporate social responsibility measures. Monitoring and audit rights would need to be carefully built into contracts, as well as working and reporting processes.

So, for companies, HRDD can be summarized as:

• Assessment of actual and potential human rights issues and risk
• Mitigation and remedial action for such issues and risk
• Corporate commitment to, and responsibility for, human rights throughout the value chain
• A set of mechanisms for reporting and communicating human rights breaches, as well as for monitoring and contributing to human rights

Given the complexity of our value chains, when looking at the S in ESG, it is helpful to consider social impact in a similar way to how we scope emissions when addressing the E.

The METI HRDD guidelines also outline a similar categorization:

• Scope 1: Adverse human rights impact caused directly by our business activities
• Scope 2: Adverse human rights impact to which our business activities contribute
• Scope 3: Adverse human rights impact related to activities or entities with which we have a business relationship, and that are linked to our operations, products, or services

Increased Scrutiny

As legislation and public statements on ESG commitment have evolved, well-funded non-governmental and non-profit organizations have begun monitoring human rights issues ranging from wages, working hours, and conditions to child labor. These organizations are rightfully passionate about the causes to which they seek to give a voice.

Awareness of social concerns is rising among investors, shareholders, employees, and consumers, as are calls for related assurances. Perhaps most meaningfully, the influence of HRDD can hold negligent companies accountable through legal and civil liabilities.

Realizing Opportunities

All this brings new and sizeable burdens, including understanding risk exposure and expectations, as well as determining to what we must commit and how far we need to go. Companies must also determine how to put into operation and implement necessary actions, while considering reputation, profitability, growth, cost efficiency, as well as investor, employee, and consumer confidence.

Negative exposure can quickly damage profit-ability and status, as well as reputation with investors, customers, suppliers, workers, business partners, and other stakeholders on which we depend for business.

However, we will not make much headway in creating a more sustainable global economy if sustainability is viewed as being about risk mitigation, reporting duties, compliance, and regulatory burdens. The key to progress is not to lose sight of the overall objectives.

We must commit to change and realize the opportunities to pursue and maximize growth. We must seek competitive advantage rather than view this as a constraint to fulfill obligations. A significant dimension to consider is the company’s power to attract young talent and increase employee engagement. The business opportunities are many.

They can be realized through brand differentiation and innovation in supply management and manufacturing processes, product and service life cycles, new forms of cost efficiency, emerging channels for market access and diversification, novel applications of technology, and by building a more diverse workforce.

Hannah Perry contributed to this article. Perry works in the Corporate Communications Department at AIG Japan Holdings K.K. and is vice-chair of the ACCJ Sustainability Committee.

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Do Androids Dream of Electric Sheep?

Rethinking DEI in an age of rapidly expanding artificial intelligence

I have always been fascinated by the idea of artificial intelligence (AI). I remember chatting back in the 1980s with a version of Eliza for Commodore 64. Eliza is a program created in 1964 by German American computer scientist Joseph Weizenbaum at the MIT Artificial Intelligence Laboratory. Rudimentary by today’s AI standards, Eliza is a natural language processor that converses with the user based on their input. It tries to mimic a real person and was one of the earliest applications to attempt what has come to be called the Turing test, a way of gauging a machine’s ability to exhibit intelligence. Passing this test, developed by English scientist Alan Turing, means a machine can conceal its identity, making a human believe it is another human.

I’ve been thinking back to that experience because we are now at a point where we must start considering how we will coexist with and treat truly intelligent machines. We’re not quite there yet, but the rapid advance of AI, and its integration into so many aspects of life, means this is a question that is no longer the providence of science fiction. It will be a real part of our future. Machine identity and rights will one day be an extension of the diversity, equity, and inclusion (DEI) that we talk about in this issue of The ACCJ Journal.

AI is beginning to create content that is sparking questions about ownership. For some time, companies have been using AI-powered tools to give computers the task of writing articles, social media posts, and web copy. Now, AI-powered image-generation engines, such as Stable Diffusion, Midjourney, and the Deep Dream Generator, have hit the mainstream. You may have seen some of their creations in the news. As these engines are trained on existing art, often scraped from the internet, there are questions about copyright and plagiarism. Stock media giant Getty Images announced on September 21 that it is banning AI-created art over these concerns.

Eventually, I believe, the visuals that machines create will become less obviously imitative and will express a view of the world unique to the creator, in the same way that the work of a human artist is an expression of the inner working of their mind. And when that happens, we really will have to ask ourselves what distinguishes us from machines.

Back to the Present

We still have some time before that question must be answered. For now, our focus can remain on the people who make our companies successful and our societies prosperous.

We explore DEI initiatives in this issue, along with sustainability efforts that can help ensure that our world has a healthy future.

I take to the road and the air on page 26 to explore the future of transportation and sustainability initiatives by member companies. I also talk to Bank of America’s Japan country executive and president of BofA Securities Japan, Tamao Sasada, on page 18 about the importance of diversity and the company’s efforts in the areas of DEI; environmental, social, and corporate governance; and sustainable finance.

I hope you enjoy this special issue and find useful ideas to help you achieve your own DEI and sustainability goals.

Sincerely yours, Eliza.

Inflation!

Who’s afraid of the big I? Not Japan.

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A specter is haunting the world economy, the shadowy specter of inflation. Economists are fiercely debating from where it has come, politicians are busy blaming their opponents and, as always, the average citizen is left with no choice but to pay up. Yes, we all know inflation is lurking all around when you now must pay $50 for your $40 haircut that you used to get for $25 when you had hair.

Japan stands out as the one economy in the world with a relatively benign inflation shock. Whereas in the United States consumer prices are up by almost nine percent from a year ago, Japan’s consumer price index prints barely above two percent. This may come as a surprise, given the global nature of the inflation shock: excess money and credit, supply bottlenecks, the war in Europe, the surge in pent-up demand as the pandemic abates. Further, the global cost-push pressures—from rising energy, electronic component, and food prices—have been compounded by a falling yen.

Oil and Oligopoly

In the United States, the price of oil is up about 60 percent in US dollars compared with the end of December. In Japan, the yen price of oil is up almost 85 percent. And yes, the United States is a net exporter of energy—and food—while Japan is one of the world’s largest importers of energy—and food.

So, how come, despite greater and more severe exposure to global inflationary pressures, Japanese consumers are much less affected by the global inflation tsunami than their American counterparts?

There are two primary reasons:

• The government here is not afraid to intervene in markets to preserve the purchasing power of the people
• Japan’s industrial structure is more cutthroat competitive

The net result of this seeming contradiction—government intervention going hand in hand with extraordinary competition—is a much lower inflation equilibrium here in Japan compared with what we get in the less interventionist and more oligopolistic US economy. There, a few producers are price-leaders and effectively control the market.

Let’s start with the industrial structure. In the United States, of all the industries in the services and the manufacturing sectors—from hairdressers to pharmacies to steelmakers and semiconductor companies—on average, the top four players in each sector control about 32 percent of their respective total market. In contrast, here in Japan, the leading four companies command less than 15 percent. Clearspeak: Japan is much more fragmented and more competitive, while the US industrial structure has been consolidated and has, de facto, become more oligopolistic.

The net result is significantly lower price power for suppliers of goods and services in Japan relative to the United States. No matter how differentiated a product or service you offer in Japan, within days or weeks, a competitor will follow suit offering something similar but at a lower price point. Remember: every two weeks, a new soft drink is launched, and just about every 12–15 years, the equivalent of the entire central Tokyo grade A office supply comes onto the market. Good luck raising soft drink prices or rent.

Capitalism without Costs

There are, of course, complex reasons that excess competition has prevailed in Japan. The first investment report I ever wrote in Japan, back in the late 1980s, was entitled Capitalism without Costs. In it, I argued that corporate Japan effectively had no cost-of-capital constraint. In contrast to those in the United States, owners of capital in Japan simply did not hold corporate executives accountable to maximize return on capital.

Today, this still holds true, because just as the changes in capital stewardship and corporate governance have shifted private-sector capital allocation closer to the US model of demanding higher returns, Japan’s public sector intervention in capital markets has been stepped up dramatically. The Bank of Japan has purchased up to 10 percent of the TOPIX equity market as well as capped the cost of long-term debt at just about zero for almost a decade.

Whether this public sector provision of a cushion in capital markets is good or bad policy is subject to debate. But, for the purposes of trying to determine whether Japan does or does not face an inflationary threat, there is no question that the reality of a relatively low cost of capital has kept many marginal companies afloat. This, in turn, continues to restrict the price power of Japan Inc. in the domestic market. If your competitors don’t have to care about delivering a proper return or profit, whoever raises prices is doomed to lose customers and market share.

Which gets us right back to the first reason Japan is not afraid of inflation: government intervention and de facto price controls.

When you analyze Japan’s consumer price index, you quickly find that about one-quarter of the goods and services for which Japanese consumers pay are subject to government rules and regulation, i.e., de facto price controls.

Healthcare services and pharma are an obvious important example, as is education, much of transportation, and several staple foods. For the last of these, the Japan Agriculture Cooperatives, commonly known as the JA Group, plays a key part in expertly balancing fiscal support for producers while preserving the people’s purchasing power.

Line in the Sand

The willingness to fight immediately against threats of inflation that undermine consumer well-being was just demonstrated by Prime Minister Fumio Kishida. In April and May, he drew a line in the sand for the consumer price of regular gasoline at ¥170 per liter and passed, in record time, a supplementary budget to fund this price-keeping operation.

Again, the contrast with US government priorities could not be greater. Not only does the Japanese government see its primary mandate as protecting its citizens from economic shocks, but it also has the necessary parliamentary control and supermajority to act decisively and quickly. It is both the willingness to act and the ability to act that, in my view, make Japan’s parliamentary democracy and model of capitalism a worthy role model for the free world.

Be that as it may, practically speaking, the fact that Japanese political leaders actually can—and do—mobilize fiscal resources in a timely manner allows much greater flexibility for Japan’s central bank. Where the de facto political gridlock in Washington makes it unlikely that government policies can be mobilized to cushion US consumers against the ills of inflation, here in Japan the government can be counted on. No wonder, then, that the United States must rely on the Federal Reserve as the lone fighter against inflation, while here the Bank of Japan gets plenty of backing from all the other parts of the policy toolkit available.

All said, the current strong surge in global inflation is very real and is definitely having a strong impact on Japan. However, the Japanese system is responding well to the challenges and is doing so on its own terms. Resilience to shocks is what Japan excels at and, in my view, the inbuilt systemic priority placed on preserving consumer purchasing power makes it unlikely that inflation will force another lost decade.

Stay Engaged

As the pandemic enters a new stage and direct communication opens up, the chamber is fostering lasting change—thanks to all of you.

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One of the greatest attractions of the American Chamber of Commerce in Japan (ACCJ) is our myriad activities and the vibrancy of our members. From networking to advocacy to information exchange, the ACCJ is not only the voice of global business in Japan, but a dynamic, rewarding community.

The coronavirus pandemic challenged our ability to sustain our energy, but our members are resilient and resourceful. We not only adapted and maintained our inspiring event schedule and connections virtually, but we gained new skills along the way that now allow us to extend our reach and foster greater engagement as the way we interact continues to evolve.

Look at the event photos. Those of you who were there felt the energy in the air as the veil lifted. Seeing our members together at in-person events filled me with optimism, the sense of urgency to shake hands and see faces, to get back to business, to reignite advocacy efforts, and to reinvigorate our relationship with government back in Washington. All safely, of course.

Hello, Capitol Hill

Speaking of government, it was an honor to lead, as president, an ACCJ delegation to Washington for our first DC Doorknock since before the pandemic. I was joined by ACCJ Chair Eriko Asai, Governor Victor Osumi, Special Advisor Christopher LaFleur, and Executive Director Laura Younger. Engaging face-to-face with members of the executive branch and Congress once again is very important to the chamber’s advocacy efforts.

With the recent rollout of the Indo–Pacific Economic Framework—an occasion to which the ACCJ was invited—and the recent Quad meeting of leaders from the United States, Japan, Australia, and India, the US–Japan partnership continues to be the most important nexus for peace and prosperity—not just in the region, but for the global order.

We in the ACCJ are a key conduit for lawmakers in Washington to what is going on in Japan in terms of the business aspects of the bilateral relationship, and through our discussions during the DC Doorknock we have had a positive impact over the years. As business leaders on the ground, we experience firsthand the opportunities, obstacles, and ground-truth in Japan. As a trusted primary source in a world awash with information and disinformation, our voices are heard and valued by the administration and members of Congress.

The way in which Washington is engaging with the ACCJ and the administration of Japanese Prime Minister Fumio Kishida is important. There’s energy and urgency in the US–Japan partnership on all fronts—from the economy to national security—
and you can see this in the number of Congressional delegations (well over 10 percent of the Senate leadership) coming to Japan, capped by US President Joe Biden himself in late May. We are pleased and encouraged to see the United States leading in the region, and the heightened role Japan has taken on the world stage.

US Ambassador to Japan Rahm Emanuel has been an incredibly positive addition to the US–Japan dialogue and a valuable partner for the ACCJ. We have hosted him at several meetings and events, including a special welcome luncheon (page 10). His energy, enthusiasm, and attitude are welcome, timely, and highly infectious!

Opening Up

In terms of advocacy and getting results, I’d like to thank you all for your important contributions to our core advocacy document—something new we have tried this year in addition to our viewpoint papers. For example, your input, leadership, and energy pushing for fair and science-based policy regarding Japan’s border restrictions very quickly led to results. We, combined with the voice of our fellow foreign chambers of commerce and other organizations—both foreign and domestic—are making a real difference.

Stay Engaged

I will end by asking all chamber members to embrace the sense of urgency that is defining the world we find ourselves in—one of transition—and help the ACCJ continue to champion strong partnerships and communication to create the best environment for global business in Japan.

Healthy Pursuits

Entrepreneurship sprinkled with innovation is changing the future of food and health through technology

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The intersection of health and technology has become an important part of my life. They say that when you turn 40 your body starts to fall apart. They also say that 40 is the new 20. I say that neither is true, not entirely, but as you age you do have to work harder to stay fit. As I turn 50 this year, a decade of navigating that forties-fitness maze has helped me figure out how to apply tech to the challenge.

I’ve been a techie since I was 10 years old and my great grandparents gave me a Commodore 64 computer for Christmas, so I’m always at the front of the line, eager to jump into the pool of latest innovations. Apple Watch and the Oculus virtual reality headset are already part of my health and fitness routine, and there’s plenty more out there to be excited about and to help us live longer, healthier lives.

In this issue of The ACCJ Journal, we embrace the vision, ideas, and creations of those entrepreneurs and companies who are developing solutions to the wellness challenges facing society.

The theme was inspired by the great success of the American Chamber of Commerce in Japan (ACCJ) Healthcare x Digital (HxD) competition and the incredible work and dedication of the organizing team. Preparation is well underway for the third annual event, which will take place later this year. The theme this time is Empowering Elderly Patients through Digital Health and will expand the format to include both an ideathon and a hackathon.

A couple of last year’s winners are included in features in this special health and technology issue of The ACCJ Journal. Oishii kenko Inc., winner of the Empowering Patients Award and People’s Choice Award for their nutrition app, shares thoughts on future food, while From Japan and Beyond Award winner Lanex Co., Ltd. talks about digitizing women’s health.

Steppin’ Out

The other big theme of this issue comes in the form of photos, not words. A surge of energy has been flowing through the ACCJ as we begin returning to in-person events, and you’ll find pages filled with scenes of networking, information sharing, and just plain fun. For me, it was a joy to produce this issue for that reason alone. After more than two years with very few (often zero) photos from such gatherings, I may have gone a bit overboard with my layouts. But I wanted to share with you the excitement that is in the air. This is what the ACCJ is all about: people coming together to share, explore, innovate, collaborate, and build the best possible business community and society.

For those who could not attend, I’ve recapped two major in-person events (which were also livestreamed to remote viewers). At one, the ACCJ presented the Person of the Year Award to former Mitsubishi UFJ Financial Group, Inc. chair, president, and group chief executive officer Nobuyuki Hirano. At the other, we welcomed US Ambassador to Japan Rahm Emanuel with a VIP session and luncheon. For me, it truly felt like I had fallen through a time portal to 2019. Walking into the New York Ballroom at Tokyo American Club and seeing so many people talking, exchanging business cards, listening to presentations, and eating felt like time had been paused and suddenly restarted. It was a great experience.

And let’s not forget about the Chubu Walkathon, our annual charity fundraiser organized and hosted by the ACCJ Chubu chapter. They did a wonderful job of adapting to the pandemic and embracing the mantra that I know so well from my years as an orchestral musician: the show must go on. This year, they kept the livestreaming aspect but were able to bring back much more of the activity to Nagoya’s Meijo Park. I couldn’t attend, but the photos tell the story as more than 1,000 people participated and raised over ¥7 million.

So, here’s to the new normal of more in-person events and to the health and fitness needed to embrace the activity as we go steppin’ out into the light。

Crossing the Bridge

A quarter of the way into 2022, the transition to the new normal feels real

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A lot has happened during the three months since the last print edition of The ACCJ Journal was published. The landscape of global business—still littered with obstacles from the ongoing coronavirus pandemic, but making positive strides toward recovery—has been shaken again by the conflict in Ukraine.

As the editor of this magazine, the business impact is very much on my mind. Due to the conflict, we have seen many companies pause or end their operations in Russia, a move not even on their radar just months ago. This sudden shift will, no doubt, send ripples through global business, as resources, supply chains, travel routes, financial transactions, and more are disrupted.

We’re already seeing some of that impact, but I am confident that our community will weather the storm and find ways to help where possible.

Workstyle Reform

With that positive view in mind, I’d like to share more about this issue’s content. For most of the past two years, we’ve been writing about overcoming the challenges of the pandemic. While the threat of Covid-19 continues, and will likely remain with us for a long time, we’ve adapted and are learning how to function and flourish in a changed world. This includes adjusting how we work.

Workstyle reform is a bridge that some companies had been afraid to cross. When you’re comfortable on one road, after all, why change to an unfamiliar route? But with workers now accustomed to the better work–life balance afforded by working from home, flexibility is expected and companies must adapt to attract and retain top talent.

To explore this new reality, we’ve put together four features that focus on various aspects of work and the expectations now shaping the path to success. We speak with experts to learn what issues are key to hiring in 2022 and beyond, while we talk to professionals and new graduates about what they are now looking for in an employer. Then we offer tips on how to keep your team engaged in a world where hybrid workstyles are the norm. Lastly, we ask whether Japan could experience a Great Resignation—that revolt against traditional workstyles that Covid-19 sparked in the United States.

More Inspiration

While workstyle reform is our theme, we certainly cover additional ground. For me, this has been a very interesting issue to prepare as a writer. I got to visit American Chamber of Commerce in Japan (ACCJ) President Om Prakash at the Northrop Grumman office to talk about a range of topics, and I learned about some incredible innovation on the medical front as I recapped the second annual ACCJ Healthcare x Digital (HxD) competition, which brought together startups and entrepreneurs with top pharma executives.

You’ll see how the five HxD finalists showed that innovation is alive and well in Japan. I was particularly impressed by Moonshot Prize winner Ayush Balaji, an 18-year-old from Japan who is a first-year medical student at the University of York in the United Kingdom. While still a high school student in Japan and inspired by the circulatory system of the octopus, he came up with a way to assist people with heart failure. Watching his presentation truly inspired me and reinforced my belief in the potential of the human race—something I very much needed in the face of the conflict playing out in Europe as well as other ongoing struggles around the world.

Digital Journal

There’s one other bridge that we’re crossing, and I’d like to invite you along for the journey. In the December issue, I shared that The ACCJ Journal would be moving to a digital format with quarterly print editions, of which this is the first.

We have a new home for The ACCJ Journal online, which you can find at journal.accj.or.jp, designed to make it easier to explore and share. We’ve begun publishing digital-only content that highlights members, committees, and chamber advocacy, and have some exciting opportunities available. If you are a committee leader looking to raise awareness of a timely topic, a member wanting to share your business experiences in Japan, or if you have an idea for a story, I’d love to hear from you. Feel free to reach out to me any time at cjones@accj.or.jp.

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In Defense of Strong Relations

ACCJ President Om Prakash shares his thoughts on 2022 and the chamber

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Those movies in which a fighter pilot steps into the role of president and leads everyone through challenging times are always inspirational. I’ve watched that story more than once, and as 2022 began I got to interview someone doing just that. Only not for Hollywood.

American Chamber of Commerce in Japan (ACCJ) President Om Prakash, also chief executive of Northrop Grumman Japan, is a US Air Force veteran who was a fighter pilot, test pilot, and vice wing commander of the 82nd Training Wing. His time in the service, as well as at the Pentagon, has given him important perspectives on the US–Japan relationship, experience ideal for guiding the chamber through the third year of the pandemic and bilateral challenges.

In a year filled with opportunities in a transformed world, The ACCJ Journal sat down with Prakash at the Northrop Grumman office to learn more about his background and thoughts on the path ahead.

What brought you to Japan?
I have lots of reasons to want to be here, but ultimately, I am here for my job. My company asked me to come here. But part of it is that I have a background that put me in a unique position to be particularly effective for the company. I studied engineering at MIT, and then served in the US Air Force for about 26 years. Early in my career, I was stationed in Aomori Prefecture, at Misawa Air Base. I was an intelligence officer back then, and that is the first time I lived in Japan for an extended period.

I spent most of my career as a pilot and test pilot in many of the United States’ worldwide operations over the past few decades. I gained a lot of experience working with Japan as an ally, including some time in the Pentagon, where I worked on industrial policy issues and with Congress. Previous to coming here, at Northrop Grumman, I focused on corporate and technology strategy. So, combat experience, a background in technology, and lots of policy experience with the government made me a very good match for taking over our operations in Japan, where our primary customer is the Japanese Self-Defense Force.

How did you get involved with the ACCJ?
Our company has been part of the ACCJ for several decades—we were one of the early members—so I was a member as our chief executive. Northrop Grumman is a defense company, so the Aerospace and Defense Committee was the one I had the most interaction with, most recently as chair. To me, the primary things the ACCJ does for its community are:

• Networking, getting to know other folks in the community
• Interaction with government to work on advocacy and clear opportunities for business in Japan

Those were the two main drivers that gave me passion for being involved with the ACCJ.

Has ACCJ membership helped push policy goals?
Yes, absolutely. There are some areas where, across sectors, we all agree. One of the most obvious, in the current situation, is that we all have been affected by the travel restrictions. That common voice from the ACCJ has been important in showing the pain brought to all types of businesses and in bringing about change.

Specific to aerospace and defense, with the other US companies, there are several times that we have had common ground to work on advocacy issues together. We’ve also had opportunities to talk with leadership from the Ministry of Defense and gain insight into their priorities for defending Japan. This year will be particularly interesting for aerospace and defense because Japan is in the midst of rewriting its national security strategy. It’s going to be a really important year.

“I feel very strongly that, if you look at the alliances across the world, the US–Japan alliance is the most important in all facets—military, economic, cultural—so, being a part of that for my company was something I was excited about doing.”

Has the chamber helped you?
On a professional level, I’ve known most of the folks in the aerospace and defense community already, but the ACCJ certainly broadened my network to other sectors. On a personal level, I love learning. I am curious about everything. So, getting to know more about the industries that are involved in Japan writ large has been both interesting and helpful. I’ve gained insights into the pain points faced by other industries. The pandemic has brought lots of opportunities for US businesses to share lessons learned and look for common support. And then, quite frankly, I’ve enjoyed making friends in the ACCJ, as well as participating in community events. In my first year here, I was able to go to the Charity Ball in person. It’s been virtual for the past two years. That was rewarding and fun at the same time.

Do other experiences stand out?
Well, the election has been pretty involving for me! It actually wasn’t something I was seeking—the Nominations Committee came and asked me to run—but it is my nature to always raise my hand and volunteer; and in this case I was especially happy to do so. Frankly, this is an exciting year we have in front of us, so I am thrilled at the opportunity. Going through that process gave me access to an even wider group of people, and learning more about how the chamber works to serve its members has been rewarding and fascinating. I’m sure it will be topped by the actual experience itself in the year ahead.

Why did you choose to take on the role of president?
In many ways, it’s a variation on the question of why I came to Japan in the first place. When I look across the globe at where there is potential for conflict, and where there are real issues between nations, it’s right here in this part of the world—who would have expected a land war in Europe? Think of what that means for us here, where tensions and stakes are in many ways much higher. I’m the type of person who likes to run towards a burning building, not away from it, to see what I can do. I feel very strongly that, if you look at the alliances across the world, the US–Japan alliance is the most important in all facets—military, economic, cultural—so, being a part of that for my company was something I was excited about doing; it felt like a continuation of my Air Force career. The ACCJ is a whole other level of that.

This year, in Japan, we have the administration of Prime Minister Fumio Kishida making major policy changes. There’s a new minister for economic security. They’re rewriting the national security strategy, the National Defense Program Guideline, which is going to govern how they spend the largest discretionary portion of their budget.

In the United States, we are still going through a full transition to our new administration. And we now have an ambassador in Japan, Rahm Emanuel. That’s going to make it a particularly dynamic and important year. There are lots of opportunities for the ACCJ to make a positive impact on the US–Japan relationship, do good things for business, and, more importantly, do good things for both our nations.

What is the focus for 2022 bilateral ties?
All nations have suffered impacts to their economies as a result of the pandemic, and there are probably inclinations to look inward. But these are the times when we need to rely on friends more than ever, and the United States and Japan have a special relationship. There have been periods in our history when we’ve viewed each other with less than cooperative eyes, and other times when things have been more open. I believe right now, in particular, we have to make sure we keep pushing for what’s good for both economies. It’s not just a one-sided thing for the United States; I think we can thrive together. It’s not a zero-sum scenario. We can grow opportunities for all. And when we look at some of the nation states that are potential adversaries, we can only succeed by cooperating and combining our strengths.

What are the ACCJ’s key initiatives and advocacy points?
Last year, we spent a lot of time focused on digital transformation; and there is still work to be done. I think that will be critical for tying the US and Japanese economies together. There is lots of work on regulatory frameworks and common operating standards, and a level playing field that we need to have in place so that our businesses can thrive. We can work together. That will be an ongoing topic for some time.

Something that I think will be new in 2022 is having our voice heard as Japan works on its national security strategy and economic security. That will have economic implications for several sectors, and we need to look clearly at how the ACCJ can get involved in making a case for things that will help both our economies and national security postures.

How is diversity and inclusion in Japan? Can the ACCJ help?
In Japan there is, of course, improvement to be made. That’s not just my opinion, there are many surveys and analyses of Japan’s economy and its record with inclusion—specifically related to women in the workforce. With an aging population, that’s an untapped potential resource. Coming from the United States also influences how I feel about the topic. When you get a diverse set of folks together, you get a better product no matter what it is you’re working on. The ACCJ should continue its advocacy in this area, and we have many examples of where inclusion has brought great outcomes.

How can the ACCJ best support members in 2022?
It’s hard to predict what the year will bring. I look at the term Jenifer Rogers served as ACCJ president last year, and the challenges she faced. We didn’t expect that the pandemic would continue as it has for another entire year. Right now, we’re on the Omicron variant, and there are still nine letters left in the Greek alphabet. I hope we have a better future in front of us. I’d really like to see 2022 be the year that we return to networking and meeting each other at in-person events. I think we crave that human connection on many levels, not just for the business impact, but socially for our well-being and effectiveness. I hope we’re going to see that in 2022. But if not, we’ve learned a lot over the past two years and will continue to improve our effectiveness as a chamber.

“Having those spirited debates, where we learn from one another and so attain better outcomes, those are exciting things to be a part of.”

What have we learned from the ACCJ’s digital transformation?
We have definitely learned how to run meetings more effectively using all the telework software that’s available, and we can carry that over to our businesses. My personal experience is that ACCJ meetings have run very smoothly. As we have more potential to host hybrid events, we need to be mindful that these come with their own consequences, for example in terms of staff needed to run them. So, we’re going to have to look at when it makes sense for an event to be hybrid versus being only virtual.

We’ve also learned that there are lots of things we felt we could only do in person but, having no choice, now do virtually. And now that we have a choice, let’s not forget the good things we’ve learned from hybrid and virtual scenarios, especially in terms of how much more inclusive we can be. Obviously, we don’t want the entire structure to be online-only all the time, but there are times when it makes absolute sense.

If we were hundreds of years in the future, there are a lot of things that maybe would be a given for how we do business. We had to get there a lot sooner, because we had no choice, which isn’t a bad thing. So, we’ll continue to evolve.

In what ways might changes to the ACCJ Constitution benefit members?
I know that Jenifer and the team last year focused a lot, as an advocacy issue, on governance reform in Japan. They reinforced that inside the ACCJ with reform of the chamber’s governance. I think that was the perfect example to set. Additionally, making the chamber efficient and able to represent and serve its membership is critical. I applaud the team last year for taking on a topic that is challenging, because we all have strong feelings. That’s one of the great things about the ACCJ. We are a volunteer group for the most part, so we’re putting in our time for things we feel passionate about. I look at those as great developments last year.

What might be the long-term effects of Japan’s border restrictions? Sometimes, when we consider this question, we may be too narrow in our thinking. There’s a political dynamic across the globe. Governments are responsive to their constituencies. If we look at it simply as a business issue or a science issue, we’re sometimes going to miss and talk past each other when we’re trying to be effective.

I feel the key when we talk about advocacy regarding entry restrictions is to focus on the business impacts. They are real, and some of them will be long term—especially when you consider things on a global scale and juxtapose the decisions made here with those of other nations looking to revitalize their economies. I think framing our advocacy in those terms will be more helpful.

Ultimately, however we come out of this, there will be a certain degree of feeling that we learned something as a species that we’re not going to unlearn. Maybe our tolerance to risk and how we approach decision-making have been forever changed. From what I understand of the 1918 flu pandemic, ultimately, you could say that it ended socially well before it came to a scientific end. It was more a change in our thought pattern for what risk we were willing to accept and how we were willing to operate. I won’t be surprised if we see something similar with Covid-19.

Anything else you would like to say to members?
It may be recycling something I said earlier, but everyone I’ve met in the chamber—especially those serving in positions of responsibility on the Board of Governors and as committee leaders—are so passionate about what they do. And that’s a great group of people to work with. We’ll have our differences, but we’re professionals and we’ll work through things. Having those spirited debates, where we learn from one another and so attain better outcomes, those are exciting things to be a part of. As I said, I didn’t seek this position, but I’m super excited about leading the chamber, especially given the events going on around us as a community, in the United States and Japan, and around the globe.

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Photos by Miki Kawaguchi/LIFE.14

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Japan Surprises 2022

Ten possible twists and turns in the Year of the Tiger

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With the Year of the Tiger well underway, here is my annual list of Japan Surprises. These are not baseline scenarios or probability-ranked results of quantitative models but, rather, some of the things that keep me up at night thanks to that nagging suspicion that some events could change everything. And yes, there is plenty of room for positive surprises from Japan in 2022. Enjoy, send me your comments, and I wish you a prosperous and happy Year of the Tiger.

1. Kishida’s Dream Comes True: Wages Rise 3 Percent

After decades of wage restraint and unions lobbying for long-term job stability, rather than short-term pay hikes, Japan’s job market is now super tight. The war for talent is intensifying. Prime Minister Fumio Kishida is opportunistic and right to follow his predecessor’s top-down call for higher wages; and his chances of success are higher than Abe’s ever were. Still, aggregate wage growth of more than 1.5–2 percent would be a big surprise. An even bigger surprise would be if Japan’s wage and income growth actually feeds higher consumption rather than an even bigger pile of under-the-mattress savings.

Watch out for more companies following Hitachi’s lead this year. Japan’s top conglomerate recently announced they’ll switch to hiring and promoting based on professional skills, rather than generalist ability and seniority. A switch to performance-based compensation starting this year is now corporate policy. If, as I suspect, Hitachi’s break with deeply entrenched labor compensation practices catches on and spreads to other companies, then we may see change. Japan’s average wage may not move up as much as Kishida desires, but the variance inside companies and among industries is poised to rise significantly.

This, in my view, is the reason Japan’s consumer spending could surprise on the upside in the second half of 2022: skills-based compensation equals higher job satisfaction, equals greater confidence, equals higher spending. Kishida watches out for the low end, while companies begin to incentivize human aspirations. And yes, this is exactly how Japan’s productivity boom will come about. If I’m right, prepare for positive surprises not just this year, but throughout the 2020s.

2. From Tax Liability to Regional Investments: Furusato Nozei 2.0

Japan runs one of the most innovative and successful redistribution policies in the world, its hometown tax program, furusato nozei.

Designed to revitalize rural communities, the scheme lets taxpayers nationwide buy goods and services offered by approved vendors from small towns and villages, with your purchase offset against next year’s tax bill. Of course, there are limits on how much can be deducted, but there is no question that furusato nozei works extremely well. Local producers are competing and beefing up their marketing to attract more “free-money” customers they did not have before, while Japanese taxpayers enjoy self-directing their hard-earned money towards goods and services they actually want, rather than just giving it up to the anonymous government. Make no mistake, Japan’s furusato nozei has made paying taxes fun and satisfying.

A positive surprise would be if Japanese leaders learn from this success and create furusato nozei 2.0. The current scheme channels income tax liabilities into consumption. In other words, it redirects the flow economy. A next generation version should focus on channeling assets into investments by redirecting the stock economy.

How? Just as local private producers now compete for national taxpayers’ yen, let local public leaders, activists, and politicians propose soft and hard infrastructure projects that need investment funds to get started. Again, national taxpayers all over Japan would be invited to evaluate and select the projects they want to support. When they make their investments, the amount would be credited against future fixed-asset or inheritance tax liabilities.

The economic impact is win–win. First, opening up prospects for investment money will energize local activists and leaders to get creative and propose concrete local soft and hard infrastructure improvement projects. Second, the scheme offers concrete incentives for Mr. and Mrs. Watanabe to unfreeze some of their massive pile of personal assets. Anything that can be done to turn mattress money into investments will be good for Japan.

Even better, if taxpayers can self-direct their hard-earned assets to socially productive investment projects of their choice, they will create a legacy for themselves and a better future for Japan’s coming generations. Here is a project worthy of being called New Capitalism, because the current system encourages you to do nothing but wait until your assets disappear into the black hole of inheritance tax payments.

3. Entitlement Reform: Asset-based Means Testing

Cutting public benefits and entitlements is unpopular in any country; but it is popular to tax the rich and redistribute wealth—particularly in Japan. As pressure mounts to fix runaway deficits, creative and unorthodox policy proposals to do so by cutting entitlements are being discussed.

Introducing financial means testing is one option. This is where, for example, anyone with net financial assets greater than, say, ¥10 million and no mortgage debt is no longer eligible for the full public pension or national healthcare. Here is an elegant policy solution that cuts entitlements and taxes the rich.

Importantly, asset-based means testing would redistribute wealth from the older generation (which owns the vast majority of financial assets) to the younger generation (which pays the vast majority of taxes). Yes, it’s a radical rethinking of the intergenerational contract, but nobody should be surprised by the creativity of Japan’s new generation of policymakers and politicians. Specifically, asset-based means testing is a pragmatic redistribution policy that can easily lend credibility and appeal to the design of New Capitalism. It would be a positive surprise to see concrete proposals along these lines in 2022, possibly even before the July upper-house elections.

4. Corporate Japan Starts Buying Startups

With very few exceptions, Japan Inc. has never really grown through acquisitions. In-house research and development and a proud our-team-first-and-only mentality have dominated, while mergers and acquisitions (M&As) have primarily produced turf battles and legacy redundancies rather than positive synergies. Case in point: two decades after Japan’s bank mergers, the three megabanks are still fighting shadow wars to stubbornly defend the proud legacy procedures and systems of the original partners.

For most Japan M&As, 1+1 barely adds up to 1.5. However, there has recently been some positive change, with younger chief executive officers—Recruit Co. Ltd.’s Hisayuki Idekoba, Sompo Holdings Inc.’s Kengo Sakurada, and Suntory Holdings Ltd.’s Takeshi Niinami, for example—unafraid to turn the challenges of growing through acquisitions into a real transformational opportunity. So, the 2022 surprise will be Japanese CEOs stepping out of their comfort zones and embarking on a full-blown, growth-through-acquisition strategy in general, and buying startups in particular.

The numbers speak for themselves. As in the United States, there are plenty of innovative and potentially transformative startups in Japan. Unlike the United States, Japan has establishment players that don’t buy outside innovation. Almost 90 percent of startup exits in Japan are through initial public offerings.

Meanwhile, about 90 percent of US startup exits are through acquisition. This difference in corporate growth strategy and leadership culture goes a long way in explaining the reason Japan’s established companies are less dynamic and less globally competitive than their US establishment counterparts.

In my view, a lack of startup innovation power is not Japan’s problem. The real issue is the almost utter unwillingness or inability of established players to leverage outside creativity to realize synergetic, transformational growth strategies. In fact, any analysis of the startup ecosystem in Japan quickly reveals that established corporations appear to be more interested in stealing from, or killing off, creative challengers.

No doubt this happens in Silicon Valley, but there is ample evidence that Japan’s establishment leadership culture is well behind in seeing startups and outside ventures as a pathway to new growth or a catalyst for often long-overdue internal transformation. Japan Inc. going on a startup buying spree would be a very positive surprise for 2022.

5. Japan Corporate Governance Goes Global, Japanese on Wall Street Boards

Corporate governance reform is on everyone’s agenda. Even the top stewards of US capitalism, the Business Roundtable, is advocating for a shift in focus from shareholder value to multiple stakeholder interests.

Well, thank you, but isn’t this exactly the sort of leadership at which Japanese CEOs supposedly excel? Yet, cross-national corporate board representation has been basically a one-way street. There are now just over 60 non-Japanese serving on the boards of Japanese listed companies, but you can count on one hand the number of Japanese nationals serving on the boards of US listed companies. There’s Oki Matsumoto at Mastercard Inc., Jun Makihara at Philip Morris International Inc., and Hiromichi Mizuno at Tesla, Inc. Looking beyond the United States, Japan is represented on just one other major global board, that of the Renault Group, on which sits Yu Serizawa. A righting of this imbalance would be a real surprise.

Should Japan-style corporate governance go global? Certainly not in its convoluted, insider-obsessed, accountability-light, and generally opaque manifestation of the keiretsu and post-bubble era. Reform is very necessary and has gathered considerable momentum over the past decade. In my view, a good way to judge whether true progress on corporate governance reform has been made is by whether (or when) US companies begin to appoint Japanese to their boards. At the very least, it would prove that Japan’s leaders have become more global, more open-minded, and are now capable of demonstrating to global peers how Japan-style corporate stewardship can be very relevant when building a better, more sustainable, and inclusive world. Perhaps an even bigger surprise would be US tycoons actually listening to their advice.

6. US Supply-Side Push Brings Good Deflation to the United States, World

Just as 2020 forced us all to become fast-study experts in virology, 2021 triggered a rush to understand inflation. By early 2022, the consensus was overwhelmingly that, yes, inflation is real and is structural, not transient.

The Federal Reserve is well behind the curve and will have to step on the brakes much harder and longer than we all thought likely just three months ago. The contrarian in me is thus on high alert. A real 2022 surprise would be a full-blown US supply-side recovery, pushing down prices and delivering good deflation to, first, the United States and then the world.

Possible? Absolutely. Just look at the sharp, and now increasingly structural, acceleration of US business formation, running at more than two times the pre-pandemic norm. It could well be that 2022 brings that magic combination of new enterprise meeting new super ambitious labor. It’s high time to point out that, for every three Americans who are part of the Great Resignation, there are four signing on for new (and higher-paying) jobs. All said, the real 2022 big surprise would be that, thank you, the American Dream is alive and well.

7. Bitcoin Accepted for Tax Payments

When asked to explain the difference between the US dollar and cryptocurrency, I often quip that the dollar is backed by approximately $4 trillion in tax liabilities. If these are not settled, the US government comes with guns and handcuffs to take away your freedom. Against this, bitcoin is backed by absolutely nothing. Unlike the governments of China, Japan, or European nations, the US government has remained remarkably tolerant of the open attack on the state’s currency monopoly led by crypto tycoons and evangelists. The American spirit of innovation before regulation and challenging authority appears to be alive and well. A real surprise would be if US lawmakers took the next step and moved from tolerance to acceptance. A new era of global finance will start on the day the US Internal Revenue Service agrees to accept bitcoin or other cryptocurrencies to settle tax liabilities. Until then, have fun trading crypto, but don’t ever forget to have enough of a real-dollar-liquidity cushion at least to pay your taxes.

8. China Synthetic Biology Moonshot for Domestic Food Security

China is the world’s largest importer of food, and this dependence on global food sources is perhaps the biggest tactical and strategic challenge leaders of the most populous nation face. So, it comes as no surprise that China has created massive incentives for its top scientists to speed up progress in synthetic biology in general, and the development of lab-grown and high tech-assisted food in particular. The question is not if, but when a super-massive solution will be announced by the country’s biotech leaders. The sooner it comes, the more of a surprise it will be. Just as the United States has become a net exporter of energy over the past decade, China moving towards food self-sufficiency will fundamentally change more than just trade patterns and economic dependencies. A science-based breakthrough on food security for China, and thus the world, would supersize the country’s credentials as the rightful global leader it aspires to be.

9. United We Stand: Global Covid Policy Commission

The pandemic has been with us for more than two years, yet it feels very much as though we’re nowhere close to agreeing on the optimal public policy response. Rebuilding public trust in both science and policymaking is poised to be one of the biggest post-Covid challenges. Surely, we should be able to do better than the every-strongman-for-himself response we have gotten almost everywhere. A huge positive surprise in 2022 would be the setting up of an independent global Covid policy commission, mandated to analyze—without fear or favor—all the policy measures taken around the world, including hard lockdowns, soft lockdowns, border closures, and quarantine regimes. The goal would be to acknowledge common ground for what has and has not worked.

In my view, the sooner global leaders pull together and demonstrate that they actually want to learn from the various responses to the pandemic, the better the chances that mankind in general, and public life in particular, will emerge stronger and more resilient from the calamity.

10. Germany Beats Brazil to Become Soccer World Champion

On December 18, the FIFA Soccer World Cup final will take place in Qatar. While it is still uncertain if Japan will qualify, Germany was the first team to do so. Team Deutschland not making it to the World Cup final would be not just a surprise, but a real shock. After all, I am German and, every four years, when the World Cup is held, I cannot help but unashamedly reveal a massive bias. May the best team win in 2022, the Year of the Tiger!

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Leveraging Lessons Learned

Building an innovation ecosystem for a healthier, more secure future

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Since the onset of the Covid-19 pandemic, the biopharmaceutical industry has come together in unprecedented ways to attack the virus, and we have achieved incredible progress in just two years. Working across the global healthcare ecosystem, biopharmaceutical companies, academia, and the public sector have harnessed decades of investment, research, and past discovery to deliver safe and effective vaccines and treatments to patients. As a result, the industry was able to develop vaccines in just 12 to 18 months, and almost 11 billion doses have been administered worldwide.

To put this success in perspective, it typically takes eight to 10 years to develop a vaccine, and the overall success rate is only 5 to 10 percent.

But our work is far from over. Today, there are more than 1,700 clinical trials underway globally for treatments and vaccines to combat the virus. Across the industry, companies are continuing clinical research to assess whether modifications or boosters are warranted, and to identify further treatments. We also continue to scale up production facilities and manufacturing capacity, while working collaboratively on manufacturing to increase the supply of vaccines and treatments.

Enhance the Innovation Ecosystem

As the pandemic continues, we must build on lessons learned and prepare for challenges ahead. This begins with strengthening the innovation ecosystem that led to the discovery and development of Covid-19 vaccines and treatments, and ensuring that the healthcare system is more resilient in the future.

Given the Japanese government’s desire to be better prepared for future healthcare challenges, enhance domestic biopharmaceutical research and development (R&D), and promote economic growth, now is the time for Japan to take concrete steps to enhance its innovation ecosystem. This will help the government achieve its important domestic goals, including safeguarding patients’ early access to innovative medicines and treatments as well as ensuring that Japan remains a world leader in advancing public health.

Regulatory and reimbursement policies that incentivize innovation are needed to develop an innovation ecosystem that expands R&D and drives economic growth in Japan. However, in recent years, the policy environment in Japan has become increasingly difficult for the biopharmaceutical industry.

Since 2015, more than 50 new drug pricing rules have been introduced, and we are starting to see the results of these policies that disincentivize investment and undermine early access to innovative medicines. For example:

• Between 2015 and 2020, biopharmaceutical industry R&D investment grew 33 percent on average globally, while in Japan it declined 9 percent
• The number of medicines in clinical trials in Japan grew 8 percent annually between 2009 and 2016. However, following the implementation of harmful policy changes, growth in clinical trial activity has fallen to 3 percent annually
• In 2016, 51 percent of global new medicines from the prior five years were available in Japan, but by 2020 had declined to 43 percent

Strengthen US–Japan Collaboration

It is clear that the Covid-19 pandemic has provoked some important reflection in Japan on the policy environment for innovative medicines, and there is growing recognition of the need for Japan to improve its innovation ecosystem.

The government must ensure greater transparency in both its healthcare policy decision-making and its application of new policies. More focused bilateral engagement could help achieve progress in these areas. A US–Japan healthcare dialogue under mechanisms such as the Competitiveness and Resilience Partnership or Economic Policy Consultative Committee could help ensure that both countries remain global leaders in driving innovation in the life sciences and promoting global health security.

Having joined the Pharmaceutical Research and Manufacturers of America in January as the new Japan representative, I am honored to speak on behalf of the biopharmaceutical industry at this critical time. I look forward to working with the ACCJ and policymakers in Japan and the United States to advance strong economic and health ties between our countries, and to ensuring that Japanese patients continue to have early access to lifesaving and life-enhancing medicines.

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