Japan Surprises 2025

Ten possible twists and turns to watch for in the Year of the Snake

Predicting the future is both a science and an art. Science-based quantitative forecasts may appear more credible, but are ultimately doomed to miss real breakthroughs. This is because the focus on the past means you cannot escape modeling the future as a recurrence of what has happened before. In contrast, forecasts based on intuition, inspiration, or experience are often seen as not credible and easily dismissed. Like a beautiful Bach sonata, the former follows a predictable logic, while the latter resembles an inspired jazz solo, delivering genuine surprises.

What we know for sure is that 2025 will be shaped by both the evolution of existing trends and the truly unexpected. And with the Year of the Snake poised to be a good one for Japan, here are 10 possible twists in what I hope will be a happy, healthy, and prosperous year for all readers of The ACCJ Journal.

1. Japan’s inflation rate spirals.

Inflation will accelerate in Japan during 2025, ending up significantly higher than in the United States, Europe, and China. Why? On top of continued cost-push inflation from a weak yen, demand-pull inflation will be turbocharged by three factors: wages rising faster than expected, the real estate boom delivering a more powerful positive wealth effect than anticipated, and both monetary and fiscal policy remaining too stimulative for too long.

2. No-more-tax-hikes policy leads LDP to win.

The Liberal Democratic Party’s (LDP’s) loss of parliamentary control in 2024 was a shock, and with it came a significantly higher risk of tax hikes. If the LDP reasserts its pro-business, pro-risk, pro-deregulation stance, the party’s leadership credentials will grow. The greater the contrast to the more socialist-inclined opposition parties, the greater the chances of a strong LDP comeback, possibly in a double election of both the upper and lower houses of the Diet in July. The upper house election is mandatory, while the lower house election can be called by the prime minister—probably Ishiba’s swan song.

3. Next-gen LDP leaders promote abolition of inheritance tax.

Over the next 15 years, an estimated ¥500–750 trillion of household wealth will become unstuck due to inheritance. That’s 1–1.5 times Japan’s gross domestic product (GDP). Much 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 doesn’t create growth or drive investments in future prosperity.

A long-overdue, positive surprise would be if Japan’s next-generation leaders demanded reform of the inheritance tax. Japan could take a cue from the otherwise much-admired Nordics. Recently, Sweden cut its inheritance tax to zero and Denmark dropped its to 15 percent—policies that promote channeling the accumulated wealth of the baby boomers into future investments. Now that’s worthy of being called new capitalism.

4. Japan wins a major global defense contract.

Japan’s national security policy took a clear turn in 2022, and the defense budget will more than double from one to two percent of GDP. A real surprise would be if, alongside increased defense spending, Japan were to win 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 would be.

5. More buyouts than initial public offerings (IPOs).

Japan’s management and leveraged buyout boom will accelerate, spurred on by pressure from shareholders and stock exchanges. Why stay listed and deal with all those shareholder demands when you can be private and control your own destiny?

The surprise? It’s possible that 2025 could be the first year that more companies go private and delist from the stock market than new start-ups go public and list via IPOs. As Japanese banks become more and more profitable—and thus keener to lend—this will become increasingly probable. The battle of foreign private equity bidding against local white knights will not just be fun, it will pull Japanese equities out of the value trap.

6. Japan Inc. starts buying start-ups.

Japanese chief executives could begin stepping out of their comfort zones and buying start-ups for future growth, rather than just relying on in-house research and development teams.

One reason for US corporate dynamism is the aggressive use of outside innovation to supplement, improve, or disrupt inside businesses—90 percent of US start-up exits are acquisitions, while 90 percent of Japanese start-up exits are IPOs. Mark my words: Japan’s new generation of CEOs is taking risks, is ready to challenge the complacent business-as-usual mentality of its executive teams by looking outside, is keen to create a positive legacy, and is not afraid to try and make 1+1=3 or 4.

7. Foreign home-helpers for Japanese families.

Japan will deregulate visas to allow working families to sponsor home-helpers and domestic caregivers. The combined problems of a growing labor shortage, a falling birthrate, and more women aspiring to a professional career cannot be solved without outside help for the family.

A very positive surprise would be if Japan followed the Hong Kong and Singapore models. There, professional couples can sponsor home-helpers with proper supervision and governance by local authorities. This is a pragmatic solution to help reverse the fallout of the declining birthrate and reduce runaway costs of public support for the care of children and the elderly.

8. Trump’s tariff threat works, opening China and avoiding a cold war.

The world worries about the potential negative effects of US President-elect Donald Trump’s trade war rhetoric in general and his tariff threats against China in particular. But what if the threat works and delivers a constructive reengagement between the United States and China, bringing about the de facto end of the prospect of a new cold war between these two superpowers?

It’s a long shot scenario, I know, but were it to happen, Japan probably would be a loser. Global investors would reinvest in Chinese risk assets, foreign direct investment into China would accelerate, and, most importantly, China’s globalization would be turbocharged. Its automobile and machinery companies could be allowed to build factories and create jobs in the United States, competing head-to-head with Japan.

Sure, it seems unlikely—internal US politics is easier to manage when there is an external enemy—but if Trump can make a big deal with China, the Japan premium will be at risk.

9. China is forced to start a currency war.

Another worry for Japan in 2025 also comes from China. If reengagement with the United States fails, China could face rising unemployment and deflation, resulting in more idle capacity and surging bad debt.

Already, China has been trying to stimulate growth since last summer by easing monetary and fiscal policy. If the economy does not respond and does not begin to accelerate by late spring, currency devaluation may become the last option. China being forced to start a currency war by the compounding forces of domestic deflation and US protectionism would force a dramatic disruption for not just Japan’s cyclical competitiveness, but its future prosperity.

10. Japan’s Sakura 15 women’s rugby team wins the World Cup.

On September 27, the final of the Women’s Rugby World Cup 2025 will be played at London’s Twickenham Stadium. Japan’s Sakura 15 is currently ranked 11th in the world. I’m told that reaching the quarterfinals is possible, and making the finals would be truly sensational. Japan beating the English on their home turf would be good fun, wouldn’t it? Go Sakura 15!

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.

Japan Unlocked

Kreston ProWorks opens doors with local expertise and global reach.

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Presented in partnership with Kreston ProWorks

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Kreston Global, the world’s 13th-biggest accounting network in terms of revenue according to UK-based trade magazine International Accounting Bulletin (IAB), is now the 10th-biggest in Japan per the IAB, up one spot from the year before.

With 160 independent member firms and 25,000 experts across 750 offices in 115 countries, Kreston Global provides unparalleled access to a wealth of international resources and expertise.

There are three member companies in Japan. Two provide audit services and the third, Kreston ProWorks, offers a full slate of inbound accounting, payroll, tax, and corporate services.

Established in 2007 by Marek Lehocky, the firm has built a strong reputation as an indispensable partner for companies looking to enter the Japanese market. “Our mission is to make setting up and operating businesses—including immigration, accounting, payroll, labor, and tax compliance—as easy as possible in Japan, so our clients can focus on building their business,” Lehocky told The ACCJ Journal.

Full Slate of Services

Kreston ProWorks delivers a nimble team of bilingual experts with intimate knowledge of how processes in Japan differ from those in other countries. Specialists in inbound accounting, tax, payroll, and human resources, Kreston ProWorks offers a much wider range of services than other companies:

• Company formation and corporate services
• Employer of record (EOR)
• Immigration and business license support
• Legal and transactional support
• Nominee representative
• Virtual office services
• Market entry and business consulting

EOR, for example, is especially helpful, as it allows companies to come in for a short time and deploy resources quickly to complete a specific project. It is also a way to test the waters when considering Japan market entry without investing in a full move.

“With all the requirements and steps involved, it can take at least seven or eight months before people can come into the country,” Lehocky said. “We can cut that to just three or four months with foreign employees and a few weeks with local hires.”

Local Knowledge Matters

Just as understanding the local market is key to a business’s success, so are local operations. While many companies provide services offshore, Kreston ProWorks does everything in Japan.

“Clients want to have closer proximity to Japan, because Japan is a black box of sorts, and they want to make sure that the people who are handling their operations actually understand the intricacies and nothing is being lost in translation,” Lehocky explained. “We act as our clients’ internal team of experts and ‘goalkeepers’ for each of the service areas that we provide. We stay on our client matters and drive the parts that we are in charge of so our clients can focus on other parts of their business. Communication and getting things done is a key to success.”

If you are interested in exploring market entry or are already here and wondering if you are doing everything the right way, Lehocky invites you to get in touch.

“Reach out,” he says. “We would be happy to arrange a time to introduce ourselves and get to know you and your needs. You always have alternatives.”

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Get in touch today for a free consultation:
Carla Willmes, business growth and communications lead
cwillmes@krestonproworks.com
03-4520-5530 • www.krestonproworks.com

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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.