Reflection and Optimism

While challenges remain, the future of business in Japan looks bright

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After the challenges of the past two years, I was looking forward to using my column, in this first print issue of 2022, to highlight the incredible resilience shown by our members and the bright road, filled with potential, that lies ahead for the American Chamber of Commerce in Japan (ACCJ) this year. That’s still what I’d like to share, but I would like first to acknowledge the events unfolding in Ukraine and the resulting humanitarian crisis. Our thoughts are with those in the region, including the people who some of our member companies have on the ground there. As the situation continues to evolve rapidly, we know that more uncertainty and many challenges may lie ahead for us all. The ACCJ will continue to do our utmost to support our members and member companies in all that they do.

Maintaining Momentum

It is with this in mind that I would like to pause and reflect on the journey we’ve been on and look ahead with positive energy.

Over the past several months, talking to leaders of companies large and small, I have found that they are fairly optmistic about the prospects for this year. They are hopeful about moving forward and getting on with business. Of course, there are challenges—supply chains, travel—but there is a feeling that these can be overcome as the ongoing pandemic evolves into a new normal.

Despite two years of frequent quasi and full states of emergency that have greatly disrupted business in Japan, the chamber and its committees have done a stellar job of maintaining momentum and activity. We owe all the committee leaders and members enormous gratitude for their tireless efforts to keep the ACCJ strong through these challenging times. In fact, we have even gained members during a period which could have caused companies to pull back from wider engagement as they looked inward for survival.

“Over the past several months, talking to leaders of companies large and small, I have found that they are fairly optimistic about the prospects for this year.”

Virtual events have not only been critical to this momentum but have also allowed us to strengthen our One ACCJ initiative, which aims to bring our three chapters—Chubu, Kansai, and Tokyo—together and extend opportunities to everyone across the regions. And that momentum goes beyond Japan, too, as our collaboration with the National Association of Japan–America Societies has received a boost.

But, as beneficial as these events have been, we are all itching to meet in person once again. Networking at live events is an important benefit of chamber membership, and one that President Om Prakash, the Board of Governors, and I are eager to bring back—bit by bit and in the safest way possible. We already have some large events lined up for the coming months, and you’ll notice that more and more hybrid events are appearing on the calendar.

Government Dialogue

We are also looking forward to greater engagement with the Japanese and US governments. Our advocacy efforts regarding travel and entry restrictions have been a top priority and have received great interest from and coverage in Japanese-language media. We are committed to continuing our efforts in this area to help our member companies.

The US Embassy Tokyo has been supportive in these efforts, and we are excited about the opportunity to work with Ambassador Rahm Emanuel in the months and years to come.

We also hope to return to Washington this year for a DC Doorknock and resume our previously annual visit to meet with members of Congress and the administration, as well as officials from various government agencies. Covid-19 curtailed this important activity for the past two years, but it is great to feel the momentum both here in Japan and in DC as our planning gets underway for the next one.

New Opportunities

The digitalization spurred by the pandemic has also brought new ways for us to communicate with and support members. Bringing The ACCJ Journal in-house has given us more opportunities for members to share and showcase their achievements, and for us to spotlight their expertise, through a refreshed approach to our digital and print content.

And through our broader communications efforts, we have also reached new demographics and drawn increased attention to our activities from those outside the chamber.

New initiatives such as member profiles in the digital Journal and the President’s Shout-out, in which Om highlights members, are examples of how digital is providing flexibility that allows us to better connect and accelerate our responsiveness.

To help member companies search for and recruit the best talent, we have launched the ACCJ Job Board. Now active on our website, this is a great place to look for your next role in Japan’s international business community and for companies to identify highly skilled talent to join their team. It’s easy and affordable to post openings and harness the power of the ACCJ network.

To Success

While the pandemic stretches on and geopolitical conflict presents added challenges around the world, I’m confident that the energy and agility that has allowed the chamber to thrive even during these difficult times will continue—and reach new levels—this year. We’re already off to a great start, and the enthusiasm of Om and the Board of Governors, as well as the leaders of our committees and member companies, makes me certain that we are turning the corner and easing into a prosperous new world.

Lastly, we very much want to have an increased dialogue with our members this year. I encourage you to contact me—as well as the ACCJ team—to share your ideas, tell us what you need, and let us know how we can help you grow your network and improve your business.

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Member Highlight: Kevin McAuliffe

The Newport Ltd. president and 27-year ACCJ member shares his business experience in Japan

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What path led you to your current role in Japan?
I had worked for multinationals such as Time Inc. and Reuters in Asia from the mid 1970s to the early 1990s, but always wanted to start my own business. The opportunity finally came in late 1993, when I was asked by Reuters to transfer from Tokyo to the New York office. A former colleague from my Time Inc. days in Hong Kong was looking for an entrepreneur interested in importing and distributing a variety of consumer products in Japan that he sourced from China and other markets. This was prior to Don Quixote, Costco, and the ¥100 stores, so it seemed like a great opportunity. In January 1994, I left Reuters and established Newport Ltd.

What challenges is your company or industry facing?
Initially the issue was capital. I had to use a combination of my own savings and generous payment terms from my merchandise suppliers to get through the first few years. Next, it was competition as the above-named businesses and others entered the low-priced consumer product market. Newport then pivoted to branded goods and enjoyed solid growth for many years. However, during the past two years, we have seen major changes in consumer purchase patterns and are now testing strategies for the new normal.

What inspires you?
We strive for win–win outcomes in all our transactions. Providing opportunity to our customers, suppliers, and staff has been the driving force behind our growth and longevity.

“As a small to medium-sized enterprise, we succeed by innovating and executing well. In the constantly changing consumer products space, we have developed the capability to bring new products to market incredibly fast.”

What issues are important to you and how can you make a difference through your work?
Our company strives to be a sustainable corporation. We have been ISO 14001 certified since 2002. That’s the internationally agreed standard that sets the requirements for an environmental management system. From the beginning, all staff have been involved, and everyone is a member of a team working on a number of social, economic, and environmental goals. In addition, each of our brands is focused on several relevant Sustainable Development Goals set by the United Nations. Making positive impacts in these areas allows employees to find meaning beyond just their normal work responsibilities.

What is unique about your business?
As a small to medium-sized enterprise, we succeed by innovating and executing well. In the constantly changing consumer products space, we have developed the capability to bring new products to market incredibly fast. One example from some years ago is going from an initial supplier meeting to having a product in retail stores in less than five weeks. Though there are risks in being first to market, we use a kaizen cycle to constantly improve our ability to bring the right products to our customers.

How do you define success in Japan?
We can have profits while performing poorly and can lose money while doing a great job, so financial performance on its own is not enough. Success is a moving target, but I just ask, “Did we do our best?”

What advice do you have for someone new to the market?
Japan is a wonderful place to do business. There are plenty of challenges in finding capital, talent, and customers, but there are so many pluses. Years ago, I remember someone telling me that the opportunities in the Japanese market were in just avoiding the elephant’s feet. As long as you didn’t compete directly with the big players, there was lots of space to operate—especially if you were agile and creative. That was 30 years ago. Today, I would say that there are now more elephant feet, but there is still plenty of opportunity in between.

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Welcome to a New Year

ACCJ President Om Prakash looks forward to a productive 2022

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Hello, I'm Om Prakash, president of the American Chamber of Commerce in Japan. Happy New Year! You're in the most influential, largest international business community in Japan. You are adding your voice to over 600 companies, 3,000 members, and together we make a difference in possibilities for us in Japan.

This is an important year ahead of us. Not only do we welcome a new ambassador but, as our new administrations on both sides of the Pacific get to work together, there are new, exciting, and dynamic opportunities for all of us engaged in commerce between this important alliance of the US and Japan. We're here at the center of global tectonic changes in economies and security, and it's going to be an exciting year for us.

I'm also looking forward to getting out there and seeing you in person, and having in person events, as soon as it's safe to do so. I'm looking forward to the networking, the friendship, the opportunities that these events bring, and the strength that brings to our community.

I do have one ask of you. Get out there, get involved, join a committee, come out to networking events, get to know people. You're going to see you're going to get out of this as much as you put in—hopefully more. We are very active and have over 60 committees. I encourage you to take part in networking and contributing to our task force, to making friends, to making business connections, and making a difference for all of us.

I'm looking forward to working with you and figuring out how we can take these opportunities and maximize the advantage for all of us in business. I want to thank you for your continued support and commitment. See you soon!

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Resilience, Vision, and Opportunity

A challenging year has made the ACCJ stronger than ever

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As I prepare to pass the baton to Om Prakash as the next president of the American Chamber of Commerce in Japan (ACCJ), I am grateful for what we have all accomplished together this year. He and a newly elected Board of Governors will lead the chamber into 2022 with exciting opportunities for further growth and change.

I am proud that the ACCJ has shown resilience and maintained its status as the preeminent business organization in Japan supporting the foreign business community. It has been an honor and privilege to serve as president, and I look forward to continuing to support the ACCJ in other ways.

Constant Change

The uncertainty that began in 2020 has continued in 2021, and as the pandemic has evolved in unpredictable ways, so has the way in which we work and interact. The political landscape has also shifted, with leadership transitions in the United States and Japan. Change in 2021 has been constant, and the ACCJ has adapted well by becoming a more agile and tech-savvy organization.

As virtual events have become the norm, the ACCJ has embraced this new reality and used it as an opportunity to provide greater accessibility for all members and to increase our digital presence in the broader community. By using social media and bringing The ACCJ Journal in house, we have been able to boost our advocacy efforts. And through our diverse programs, we have reached a broader audience and enhanced our position as the voice of international business in Japan.

This year, we also made changes to the ACCJ constitution that modernize our governance and demonstrate that we are a dynamic and adaptive organization which continues to be a leader in corporate governance best practices.

Transformations

Chamber advocacy on digital transformation could not have been timelier. Our Japan Digital Agenda 2030 report was released just as the importance of technological infrastructure, support, and know-how became central to surviving and thriving as Covid-19 put traditional practices to the test.

And as our members have adapted to the pandemic, we have seen Japan’s overall corporate environment shift as well. Working remotely has been normalized, providing greater workplace flexibility—something the ACCJ has long been advocating.

The ACCJ is providing flexibility in events as well. We have hosted a few hybrid events, which combine the benefits of online and offline gatherings, and are gearing up to offer these more frequently in 2022. Our commitment to providing virtual access to all in-person events remains key to giving members the opportunity to participate in the way that best suits their needs. It also allows members from all chapters and overseas equal access to our programs.

The annual “alphabet battle” featuring (from left) Jesper Koll, William Hall, and Dave McCaughan returned on December 6 as a hybrid event of the kind we plan to host more of in 2022. Also pictured are (from right) moderator Patrick Newell and Special Events Committee Vice-chair Paul Kraft.

Stronger Voice

On the advocacy front, we’ve never been more active nor influential in promoting a positive business environment in Japan. The ACCJ has been one of the most vocal groups regarding border-entry issues and a science-based approach to policy. Together with the European Business Council, we conducted a survey to quantify the impact of border restrictions on our members and businesses in Japan, and we have been a consistent voice in media, advocating for changes to these policies. We have also worked to make our advocacy initiatives more impactful, effective, and efficient by aligning our priorities with four coordination groups:

• US–Japan Partnership
• Health and Retirement
• Sustainable Society
• Digital Society

The latter two were new in 2021 and represent very active areas of focus. For the Digital Society Coordination Group, digital transformation is a highly dynamic topic, and we leveraged the work started last year on the Japan Digital Agenda 2030 report to set up another task force focused on collaborating with the Japanese government to implement the recommendations outlined in the paper.

The Sustainability Coordination Group was created and we realigned the leadership of our Sustainability Committee in response to the pandemic, which increased the urgency surrounding this topic and accelerated the need for the ACCJ to show its strong commitment to being at the forefront on all aspects of sustainability issues.

Advocacy and ACCJ events focused on energy-related aspects of sustainability, social issues, and corporate governance—as well as the importance of diversity and inclusion—brought wider awareness and understanding to these matters.

Looking Ahead

Throughout 2021, the chamber has proven itself to be a responsive and progressive organization, pursuing and prioritizing the key interests of our members in a rapidly changing environment. We met with key US and Japanese government officials in a successful, hybrid-style Diet Doorknock and select in-person meetings with officials such as United States Trade Representative Ambassador Katherine Tai and US Secretary of Commerce Gina Raimundo.

We look forward to the arrival of a new US Ambassador to Japan in 2022 and, hopefully, more opportunities for in-person interaction with the US and Japanese governments.

Whatever the future holds, we can be sure that the ACCJ will continue to be impactful in its advocacy activities.

I want to thank this year’s ACCJ Chair, Eriko Asai, Special Advisor Christopher LeFleur, the Board of Governors, Executive Director Laura Younger and staff, as well as ACCJ leaders and members for their support, assistance, and energy throughout a very unusual year. It’s been challenging but, in some ways, I feel the need for distance has brought us all closer. I look forward to seeing what the ACCJ is capable of under next year’s leadership and congratulate Om and all the new leaders.

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A Transformation of Our Own

The ACCJ Journal expands from print to become a digital platform in 2022

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Transitions have been a way of life over the past two years. The coronavirus pandemic has forced companies to rethink how they operate, how they manage staff and workflows, and how they communicate. The ways in which we share information have also been evolving thanks to the internet, social media, and shifting consumption preferences. This, of course, began before Covid-19 forced an acceleration in digital transformation, but the crisis has made things that had been optional a necessity.

From my perspective, this evolution in workstyle and communication has been most welcome. That’s because, for me, it is old hat. I spent 2006–15 working entirely remotely. I embraced cloud-based workflows and project management tools in 2006 as well. And I began podcasting in 2010, launching a podcast network that involved hosts and content production spread across many countries. I was ahead of the curve, and I’ve been waiting a long time for what I consider normal to become so for everyone.

Finally, though the catalyst is an unfortunate one, we are here.

Turn the Page

The winds of change have also rustled through the pages of The ACCJ Journal. Since bringing the magazine in house at the start of this year, we’ve made some adjustments and additions that have allowed us to better meet the needs of chamber members and communications. This has been a prelude to a bigger shift.

As we head into 2022, The ACCJ Journal will undergo a transformation of its own as it moves beyond being simply a print magazine to become a digital platform. While we will continue to produce periodic print editions with focused themes, our primary medium will be digital.

“Providing adequate and timely coverage can sometimes be difficult when tied to a cyclical print schedule. Through The ACCJ Journal digital platform, we’ll be able to react at the right time and share the messages and views of the chamber more effectively.”

This will benefit the ACCJ and members in many ways. Perhaps the biggest benefit is flexibility. The pace of activities, discussion, advocacy, and business quickens all the time. Providing adequate and timely coverage can sometimes be difficult when tied to a cyclical print schedule. Through The ACCJ Journal digital platform, we’ll be able to react at the right time and share the messages and views of the chamber more effectively.

We’ll also be bringing stories to life in ways not possible on the printed page. This year, we added audio to The ACCJ Journal with narrated versions of stories available for streaming on our website and as a podcast. In 2022, we’ll be expanding this with more audio-first content and video which supports ACCJ advocacy and global business in Japan. And where the written word is concerned, a wider range of options will help us provide leaders with the best tools for achieving their goals.

Next Chapter

It’s an exciting time to be a publisher, and I’m looking forward to bringing many approaches that I have long used for other publications to The ACCJ Journal. But make no mistake: as the magazine spreads its wings beyond print, it carries with it a 58-year history of supporting the chamber. And it’s that history on which we will build a publication that’s fully at home in this age of digital transformation.

I’d like to close out the year by thanking you for supporting The ACCJ Journal—especially those who so generously give their time to share expertise and insights with our writers and readers. Although there will be fewer print editions of The ACCJ Journal, I know that this latest evolution of the publication will bring even greater access to the incredible knowledge of our members and the broader business community.

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The Case of the Missing Startups

Why biotechs find it hard to get going in Japan

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University and government venture funds play a much larger role in Japan than they do in Western countries. Yet we see fewer biotechnology startups here compared with, say, the United States, which is home to eight of the top 10 highest-funded ventures. Why?

I explored this with Dr. Hiroaki Suga, co-founder of biotech company PeptiDream Inc., in a recent episode of my podcast Disrupting Japan. A professor at the University of Tokyo, Suga did his post-doctoral study under Nobel Prize-winning biologist Jack Szostak at Harvard Medical School. As an academic and a researcher, Suga knows well the dynamics at play in biotech development and application in Japan.

With PeptiDream, which has created a platform for the discovery of highly diverse, non-standard peptide libraries that can be developed into peptide-based therapeutics, Suga has taken a different approach to funding. And it has paid off.

Founded in 2006, PeptiDream is now worth more than $3 billion and collaborates with many of the world’s largest pharmaceutical companies, including American Chamber of Commerce in Japan (ACCJ) members Eli Lilly Japan K.K., Bayer Yakuhin, Ltd., AstraZeneca K.K., and Novartis.

Less is More

What I learned from our discussion is that, in this situation, smaller investments may lead to better results.

“If you have $10 million, you will just burn through it,” Suga said, adding that less capital will keep you focused and get results that can lead to bigger things.

In PeptiDream’s seed round, it received $1 million from The University of Tokyo Edge Capital Partners Co., Ltd., a Japan-based seed- and early-stage deep-tech venture capital firm.

With limited funds, “You need to really develop technology that will allow you to collaborate with big pharmaceutical companies,” Suga explained. These companies set criteria, and don’t give you money immediately. “Once you reach [one set of] criteria, you can get money. Then you get to another stage and you get more money,” he said.

This approach carries less risk for pharmaceutical companies, and Suga sees little risk for PeptiDream, because he is confident that they can meet the criteria.

Obstacles

This unusual approach has worked well for PeptiDream, so why don’t we see more biotech startups succeeding this way in Japan?

Suga said there are several reasons.

“Venture capitalists are not investing in risky companies, and biopharmaceutical companies are high risk,” he explained. “If you are developing business software, after six months, you know if it isn’t working. But drug development is a long-term commitment.”

“The first is that venture capitalists are not investing in risky companies, and biopharmaceutical companies are high risk,” he explained. “If you are developing business software, after six months, you know if it isn’t working. But drug development is a long-term commitment. Venture capitalists have to wait, and they may not be able to do so. They may need to wait 10 years to realize the potential, but they are looking for five.”

“The second reason is that Japanese society prefers to go with what’s known,” he continued. In this case, it means that talent heads for the largest pharmaceutical companies, which are seen as stronger and a safe harbor. “For example, all my students go to big pharma. They don’t go to PeptiDream.”

But this isn’t so much a case of risk aversion—often cited as an obstacle to success in Japan—as one of familiarity. Their parents know the names of the big players, but not of small ones such as PeptiDream.

Large Japanese companies tend to have little interest in helping smaller ones. This chasm is one that the ACCJ is attempting to bridge with its Healthcare x Digital initiative, which completed its second annual competition in November.

Spin-off vs. Startup

The third obstacle that Suga cited is the fact that many startups in Japan are research units that have been spun off from large companies that chose to leave Japan. “They had a very good team here, so they decided to spin off. They already have a background from big pharma and continue doing [what they were doing],” he explained. “That means that they aren’t hugely different from the big companies.”

In the end, Suga said that the biggest change that needs to take place for Japan to become more fertile ground for biotech startups must be made at the university level.

“Professors really need to work hard to get technology to be very practical, to be very robust. You really have to put forth effort to get to the end,” he said. “Then, the Japanese government needs to support this type of research. That’s very critical.”

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Innovation Destination

US-led platform to provide healthcare traceability and stability in Japan

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As a super-aging society with a population of more than 100 million, Japan has the potential to become a destination for healthcare innovation. Its citizens have easy and equal access to quality healthcare services, with pharmaceuticals and medical devices playing important roles in improving quality of life.

But there are technological obstacles to overcome. The US medical device industry is leading the effort to develop a data platform in Japan which will enable traceability in healthcare. The platform will allow the collection, storage, and sharing of information among stakeholders (e.g., manufactures, vendors, and hospitals). It will become a critical tool for improving the quality and efficiency of Japan’s healthcare system and will help ensure a stable supply of medical goods for healthcare providers.

Leveraging Tech

High-speed internet is nearly ubiquitous across Japan, but its benefit to healthcare is hampered by rules, systems, and business practices put in place before the internet era. Healthcare data is stored in a way that makes it difficult to share among stakeholders. This issue became obvious as the Covid-19 pandemic took hold and the country found it difficult to:

• Track medical supplies
• Monitor public health
• Analyze collected data

Medical devices in Japan now carry a unique device identifier and all products are labeled with a GS1-128 bar code that contains a Global Trade Item Number. Some products, such as those related to orthopedics, are even tagged with radio frequency identification (RFID) information so that every item can be tracked, traced, and reported on.

Currently, RFID is only used to improve productivity within an organization. But as more companies introduce RFID technologies, to minimize confusion and inconvenience, the industry has agreed to:

• Standardize the RFID format
• Develop a platform to store and share data

The platform will enable manufactures to offer products that allow stakeholders to use all associated information to improve the quality and productivity of the healthcare system and to stabilize the supply of medical products. Expected to be available in mid-2022, the platform is being developed under the Smart Logistics Service portion of the Japanese government’s Cross-ministerial Strategic Innovation Promotion Program.

Government Support

The US medical device industry is part of a study group supported by Japan’s Ministry of Health, Labour and Welfare (MHLW), which provides grants to help enable traceability of drugs and medical devices to improve safety and efficiency in hospitals. The goal of this study group is to set the basic feature requirements for electronic health-record systems used in hospitals. Guiding documents help hospitals and vendors introduce and use bar codes and RFID technology. With these two systems, traceability in the Japanese healthcare system can be dramatically improved.

Traceability in healthcare enables us to see the movement of prescription drugs and medical devices through the supply chain. We can trace the history of the transfers and locations of a product, starting from the point of manufacture. We can also look ahead to see the intended route of the product to the point of care. It also helps provide greater oversight of medical device performance for effective post-market surveillance in the event of adverse event reports or product recall alerts.

With increased traceability and productivity along the whole supply chain, the quality and efficiency of healthcare services provided in Japan will improve, and a stable supply of medical goods will be guaranteed. Data can also be collected automatically, and shared among stakeholders for analysis that will lead to improvements in care.

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Thank You, Naoko Kitada

After nearly three decades, we’ll miss an important member of our team

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One of the strengths of the American Chamber of Commerce in Japan (ACCJ) is the dedication and commitment of our office staff. Their dedication provides the continuity that allows the ACCJ to continue to provide member-focused services and have the ability to adapt to member needs over time.

This is especially true in the case of Naoko Kitada, who retired from her position as accounting manager on October 31, after more than 28 years. She joined the ACCJ on October 1, 1993, as assistant accountant.

Evolving Chamber

Looking back to that time, Kitada remembers how the chamber was “very American and very free” compared with the environment at her previous company. In her prior job, she had helped expats living in Japan, so working with the ACCJ was a natural transition. And we were very lucky that she found us.

“A few years after I joined, the ACCJ began doing more advocacy work and the external affairs positions were created,” she recalled. “As the number of members grew, we needed to create an even more professional office environment. The chamber’s business was getting busier each year, more professional, and the chamber became more focused on membership services.”

Teamwork and Family

People are the most valuable asset an organization has, and this belief is built into the ACCJ’s culture. From time to time, members of the team will face personal challenges, and we are committed to standing by to support them as best we can. This was the case in the accounting department in 2011, when fellow accounting staff member Maria Franki was diagnosed with amyotrophic lateral sclerosis (ALS).

I was deputy executive director at the time. Kitada remembers this as a moment when she truly saw how the ACCJ prioritizes the well-being of our people.

“They allowed me to work a flexible schedule so that I could help Maria even during working hours,” she said. Franki, who had been part of the ACCJ family since 2001, died of ALS in 2011.

Later, when Kitada’s mother also suffered from ALS, she needed to visit her house every weekend. “You and Sam [Kidder] were very kind and let me work a flexible schedule and from her location,” she told me. This was at a time when remote work was not common.

When asked about her greatest experiences working at the chamber, she cited having the opportunity to grow as an accountant and climb the ladder to eventually lead the department. I was pleased to hear that the relationships she had with me, my predecessor Samuel Kidder, and former Deputy Executive Director Joel Glasser were high on that list. “They always made me feel that my opinions had value,” she said.

Retirement Plans

I asked Kitada what she plans to do now that she has retired. She said that she will enroll next April in a university course for those over 50 to study gardening, trees, and nature.

Will she miss the chamber?

“The time at the ACCJ has been the highlight of my life—the best days,” she said. “I met many friends through the ACCJ. Many have left, but we still stay in touch. That’s a treasure in my life.”

On behalf of the entire ACCJ, I extend a heartfelt thank you to Kitada for her decades of service and wish her all the best in her new adventure.

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This Time Is Different

A new and stronger Japan emerges

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“This time is different.” These are four very dangerous words. When you hear them, it always pays to be extra skeptical—especially in the context of someone giving you financial advice or presenting an economic forecast. Personally, I always hold on to my wallet extra tight when the “trust me, this time is different” clause is invoked. We’ve all been there in our respective professions and passions; it takes a thief to know a thief.

As an economic strategist and professional Japan optimist, I certainly do have an extra hard time trying to make my case. The legacy of Japan’s lost decades (1991–2009) is incredibly strong. I often get a similar reaction to the one that hard-core Elvis fans must get when they insist that the King lives on. However, unlike the King of Rock ’n’ Roll, the Japanese economy is very much alive. In fact, there is plenty of hard empirical evidence that Japan not only has changed, but also that it has what it takes to be an economic powerhouse—and the envy of the world in terms of economic sustainability.

So, what’s different this time? Why won’t Japan slide back into another lost decade? That won’t happen because three fundamental forces have changed from negative to positive:

• Corporate ownership
• Public policy
• Focus among the elite
• Competition Welcome

The ownership structure of corporate Japan has changed from a closed, insider-based system to an open, competitive one.

In economics, nothing matters more than ownership. Equity ownership dictates the allocation of resources. It is the very basis of power for all the essential corporate decisions: financial, strategic, human capital. Ownership defines the true corporate culture. Twenty years ago, more than half the equity ownership of Japan Inc. was tied up in mochiai (cross-shareholding). Today, it is less than five percent.

This breakdown of Japan’s keiretsu (company network) ownership structure is the key reason to be bullish on Japan. The old Japan Inc. was a system of insider capitalism that incentivized bad economic decision-making. Group banks kept lending to group companies, not on the basis of economic merit but for the sake of maintaining relationships. Supply-chain group companies were forced into utter dependence on the conglomerates and the banks that owned them. This allowed de facto zero price power and no room for competitive diversification or independence.

Imagine if your company had been built using your brother-in-law as a supplier. Cutting him off when a more efficient and better supplier emerged basically would be impossible, while incentivizing him to change his ways would take time.

In finance, the mochiai fueled a debt bubble and then kept zombie companies alive for much longer than their economic worth warranted. In management, this enforced a “closed fortress” corporate culture of rule followers and yes-man workers who, in the case of failure, had nowhere to go, because the other fortresses were not open to them.

“While the past decades were marked by defeatism and fatalism, today’s Japan is marked by ambition, confidence, and a newfound idealism.”

— Quote Source

In contrast, today’s corporate Japan has liberated itself from the group-ownership straitjacket and has turned from a membership-only club to an open-for-business structure.

The recent case involving attempted shareholder vote suppression at Toshiba Corporation proves the point. The old Japan Inc. would have gone out of its way to keep Toshiba in the group, thus holding the company’s assets hostage to continued in-group control. Instead, Toshiba’s ownership has fundamentally changed.

Outside capital has come in and the assets are being strategically refocused on core competence. This includes previously unthinkable actions. Shareholders ousted the chief executive officer and chairman, while the board has become dominated by outside directors’ opinions—even going so far as to propose a breakup of the company as the best forward strategy for all stakeholders.

Just a couple of years ago, such moves were unimaginable; but now they are happening. While Toshiba is a dramatic case, we are seeing many examples of economically rational changes in corporate strategies across all industries.

Make no mistake—this new openness has been made possible by the removal of the cross-shareholding structure. Japan Inc. has turned from being closed and insider-focused to being open; not just for business, but to new strategic partnerships, open innovation, and letting core-competence assets sweat like never before. Yes, it is different this time.

Pro-growth Policy

Public policy has changed from political instability and ad hocism to stability and pro-growth consistency.

From 1990 to 2012, Japan had one of the most unstable political leadership regimes in modern history. In contrast, today’s Japan has become a bastion of political stability. Yes, we’ve just had an election, and a new prime minister, Fumio Kishida, has taken office, but the policy team is full-on Liberal Democratic Party (LDP). In sharp contrast to the aforementioned period of regime uncertainty, today the LDP controls just about two-thirds of the Diet.

Make no mistake: Japan’s LDP is the envy of the democratic world. Unlike the situation for leaders in the United States and most European countries, where ruling parties are struggling to secure a majority, Kishida’s political and parliamentary control is rock solid. He can actually get things done. This is good news for the private sector—whether we identify as entrepreneurs, business leaders, investors, consumers, pensioners, or a combination thereof.

Of course, you may agree or disagree with some of Kishida’s policies but, most importantly, he is turning out to be completely predictable and his actions are consistent with those of his predecessors. Just like former Prime Minister Shinzo Abe, he immediately got to work and ordered a record boost in fiscal spending. Also like Abe, he instructed the central bank to reaffirm the two-percent inflation target.

Again, Japan stands out compared with the United States and European nations, which all are beginning to cut back on policy stimulus. Clearspeak: Kishida may have campaigned on promises to create a new form of capitalism; but the moment he took office, he turbocharged exactly the same old engines of growth used by his predecessors.

For the private sector, the predictability and consistency of policy is often more important than the content. The worst thing the government can do is to flip-flop. The less trust entrepreneurs and business leaders can place in stable policy—whether tax and labor laws, investment rules, energy policy, or healthcare costs—the more cautious they become. Just as Japan’s political stability during the 1960s, ’70s, and ’80s was important to her economic success, the trap of political instability and regime uncertainty was a huge negative factor cutting down corporate animal spirits and the private sector’s willingness to take risks and invest for the future.

Whether or not you like Team Kishida, the major players do have a solid track record of being pro-business and pro-growth. There’s no question that more could be done to promote entrepreneurship and growth, but the basic direction is constructive. Most importantly, a premature tightening of policy is now unlikely. Where the 1990–2012 period was marked by repetitive stop-go-stop monetary and fiscal boom–bust cycles, Team Kishida is keeping a steady course of modest fiscal and monetary support.

In turn, this creates ideal conditions for the private sector to develop not just stable growth, but to reach escape velocity. Yes, this time is different—but not because Kishida is creating a new kind of capitalism, but because he’s Machiavellian enough to begin by sticking with old and trusted methods.

Ominously, in Kishida’s inaugural policy speech to the Diet, he chose not to mention the word reform even once. He is basically the first prime minister in more than two decades to omit it. I am told this is because he sees himself as a builder, not a reformer. If so, that could be great news. Japan thrives on the concept of kaizen, (step-by-step, incremental improvements). A builder and master-craftsman is much more revered than an ambitious reformer.

A Transformed Elite

Corporate ownership and political stability are the deep structural changes that have taken place but, perhaps most importantly, the motivation and ambition of Japan’s ruling elite has found a new focus. Simply put, the rise of China from developing economy to global competitor has focused their minds as nothing else has in decades. No, Japan does not want to become an economic colony of China.

While the past decades were marked by defeatism and fatalism, today’s Japan is marked by ambition, confidence, and a newfound idealism. Whether they are new entrepreneurs, the next generation of big-business CEOs, or the new leaders of the LDP, Japan’s elite are now united in their ambition to reassert Japan’s rightful place as a globally relevant, top-tier nation and global rule maker.

Japan wants to be Japan, not the United States and not China. Nobody yet knows what the new Japan will look like, but make no mistake: a new Japan is being created.

Yes, this time is different.

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Stepping Back into Reality

At last, one foot on the other side of the pandemic

Most members of the American Chamber of Commerce in Japan (ACCJ) will agree that a greatly missed part of business life over the past two years has been meeting fellow professionals in person. I know that, as a writer and editor, covering the chamber’s events is a highlight of putting together each issue of The ACCJ Journal. It’s been a long road through the pandemic but, thankfully, the ACCJ is once again hosting in-person sessions.

The number of these events is limited, but it is wonderful to see that opportunities for networking in the physical world are returning.

What’s even more exciting to me is that these events include a virtual component—and one that goes beyond the typical online meeting. The hybrid experience will allow the flexibility that we have enjoyed during the pandemic to remain. This will make attending events much easier for busy professionals, as well as those based far from the ACCJ hubs of Tokyo, Osaka, and Nagoya.

One such major event in Tokyo took place on November 1, when economist Jesper Koll presented a look at the road ahead and opportunities for Japan in 2022–23. Koll’s events are among my personal favorites, and sharing his engaging energy and deep knowledge is a wonderful way to take a big step back into “normal.”

Speaking of Koll, he has once again written an insightful column for us, which you will find on page 22. More on that later.

Charity Ball

One event that, unfortunately, won’t be returning to an in-person format this year is the ACCJ Charity Ball. Organizing the annual gala is a major undertaking with a long lead time, and the uncertainty that has defined life in Tokyo throughout 2021—with a near-continuous state of emergency—means a virtual format is once again the best option. Last year, the Charity Ball Committee did a phenomenal job of staging a fun and successful online event that, having raised ¥7.4 million, actually exceeded the funds raised at 2019’s traditional evening.

This year, the Charity Ball will take the form of an online auction and raffle, running December 1–11. Many wonderful items will be up for grabs, including a large collection of artwork by ACCJ-Kansai member Royi Akavia and six other artists, as well as private musical performances by Rambling Steve Gardner and Felix Sonnyboy.

Many companies have stepped up to back this very important fundraising event, which supports the ACCJ Community Service Fund. And one thing that the past two years have shown us is that keeping that fund healthy is a must, because you never know when the community is going to need our help to overcome unexpected circumstances.

We have a preview of the Charity Ball starting on page 16, so please take a look and find out how you can help the chamber continue to take care of the community that supports our businesses.

Eyes on Japan

Last but certainly not least, a few words about the overarching theme of this issue: foreign direct investment (FDI). It’s a great topic to look at as we start to emerge from the pandemic and Japan begins to reopen its borders. I don’t want to put the cart before the horse, as Covid-19 remains—and probably for some time will continue to be—a threat. But as vaccination numbers rise and the risk of transmission drops, the business world can focus more attention on the long term. FDI is a critical part of Japan’s road map to a prosperous future, so, we hope, more companies from abroad will choose to invest here.

Doing so is, of course, not always easy—even without a pandemic. While attractive, Japan can be difficult to navigate. We wanted to explore the FDI landscape, and you’ll find extensive coverage in this issue. Starting with Koll’s column on page 22, four in-depth stories focus on the current state of affairs, the obstacles that must be overcome, promising business ventures now underway, government efforts to boost FDI, and more.

I hope you’ll enjoy reading this issue of The ACCJ Journal and look forward to seeing you at a future in-person event.

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2021 State of the Chamber

A look back at a year of challenges as well as great progress and success

On October 26, at the American Chamber of Commerce in Japan (ACCJ) Ordinary General Meeting, I had the honor of sharing with the chamber membership an update on the progress the ACCJ has made over the course of 2021—a year still marked by the challenges brought forth by the coronavirus pandemic.

At the start of the year, when I took on the role of president, I set out three main strategic priorities:

• Help member companies to be agile and recover more quickly from the challenges of Covid-19
• Transform the membership experience through digitalization
• Create a more resilient and sustainable chamber

I’m proud to say that not only have we made significant progress toward these goals, but our members have gone above and beyond over the past year to help fellow members seize new opportunities, give back to the community, and stay true to our mission of improving the international business environment in Japan.

The pandemic has challenged the ACCJ, but we have come together to help our member organizations chart a path to recovery. One way we have done this is by advocating for an easing of restrictions on entry into Japan—something that is finally becoming a reality as this issue of The ACCJ Journal goes to print—as well as facilitating an unprecedented and successful vaccination rollout to members and their families.

Catalyst for Change

These challenges have brought about exciting changes at greater speed, such as the acceleration of the chamber’s digital transformation.

I’m grateful to each member for their contributions, which have had a positive impact on the US–Japan Economic Dialogue and further reinforced the ACCJ as the preeminent voice of international business in Japan. Here are some highlights of the progress we have made.

Goal 1: Help member companies to be agile and recover more quickly
To help members emerge stronger from the pandemic and to reinvigorate the Japanese economy, the chamber’s proactive advocacy efforts have focused on easing entry to Japan, post-Covid economic recovery, digital transformation, healthcare policy, and reforms to help build a more sustainable society.

During 2021, the ACCJ published more than 50 advocacy documents, including those aimed at:

• Improving corporate governance
• Promoting uniform reporting requirements for environmental, social, and corporate governance
• Introducing regulatory changes to make Japan more attractive to foreign investors

In February, the chamber issued the Japan Digital Agenda 2030, a monumental report produced in collaboration with McKinsey Japan which lays out a 10-year road map for the country’s digital transformation.

The Financial Services Forum issued a white paper entitled Reimagining Japan as a Global Financial Center, which outlined recommended actions for Japan to become a globally relevant financial center. This was followed by a miniature Diet Doorknock during which ACCJ leaders engaged with Japanese lawmakers.

Our relationships with the Japanese and US governments have remained strong through the transitions to a new administration in the United States as well as two prime ministers in Japan. Our steady engagement has allowed us to offer real-time feedback on behalf of our members. This summer, we completed a very impactful Diet Doorknock and held 37 meetings—the most ever. Twelve were at the minister level and included audiences with now-Prime Minister Fumio Kishida and several members of his cabinet.

We have also advocated directly with senior officials from the Ministry of Economy, Trade and Industry and the Immigration Services Agency on both easing entry restrictions related to Covid-19, and recognizing international vaccination certificates.

In May, we formed the Special Digital Task Force to assist the Government of Japan in achieving its digitalization goals.

We continue to build on our relationship with the US Embassy through meetings with Chargé d'Affaires Ray Greene and Minister-Counselor for Commercial Affairs Alan Turley. These were in addition to our regularly hosted embassy conferences.

The chamber has also been at the forefront of helping members navigate the evolving vaccine and reentry information through the Vaccine Information Hub and Reentry Resources pages on the ACCJ website.

To provide immediate and concrete avenues to vaccination for members, the ACCJ secured 1,000 vaccinations for members and their guests. Of these, we provided 300 ourselves, with the recipients including many of our small and medium-sized enterprise members. A further 700 vaccinations were provided in partnership with our member companies, private entities, and other foreign chambers of commerce.

Goal 2: Transform the membership experience
Our second strategic goal is to transform the membership experience, including through digitalization, to provide the greatest value possible to the ACCJ network, which comprises 3,000 members and 550 commercial memberships.

We have had strong growth in the Corporate Sustaining Member (CSM) category, which has increased by six percent since January to 83 CSMs. The Small Company package has been very successful; the category has nearly tripled in size since its creation in 2019. And we have 50 new commercial memberships, an eight-percent increase from this time last year.

We continue to see strong engagement by members through a varied and informative lineup of virtual events and meetings. We hosted nearly 380 sessions in 2021, garnering 9,500 member and guest registrations. These figures are on par with those of previous years, indicating that our virtual events continue to provide valuable information and interaction for members.

These events have enabled the ACCJ to become truly borderless and expand our reach through even more world-class speakers and topics. An example is the ACCJ/NAJAS Leadership Speaker Series, which provided global networking opportunities with the National Association of Japan–America Societies in the United States.

Members have participated in virtual networking opportunities through breakout rooms, workshops, and mentorship programs.

Now, with the lifting of the most recent state of emergency and a lower risk of Covid-19 transmission, the ACCJ is making plans to resume in-person aspects of our events. The planning includes guidelines and safety protocols to protect attendees, as well as technology to deliver seamless event experiences to those attending virtually.

Goal 3: Create a more resilient and sustainable chamber
In terms of our third strategic goal, I established the Governance Task Force to assess areas of governance about which members have expressed concern and to ensure that we continue to evolve as an organization that reflects contemporary business practices.

Specific areas on which the Governance Task Force is focused include the role and authority of the Executive Committee, the role of presidents emeriti, succession planning, and document management, as well as guidelines for the Nominations and Election Supervisory Committees.

To coordinate crosscutting, multiyear advocacy initiatives, the Board of Governors introduced the new Advocacy Coordination Groups, which work with committees and councils to guide the chamber’s advocacy strategy.

These groups will ensure inclusive and transparent communication within the chamber on important issues in order to attain more impactful and sustainable change.

As a voice for championing women and diverse leaders in the workforce, the ACCJ is a positive driver for growth and innovation, both in Japan and the chamber. The quality and range of our white papers, statements, and events are a direct result of the diversity—as well as the depth of knowledge and experience—of our membership.

We continue to promote diverse leaders on all committees and, this year, 40 percent of our Board of Governors and 31 percent of committee leadership positions are held by women—a goal we achieved at the end of 2020.

On International Women’s Day, the chamber launched the Women in Business Reading List, an online library of critical resources for women in the workforce.

In April, we issued the 2021 edition of the Women in Business Toolkit, which highlights actions that member companies are taking to increase the participation of women and diverse leaders at all levels.

In March, we issued comments supporting the Sapporo District Court ruling that it is unconstitutional not to recognize same-sex marriage. Our marriage equality viewpoint was cited in multiple national and international news outlets.

One of our four core pillars is Community, and we are committed to responsible corporate citizenship and supporting the recovery of our local community. To that end, we donated ¥1.25 million to local charities facing challenges due to Covid-19, including the non-profit organizations Save Food, Mirai no Mori, and Hands On Tokyo. We will support more organizations through the virtual Charity Ball auction which will run December 1–11 (page 16). Last year, the event raised ¥7.4 million.

This year, the ACCJ Community Service Advisory Council offered new opportunities to support and promote local charities through a new listing and donation request form available directly on the ACCJ website.

The Chubu chapter has provided strong support for the community and member businesses. This year marks an important milestone for the Chubu Walkathon, which celebrates its 30th year and raised nearly ¥5.6 million for 18 charity organizations.

Since 2019, the chapter has seen a 30-percent increase in the number of committee meetings since 2019, and a 31-percent rise in event attendees from across all three chapters since 2020.

The Kansai chapter continues to drive exciting and impactful initiatives, including the 7th Annual Kansai Diversity & Inclusion Summit Series; 2nd Annual Healthcare x Digital Pitch Event and Ideas Day; and the Kansai Leadership Series, which had a record 102 participants in this—its 10th—year.

We should all be proud of what we have accomplished as a chamber.

One motto that I personally like is: Be the change you want to see in the world. The ACCJ is an embodiment of that message and the power of what can be achieved when we work together.

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Misplaced Pressure

National security must strengthen, not close, Japan Inc.

The government of newly elected Japanese Prime Minister Fumio Kishida deserves to be congratulated for having elevated national security to a top priority by establishing the new position of economic security minister, filled by former Ministry of Finance bureaucrat Takayuki Kobayashi. Global investors and business leaders will certainly welcome the creation of a “control tower” to coordinate, focus, and, hopefully, streamline the increasingly complex trade and investment rules and directives now governing global engagement with Japan Inc.

Unfortunately, there is significant risk in this undertaking. More bureaucracy can easily backfire. Instead of streamlining and centralizing procedures, there is a great danger of duplication and increased bureaucratic red tape, given the vested interests and institutional pride of the incumbent ministries.

Kishida’s new ministry could end up making it more difficult and cumbersome for global investors to buy Japanese companies and trade with Japanese suppliers. In the name of national security, the new Ministry of Economic Security could actually bring on a new trend of insularity and ossification in corporate Japan.

Path to Security

Of course, it is easy to understand the reason Japanese leaders feel pressured to follow the lead of the United States in seeking to raise bureaucratic and political oversight over global investment flows.

However, the fact that all this happens in the name of supposedly protecting national security is, in my view, the real red flag. Why? Because the best way to ensure economic security is to ensure that your nation’s corporate sector is strong, innovative, and globally competitive.

If corporate Japan is to have a bright future, it certainly needs more active debate with the stewards of global finance. And yes, sometimes the investors’ threats to challenge board members and existing corporate structures are absolutely key to the mid- and long-term competitiveness and sustainability of all stakeholders.

In fact, the empirical reality of Japan’s market verifies this point with great clarity. Almost all successful corporate turnarounds in past decades originated in either substantial foreign direct investment (FDI) or global investors’ lobbying for change. Nissan, Sharp, Sony, Fanuc, and Shiseido are just some of the highlights.

Make no mistake: for global relevance and future competitiveness, the more interaction with global investors, the better it will be for Japan’s national competitiveness and, thus, her national security.

Poison Pill?

Leveraging global investor knowledge and insight is an existential imperative for Japan. For all the talk about self-sufficiency, let us remember that slightly more than 60 percent of listed companies’ profits come from global sales. From here, Japan’s domestic economy probably will see lower growth than other global markets, so the need for more global and open perspectives—as well as challenges to the status quo—are poised to grow in importance.

Unfortunately, some Japanese leaders appear ready to use the powers of the new ministry to shut out global challengers and justify business as usual behind the excuse of national security.

Clear speak: Kobayashi could easily find himself leading a “poison pill” ministry, preventing necessary renewal and innovation. Domestic corporate leaders will get busy and, in the name of national security, lobby the new ministry for protection. The new ministry could easily become a creeping liability for the future dynamism and global competitiveness of corporate Japan. Clearly, corporate ossification and a retreat from globalization cannot be in Japan’s national interest.

Specifically, new and tighter rules are poised to, in effect, shut out Japanese companies from the forces of the global competition for risk capital. Under the mantle of national security, this could also feed complacency and stagnation. Already, Japanese conglomerates have fallen behind in many new leading-edge areas, such as cybersecurity, quantum computing, and drone technology.

Whether we like it or not, global finance is the most efficient and effective tool to force senior management to stay on top of their game. Therefore, there is a great risk that the new rules will merely protect already outdated technologies, feeding a new breed of so-called zombie companies in Japan. This is particularly true since, unlike the United States, where the move toward tighter restrictions began, Japanese companies no longer have a natural competitive strength in cutting-edge technology.

FDI

What about global investors? Technically, tightening national security supervision will raise both the cost of investing here as well as the risks. Internal compliance and controls will have to be tightened to ensure that new potential criminal liabilities are minimized.

Here, transparency is key. Right now, we know that rules will be tightened, but we don’t know how and where, nor on what basis. Kishida would be well advised to be more proactive and engage with foreign investors and business leaders on how to best balance national security with technology transfer, innovation, and transformation.

However, no matter how smooth the procedures may become, the net result is a higher compliance–cost base for investing in Japan. For large, established players, this should not be a problem. But smaller startups that are trying to explore opportunities in the Japanese market are poised to suffer disproportionately from the higher compliance and legal costs resulting from new rules. Tokyo’s reputation as the global finance-compliance center will grow.

From a Japan equity strategist’s perspective, much of the bull case for Japan depends on unlocking the deep value offered by Japanese businesses that is well documented in the historically low valuation metrics and high cash balances of listed companies.

We need a catalyst to unlock this value. Unfortunately, making it more difficult for non-Japanese to buy into and trade with Japan does not make it easier for Japanese to buy into Japan.

Real Needs

To truly strengthen security, the government should step up public incentives for technology companies to:

• Stretch and sweat their engineers harder by exposing them to more, not less, global exchange and interaction
• Raise R&D spending for university and corporate researchers
• Stimulate commercialization of new technologies deemed to be in the national interest by offering tax breaks to researchers, to startup entrepreneurs, and for in-house development

Protection is typically backward-looking, and what Japan needs is forward-looking incentives to unlock next-generation innovation and commercialization. To get there, Japan requires more, not less, pressure from global financial investors.

What Japan really needs are more active and engaged domestic investors and fund managers who aren’t afraid to engage and challenge senior corporate leaders. Policies designed to help domestic asset owners unlock corporate value are not just welcome, but essential to allowing a new catalyst for corporate revival.

This is where policy action is needed, to promote Japan for the Japanese. National security is based on homegrown strength and policies to unlock domestic aspirations, not on restricting global capital from becoming partners in this process.

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The Power to Innovate

Covid-19, mRNA, and government and private sector roles in healthcare

The Japanese public is concerned that domestic pharmaceutical companies have yet to launch a single Covid-19 vaccine. Some may argue that this is due to a low rate of vaccine confidence, as is seen in the national tendency to avoid the human papillomavirus (HPV) vaccine, which has, in turn, caused a problem for vaccine development.

Although there may, indeed, be such a factor, this would not be the primary reason—especially not for the delay in the domestic development of a messenger ribonucleic acid (mRNA) vaccine.

It should be noted that Moderna, Inc., the US pharmaceutical and biotechnology company that has produced an mRNA vaccine to combat Covid-19, had been advancing cancer therapeutic vaccine development since well before the pandemic.

In Japan, however, initiation of development was delayed compared with other advanced countries, and efforts to develop products based on mRNA technology have failed to make significant progress. This is not because the environment surrounding a prophylactic vaccine is unfavorable but, rather, it is due to the lack of an environment in which companies can take risks and consider new modalities.

The Role of Government

The coronavirus pandemic has made me reconsider what the government should do to promote the development of innovative healthcare products. Among the various ideas I have come up with, I would like to conclude—even though this may be obvious—that the primary responsibility of the government is to create an environment in which innovative products are highly valued and the private sector can invest in a broad range of research and development (R&D).

I see that Operation Warp Speed—the public–private partnership backed by the US government to support rapid development of a Covid-19 vaccine—has had a huge impact. This underlines the fact that the Japanese government needs to invest directly in companies that can provide clinical research and manufacturing facilities, especially during a public health emergency.

Yet, under normal circumstances, it is fair to say that the private sector in Japan can make more efficient investments than can the government. It is extremely challenging for the government to pinpoint and invest in a promising company and product. Further, a massive direct investment by the Japanese government is unlikely, given the current budgetary issues.

By evaluating the history of mRNA technology, we can see how difficult it is to identify rising stars. Thanks to its wide use around the world to prevent Covid-19 infections, mRNA technology is now well known. Before the pandemic, however, only a few of us predicted such a quick, practical application. A researcher from Hungary, according to media reports, even struggled to have the merits of her research results recognized, despite years of studies.

Private Sector Stands Ready

I believe that Japanese and US companies in the private sector are willing to take risks and engage in R&D if they recognize innovative product candidates and can appropriately evaluate them under the right conditions.

But how can Japan create such an environment? I will be committed to accomplishing this once I complete my current assignment in the United States, and policymaking becomes my direct responsibility in the government.

US corporations are involved in the two mRNA vaccines currently in use, a fact that highlights US power to pursue innovation. The collaboration between Pfizer Inc. and BioNTech SE in Germany brought us a Covid-19 vaccine, thanks to the US pharmaceutical company’s attitude of aggressively seeking cooperation among companies beyond the borders that might restrain activity under normal circumstances. It has made me realize, once again, the importance of open innovation.

During the rest of my stay in the United States, I look forward to gaining further insight into what drives the US power to innovate.

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Nurturing Ideas and Creative Minds

We take a look at the entrepreneurial spirit in our business community

Ever since third grade, when my stepfather took me to a store where we bought a rubber stamp emblazoned with Jones Inc., the entrepreneurial spirit has been part of me. I used that little stamp for a company that wasn’t a company to mark the papers on which I captured my ideas for video game concepts. I had a couple of “employees” who contributed their own ideas, which we also stamped. In those days of Atari 2600 cartridges and visually enthralling 8-bit adventures, the idea of creating my own games was exciting. While Jones Inc. never came to be, a few other companies did as I grew up and found my footing in the world of media, design, and publishing. And I can trace those endeavors back to that support from my stepfather, who himself owned a small business.

This spirit is also the reason I enjoy working with so many talented and inspiring businesspeople through the American Chamber of Commerce in Japan (ACCJ) in my role as publisher of The ACCJ Journal. Our community is filled with stories of ideas brought to life and the determination to succeed as an expat in an environment filled with challenges that sometimes differ from those in our home countries.

This issue of The ACCJ Journal is all about taking an idea and turning it into a business, finding funding, navigating the red tape, and making the community better for everyone.

In two feature stories, we gather the experiences, insights, and advice of nearly two dozen ACCJ members, from companies large and small, to help you chart a course through the obstacles that may stand in your way. With the country’s digital evolution and push for more foreign direct investment and business, this is a wonderful time to be an entrepreneur in Japan.

MPowering Ideas

I couldn’t resist this playful title for our cover, inspired by the story of Japan’s first venture capital (VC) fund focused on environmental, social, and corporate governance. MPower Partners and its mission to “revolutionize Japanʼs venture ecosystem via greater globalization, diversity, and innovation” was launched in June by Kathy Matsui, former Goldman Sachs vice-chair; Yumiko Murakami, who previously led the Organisation for Economic Co-operation and Development’s Tokyo Centre; and Miwa Seki, who was head of asset management company Clay Finlay’s Japan office.

I had the pleasure of attending an ACCJ event in July at which the three general partners were joined by MPower Managing Director Eriko Suzuki, who we previously profiled here in The ACCJ Journal back in June 2019, when she was a general partner at VC firm Fresco Capital. I believe that what they are setting out to do is much needed in Japan’s effort to become more competitive on the world stage, and I’ve written an extended recap of the event starting on page 10.

Necessity Is …

Another bit of inspiration I got from chamber events over the past month comes from our Kansai chapter, where Oak Lawn Marketing, Inc. co-founder Robert Roche shared how the company and its Shop Japan brand came to be. What I love about the story is the way in which many of us can relate. Settling into a new life in Nagoya and needing to find a way to make money, Roche took bold steps that paid off. Turn to page 16 to find out just what he did.

Speaking of necessity, new ideas are very much needed if Japan is going to maintain the level of healthcare that so many of us appreciate as the aging society and demographic shifts put increasingly more pressure on the National Health Insurance system. The ACCJ is once again working to bring these ideas to the surface and make them a reality through the Healthcare x Digital (HxD) competition, now in its second year. We have an overview of HxD 2021 beginning on page 22. And just before that, on page 20, ACCJ Healthcare Committee Co-chair John Carlson outlines a new approach to the chamber’s biennial health policy white paper that will make the committee’s advocacy nimbler, allowing it to keep up with the ever-quickening pace of change in healthcare needs.

I hope you find inspiration in this issue of The ACCJ Journal. As always, if you have a story to share, I’d love to hear from you at cjones@accj.or.jp.

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Make Japan a Startup Nation

How can government best encourage economic growth?

If you had two minutes with the new prime minister, to give your best-shot advice on how to create a better economic future for Japan, what would you say?

From a macro perspective, by far the best answer is: Do whatever you can to make Japan a startup nation.

But where does economic growth come from? Not from the stuff politicians and technocrats talk about most of the time—e.g., monetary, fiscal, or trade policy. And importantly, it doesn’t come from population growth. It comes from entrepreneurs.

Clear-Cut Correlation

History has confirmed again and again that we only get sustained economic growth when human ingenuity and ambition are allowed and encouraged, and people are empowered to start an enterprise and build their own business.

China long had one of the world’s highest rates of population growth, but it only started becoming an economic miracle when the Communist Party encouraged entrepreneurship and private business in the early 1980s.

More generally, the numbers speak for themselves. When you analyze the world’s 40 leading economies over the past 30 years, you find a clear-cut correlation between the percentage of entrepreneurs in the adult population and the sustainable growth of the country’s gross domestic product (GDP). More entrepreneurs create higher sustainable growth. In fact, if you raise the number of entrepreneurs in the population by one percentage point, your potential GDP goes up by about half a percent.

In even simpler terms, employment data confirms the positive power of entrepreneurship: startups have created 60–70 percent of new jobs in G7 countries over the past 20 years. Specifically, here in Japan, new companies set up after 2010 have provided about 2.3 million jobs over the past decade. In contrast, companies older than 20 years actually destroyed some 800,000 jobs over the same period.

So, dear prime minister, make no mistake—startups and entrepreneurship are a nation’s single most important source of growth and prosperity.

Finding Founders

The need for entrepreneurs is clear, but where do they come from?

Unfortunately, there is no magic bullet, no one simple policy tool that can be turned on to deliver entrepreneurs and create Startup Nation Japan. However, the key ingredients are all in place and, in my personal view, I firmly believe Japan stands at the brink of a golden age of entrepreneurs and startups.

Why? It’s a combination of cyclical and structural forces. Cyclically, the Covid-19 crisis has not only freed up resources but, more importantly, has become a catalyst for many people to rethink their career and life priorities. No matter how small, a startup can finally hire people and build teams, investing in what always yields the highest returns for any new venture: human capital. One of the biggest obstacles for growth and expansion has finally disappeared.

Even the most techy of tech companies, such as Google or Amazon, did not grow by the force of their superior algorithms, business models, or charismatic leadership vision. Instead, they grew as a result of the sweat equity and animal spirits of their team leaders, sales managers, and back-office clerks who pulled all-nighters. Elon Musk’s biggest problem is not tech, engineering, or digital transformation; it is his teams, the people who actually get stuff done.

In Japan, the bar for startups to attract talent has always been especially high because top graduates strongly prefer established companies. Bigger is supposedly safer. Here again, the current recession may well mark an important turning point. Not a week goes by that we don’t read about establishment companies announcing a restructuring plan. All of a sudden, big-company job security is not what it used to be. This is great news for entrepreneurs.

To be specific, I have the good fortune of working as an adviser and angel investor for a couple of Japanese venture capital funds. Over the past six months, all the startups with which we deal have grown their staff and partners. Several have more than doubled the size of their teams. Most importantly, the quality of potential candidates has grown enormously.

One young woman from a top establishment company, who has had no overseas or global experience, told me: “Working at my current employer has been great, but now that I know how good I am, and what I want, staying there puts me at risk. I don’t want to be reassigned to some random project by some random salaryman superior. I want to create my own destiny. Your startup is the best place to do that.”

To be sure, this young woman almost certainly is exceptional, and it may very well be wrong to present her as anything like the new norm for Japanese employees. However, unlike five or 10 years ago, candidates such as her do exist, and it would be wrong to underestimate the powerful ambitions—and awareness of opportunities—that Japan’s young talents and employees are prepared to explore.

Taking the leap from exploring to actually quitting one’s job and beginning a new career at a startup venture is likely to become easier. There’s no doubt that opportunities will increase, large established companies will continue to stagnate, and more young startups will demonstrate high, sustainable growth. Opportunities worth watching include:

• Healthcare and biotech
• Professional services and process automation
• Education and deep tech-based materials
• Anything serving wealthy Japanese retirees

Some will make a fortune building the Louis Vuitton retirement communities of Japan.

Learning from the Masters

On the structural side, Japan has developed a true and sustainable ecosystem of support for startups and aspiring entrepreneurs. Not a day goes by that the major newspapers don’t advertise a startup competition or venture capital symposium. Even Keidanren—the Japan Business Federation, which is the proud sanctuary of Japan’s corporate culture—now fully embraces innovation and entrepreneurship in its strategic vision. Japan’s elite establishment now knows that BAU—business as usual—is no longer an option.

Most importantly, Japan has a new generation of successful entrepreneurs, people who have built true going concerns, who commercialized and monetized an original idea, who overcame many obstacles and difficulties to build their dream. Sure, they have money to invest; but more fundamentally, many of these new successful entrepreneurs are focused on creating a positive legacy by giving back, mentoring, and advising the next generation.

Hidden from view by media obsession with Silicon Valley superstars, Tokyo, Osaka, and Fukuoka have become hotbeds of private initiatives to grow and develop a startup culture. These include mentorship programs, incubators, accelerators, venture capital funds, and daily discussions on the drop-in audio chat app Clubhouse. This private-sector ecosystem of open discussion, sharing, and networking is vital because a sustainable startup culture can only develop if success is celebrated and, more importantly, if failure is peer-encouraged to become a catalyst for another try.

As Japan’s most successful entrepreneur, Yanai Tadashi, founder of FastRetailing, which owns Uniqlo, supposedly once said, “I failed about 25 times before I finally succeeded.”

All said, the new Japanese golden age for entrepreneurs is very exciting. If I am right, we will have to become more optimistic about the overall outlook for Japan. Because one thing is certain: private entrepreneurship—not government handouts—will build future prosperity.

Dear prime minister, I trust you understand.

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Impact of Engagement

Continuing our efforts to communicate the value of investing in health

Japan faces a very modern problem: its success in delivering universal health coverage and fostering longer life expectancy has led to demographic and social changes that are giving rise to a new set of interconnected healthcare challenges.

As the Japanese government moves to reform its healthcare system to address these challenges, new policy approaches will be necessary. Promoting innovation in all areas of the system will allow for increased healthy life expectancy and improved productivity, helping Japan move to the next phase of economic growth. And all this can be achieved while maintaining Japanese patients’ access to the most cutting-edge medicines, technologies, and treatments, while ensuring the security and stability of health and social care.

With the right approach and policies, Japan can continue to improve the health of its citizens and create a blueprint that aging societies around the world can follow.

More Agile Advocacy

On the back of our successful health and retirement work, the American Chamber of Commerce in Japan Healthcare Committee is now moving forward with our biennial health policy white paper. The upcoming report will look different compared with earlier reports. Previous white papers published by the Healthcare Committee have included topics ranging from the use of advance modeling and simulation in pandemic-related planning to improving cervical cancer screening. However, the wide range of topics made it difficult to maintain an up-to-date and compelling narrative in a single document.

Starting with our next white paper, we plan to create more succinct recommendations that fit with the overall messages of our committee viewpoints. The individual viewpoints will become the tools with which to dig deeper into issues featured in the white paper, thus creating a hybrid set of materials that can be updated regularly and used with greater agility in our advocacy. We are excited about the new format, and appreciate the ongoing contributions of member companies.

In the forthcoming white paper, we plan to explore a range of issues, focusing our recommendations across four key themes:

• Investing in prevention, early detection, and treatment of disease
• Maximizing healthcare quality and efficiency through digital and data innovation
• Developing innovation policy, exploring reimbursement models
• Ensuring the financial sustainability of Japan’s healthcare system

We believe that each theme will help Japan chart a path to more sustainable healthcare, and we encourage you to join upcoming Healthcare Committee meetings to learn more about our ongoing efforts and to help us finalize our recommendations.

To help you consider what form those final recommendations should take, here is more information about each of the key themes.

1. Prevention, early detection, treatment

In recent years, the Japanese government has shifted its focus from simply caring for disease to applying the practices of prevention, early detection, and earlier aggressive treatment to reduce overall healthcare expenditure and to sustain the productivity of its citizens. While significant progress has been made, much more could be done.

2. Digital and data innovation to boost quality, efficiency

Recognizing the need for better healthcare data management, the Japanese government has begun to centralize data platforms, accelerate data-driven innovation programs, and strengthen cybersecurity infrastructures to safeguard against external threats.

Yet, despite these efforts, Japan trails other developed countries in the implementation of a comprehensive healthcare data platform. Much more could be done to incentivize better collection and utilization of healthcare-related data.

3. Innovation policy, reimbursement models

In response to calls for the acceleration of healthcare innovation in Japan, the government launched a healthcare innovation initiative in 2014. Since then, the government has pursued several broad initiatives for research and development support, as well as the registration, authorization, commercialization, and evaluation of new healthcare technologies.

Despite this, reforms made to the pricing of, and reimbursement for, innovative medical technologies threaten to undo the progress made over recent years. With the clear purpose of delivering innovative healthcare to people in need, as soon and safely as possible, more could be done to allocate physical, human, and financial resources to maximize the potential for innovation.

4. The healthcare system’s financial sustainability

Japan’s healthcare system is respected around the world for its quality of care and contribution to long life expectancy. However, the aging society and low birthrate are straining a system designed, starting in 1868, primarily to control infectious and acute diseases in a different population structure. Improving the overall financial health of the system will be critical as more of the population ages and the workforce shrinks further.

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ACCJ Healthcare White Papers & Viewpoints

The ACCJ Healthcare Committee strives to stimulate multi-stakeholder partnerships and discussions that will drive healthcare transformation by identifying practical, tangible actions and providing innovative solutions that address patient needs and ensure the sustainability of Japan’s healthcare system. Read advocacy documents and get involved in the committee’s ongoing efforts at: www.accj.or.jp/healthcare-advocacy.

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Adapt, Innovate, Discover, Connect

New Wai Gaya platform supercharges ACCJ networking

One of the greatest strengths of our international business community is the varied experiences and skills of our members. I’m proud of the way in which the American Chamber of Commerce in Japan (ACCJ) has transitioned to a virtual environment that allows us to serve the needs of the membership through a robust schedule of events and meetings. But, during the pandemic, tapping into our network for a less formal exchange of ideas and expertise (the way we would during coffee breaks in more normal times) has been a challenge.

This month, we’re launching a pilot project to help members discover and connect with other members. We’re calling it Wai Gaya, a term coined by Honda Motor Company, Ltd. for their practice of convening impromptu meetings among colleagues. At these gatherings, everyone is encouraged to share their ideas—regardless of role or seniority. Wai wai gaya gaya is also a Japanese expression used to describe a lively environment, such as an izakaya, filled with conversation—the words being onomatopoeias meaning chatter—and that’s exactly what we aim to create among members.

Supercharged Networking

Maybe you’d like to find members who have experience negotiating rents with commercial landlords. Perhaps you want to bounce around ideas on a specific business challenge with members who are facing a similar issue. You may want to get some sound advice on how best to leverage your experiences in Japan to take the next step in your career as an expat. Or maybe you’re looking for new business partners and simply want to expand your network.

Using the Wai Gaya platform—developed in-house by the ACCJ—any member can suggest a topic for conversation. The topics will be promoted in our Insider email and can be reviewed on the Wai Gaya website. If you see a conversation in which you would like to participate, just click “I’m interested.” Once three members express interest, we’ll open the ACCJ’s Webex videoconferencing platform to schedule a meeting among up to 10 interested members. We’re keeping the number of participants low to ensure that all parties have a chance to interact.

Nimble Ideas

Inspired by the world of startups and minimum viable products, we’ve built Wai Gaya in-house using a “no-code” platform. This new capability allows us to test ideas without investing a lot of time or resources in their creation. If the membership sees value in Wai Gaya and engages with it, we’ll enhance the platform’s functionality. If it doesn’t take off, we’ll shift our efforts to other new ideas based on input and ideas from the membership.

Beyond Events

Planning and presenting formal events remains the responsibility of ACCJ committees. What Wai Gaya does is provide a venue for those topics and conversations which lend themselves better to conversation rather than presentation.

We all look forward to the day when we can return to in-person meetings, as well as the introductions and chats that happen over coffee during the in-between moments of our events. Our hope is that Wai Gaya will fill this need—at least in part—and that the Wai Gaya model might provide value to the membership even after we emerge from our current virtual mode.

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Wishing You a Happy Independence Day

Greetings to readers of The ACCJ Journal from the US Embassy Tokyo

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Happy Independence Day to our partners and friends at the American Chamber of Commerce in Japan (ACCJ). On the 245th anniversary of the adoption of the Declaration of Independence, the democratic values that underpin the US–Japan alliance continue to bear fruit. Reflecting on the year thus far, we have much to celebrate as our bilateral ties with Japan remain strong. Just as the Declaration of Independence symbolizes peace and prosperity for the American people, the US–Japan Alliance promotes these same values in the Indo–Pacific and across the world.

Steadfast Friendship

The United States and Japan ushered in the year with strong symbols of our steadfast friendship, exhibited through several firsts. In March, Secretary of State Antony J. Blinken and Secretary of Defense Lloyd J. Austin III visited Tokyo on their first trips overseas as Cabinet officials, participating in the Japan–US Security Consultative Committee (2+2). Their visit reaffirmed the enduring strength of our security partnership and its contributions to peace, security, and prosperity in the region and beyond.

We solidified our close bond with Japan when President Joe Biden welcomed Prime Minister Yoshihide Suga as the first world leader to visit Washington. During the visit, the two leaders launched the Competitiveness and Resilience (CoRe) Partnership—as well as the US–Japan Climate Partnership—and pledged to work together to address the global threats posed by Covid-19 and climate change, while resisting challenges to the free and open rules-based international order.

We will need your help in implementing these initiatives and realizing their success in areas that range from boosting innovation and cooperating on research and development to securing critical supply chains.

Finally, we celebrated US–Japan cooperation in space. We witnessed the simultaneous presence of two Japanese astronauts aboard the International Space Station for the first time since 2010. One of the Japanese together with three other astronauts were then ferried from the space station by a commercial SpaceX ship.

One of the Strongest Relationships

The United States and Japan continue to be top trade and investment partners. Our close economic cooperation supports open and competitive energy markets, the digital economy, secure 5G networks, space exploration, and a wide range of emerging technologies.

Of course, we are still grappling with Covid-19, but vaccinations are helping our economies and societies recover. Throughout the pandemic, the United States and Japan have demonstrated that close cooperation in tackling global issues is emblematic of our strong relationship. As we have worked to vaccinate the people in our countries, we have also partnered to ensure the rest of the world has access to vaccines through the COVAX Advance Market Commitment.

I continue to be impressed by the ACCJ’s contributions to our strong economic ties, and your efforts to mitigate the impact of Covid-19. Your leadership—particularly in the areas of digital transformation and pharmaceuticals—has been invaluable in helping to promote hope and prosperity amid this crisis.

Shared Values Tie Us Together

As the two largest market economies in the world, our commitments to defending freedom, championing free and fair trade, promoting diversity and inclusion, and upholding human rights are rooted deeply in our shared values. The ACCJ has played a critical role in strengthening the bonds between our countries, deepening our economic ties with Japan, and advocating for the US business community.

As President Biden and Prime Minister Suga recently affirmed, “an ocean separates our countries, but commitments to universal values and common principles—including freedom, democracy, human rights, the rule of law, international law, multilateralism, and a free and fair economic order—unite us.”

Let us take this Independence Day to celebrate what unites us.

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Staying Focused on the Fundamentals

The keys to successful investment in Japan

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“If you get the earnings right, you’ll get the investment right.” This was the advice given to me by one of the greatest investors of all time, Julian Robertson. He is the founder of the famous Tiger Fund, which, throughout the 1990s, battled with investment shark turned philanthropist George Soros for the top position as the world’s biggest and best-performing hedge fund manager. To be a successful investor, cut out the noise and don’t get distracted by smart-sounding stories or headline-grabbing advice. Stay focused on the fundamentals.

Local Success

Applying this rule to Japan, the first questions we must answer are:

• How does Japan, Inc. make money?
• Where do its earnings come from?

Importantly, the answer is “not from Japan.” For companies listed on the Japanese stock markets, about 64 percent of corporate profits are created from global sales and operations (i.e., exports or offshore production and sales). From a top-down macro perspective, a successful investment in the Japanese stock market is far more dependent on global economic fortunes than on what goes on at home, in Japan.

In fact, Japan’s dependency on the world has gone up since the start of Abenomics in 2012. Ten years ago, about 50 percent of profits came from global markets. The rise from 50 to more than 60 percent is primarily due to Japanese banks and financial firms. Over the past decade, they have become more active overseas—particularly in Asia.

It is a little-known fact that Japanese banks have been the largest provider of credit in non-China Asia for three years running. At the same time, banks’ domestic profit margins are being squeezed by the cap on bond yields forced by the central bank. If interest rates are not allowed to rise, banks cannot grow their profit margins. To get bullish on Japanese financials in general—and banks in particular—we need to see an end to the Bank of Japan’s current policy of yield-curve control (i.e., allowing 10-year bond yields to rise).

Currency Sensitivity and the Hedge Imperative

Further, Japan’s major dependence on the ups and downs of the global economy makes Japanese profits highly sensitive to the currency. When the yen rises, overseas earnings translate into lower yen-based profits. When the yen drops, the yen profits get a nice windfall. Statistically, for every ¥10 of depreciation, Japanese corporate earnings get a boost of about eight percent (if the depreciation is sustained for six or more months).

In other words, the weaker the yen, the better Japan’s corporate profits; and the better Japan’s corporate earnings, the higher the stock market.

For global investors who calculate their returns in US dollars, the combination of Japan’s high dependence on global growth, and the inverse relationship between the currency and Japanese earnings, dictates one very clear piece of investment advice: always currency hedge your yen equity positions. Chances are high that yen-denominated Nikkei gains will translate into much lower US-dollar gains because, basically, the Nikkei only goes up during periods of yen depreciation and dollar strength.

Here we can learn from another master investor: Warren Buffet. Last fall, when he famously initiated his first significant investment in Japanese stocks in more than a decade, he did so on a fully currency-hedged basis. And it has paid off handsomely so far. The yen value of his position is up 20–25 percent, despite the yen being down five to six percent. Without the currency hedge, his performance would be one-quarter to one-fifth less than it is with the currency hedge. In my view, hedging the currency is imperative for best performance if, like Buffet, you measure your returns in US dollars.

Leadership Matters

Of course, this is just the big-picture macro lesson for anyone considering an equity investment in Japan. From here, we’ll have to enter the exciting world of stock-picking, of selecting companies that display high potential for generating rising profits and superior returns.

I am not allowed to go into details and offer advice, but I can leave you with one suggestion: focus on the leader, the CEO. In the end, Japanese corporate performance is dictated primarily by the quality, vision, and aggressiveness of the top-level executives. After decades of misery, Sony Corporation turned itself around when the charismatic Kazuo Hirai took over, and Hitachi Ltd. did so when superstar manager Hiroaki Nakanishi stepped in.

These are just two such success stories. While Japan may well despise and not tolerate the superstar CEO cult so essential to US corporate culture, the reality is that Japan’s consistent top performers and turnarounds can be traced back to an individual star CEO and their leadership style. You won’t find their names in bright lights, in the papers and magazines, or at Davos, but they do exist. Finding them is half the fun and a rewarding part of investing in Japan.

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Investing in Smart Agriculture

Japan startup Sagri is transforming family farming with AI

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Artificial intelligence (AI) gets a lot of attention these days, but its application to farming is not often in the spotlight.

Recently, I had the opportunity to talk with Shunsuke Tsuboi, chief executive officer of Sagri Co., Ltd., which uses AI, machine learning, and mapping technologies to solve social problems.

On my podcast, Disrupting Japan, Tsuboi and I discussed the challenges that agricultural technology (agtech) startups in Japan face when it comes to funding, as well as the benefits of their technology.

Taking Root

Sagri was founded in June 2018 and uses satellite imaging and data to analyze farmland. The technology scans areas of up to 10 hectares in size, making it particularly suited to Japan, where farms are generally small. The data can be accessed using a smartphone app, and the goal is to help farmers better understand the condition of their soil and identify the best time for harvesting.

The idea for the company took shape in a laboratory at Yokohama National University, where Tsuboi is a mechanical engineering graduate student. His lab is using space-based technology to examine soil, and he and his business partners have been able to apply some of this to their platform, which shares the name of the company.

Applications

If you’ve walked around the Japanese countryside, you’ve probably seen small plots of abandoned farmland. Sometimes these even intermingle with residences in neighborhoods not far outside the capital.

Whether farmland is in use or abandoned makes a difference from a tax perspective, so the government manually checks the status of land each year. The AI behind Sagri’s analysis can determine with 90-percent accuracy whether a field is abandoned, drastically reducing the amount of work required of government staff.

Apart from taxation, the government is also interested in identifying farmland that can be revitalized. Satellite data that provides soil analysis can make that process easier.

Tsuboi noted that a big reason for the abandonment is that the farmers are getting older and are unable to maintain the land. One benefit of the Sagri platform is that machines can receive the data analysis and automatically perform tasks such as applying fertilizer.

Beyond Japan

Agtech is an area in which Japan has a great opportunity to be a world leader, and Sagri is putting its technology to work in India, where there are also many small farms. But getting the financing needed to keep operations going can be difficult. Sagri believes it has a solution.

“Many Indian farmers need loans, but they don’t have the chance to get them,” Tsuboi said. Because there are so many farmers, it is difficult for banks to spread enough money around. To have a better chance of funding, farmers want to show banks that they are a good investment, he explained. Banks cannot get that sort of information using present methods, but the satellite data analysis provided by Sagri can allow them to check the farmland’s condition and potential yields.

Tsuboi sees Africa as the company’s next market, noting potential in countries such as Kenya and Rwanda. Areas of Southeast Asia are also within Sagri’s sights.

Funding

There are not many agtech startups in Japan, but it seems that there should be. With lots of small farms, lots of creative people working on agtech at universities, and venture capitalists (VCs) with money to invest, why don’t we see more?

Tsuboi feels one reason is that VCs and the government both see farmland as low-growth opportunities. And attracting money from abroad, such as from Silicon Valley VCs, is not easy because they are focused on large-scale industrial farming. The farms on which Sagri is focused in Japan and India are too small to attract their interest.

But Sagri has had some success inside Japan, and announced in June that they have secured ¥155 million ($1.4 million) in funding from a group led by Real Tech Holdings Co., Ltd., who was joined by Minato Capital Co., Ltd., Senshu Ikeda Capital Co., Ltd., and Hiroshima Venture Capital Co., Ltd. Also participating is Bonds Investment Group Co., Ltd., whose Hyogo Kobe Startup Fund, established in March, is making its first investment.

Sagri is a great example of a Japanese startup that can assist people at home and also have a much bigger impact—and earn a much bigger profit—abroad. Globally, the company can help millions of small family farms thrive, and they can bring great returns for investors in the process.

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Listen to this episode of Disrupting Japan.

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