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| World Marketplace |
Remade in Japan
Richard Katz
02/01/2005
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Imports and FDI remain very low by international standards, but investments are increasingly welcomed by much of Japan’s elite, which was once suspicious, if not downright hostile, to them. Imports remain a tougher sell, but the efforts of Koizumi and the Ministry of Economy, Trade and Industry to promote Free Trade Agreements (FTAs) are partly motivated by the desire to rid Japan of its excess dependence on a horribly inefficient farming sector. The recently signed FTA with Mexico is the camel’s nose in the tent on this front. Progress will be slow because the LDP caucus in the Diet is still disproportionately dependent on the rural vote.
Some of the most dramatic changes have occurred in finance. As recently as 1985, foreign brokers were unable to buy seats on the Tokyo Stock Exchange, and foreigners owned only 5 percent of all corporate shares. Today, foreign-affiliated brokers handle one-third of all trades, foreign investment bankers are leaders in stock underwriting and foreign investors own more than 20 percent of all shares. Foreign life insurers now have a 20 percent market share, making them a force in institutional investment. In many areas, foreign investors are a leading force for corporate governance reform. The demand for more shareholder power—from both foreign investors and domestic pension funds—is growing and will eventually become irresistible.
Though the Japanese economic ship is certainly not turning on a dime, it does continue its slow transformational veer. Moments of market exuberance will be interspersed with despair as Japan confronts the inefficiencies of the old economy. While hopeful trends have not yet reached critical mass, ultimately they will prevail, and the old will give way to a new, successful model, one made in Japan with foreign components. Richard Katz is editor of the Oriental Economist Report, a monthly newsletter on Japan, and author of Japanese Phoenix: The Long Road to Economic Revival.
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