“Invest in Kishida”? Japan needs to convince Elon Musk first

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“You can invest in Japan with confidence,” Fumio Kishida, the prime minister of Japan, told an international audience in London last week in a Japanese-language address, adding a three-word ad in English almost like an exclamation point: “Invest in Kishida.”

The call sounded like a throwback to another Japanese leader’s speech – Shinzo Abe’s 2013 New York Stock Exchange appeal to investors to “buy my Abenomics!” Abe’s rallying cry was successful, at least temporarily. Foreign money poured in during his early years as prime minister as investors bought into his narrative that Japan is back.

This story didn’t last because Abenomics ran out of gas. Only time will tell if Kishida will be more successful, although the markets have not yet paid attention to him, as the Nikkei 225 is down 2.4% since his speech amid the global market defeat. But a comment by the world’s richest man a few days after Kishida’s statement explains why the prime minister needs more than a slogan to convince investors of Japan’s long-term growth prospects.

Elon Musk warned Sunday that “unless something changes that causes the birth rate to outpace the death rate, Japan will eventually cease to exist,” tweeting in response to a story about Japan’s 11th consecutive year of declining population.

Musk, who previously worried about the dangers of a global “population meltdown,” may have exaggerated the effect. But his tweet sparked controversy in Japan because it adds to a narrative that is upsetting the country: a gray nation shrinking into an irrelevant place. Given that Musk is something of a fan of Japan — he acquired a Shiba Inu puppy last year and referenced Japanese pop culture in his tweets — Kishida will find it hard to convince less Japanese investors of the country’s merits.

Japanese markets tend to post big gains only when investors have a compelling narrative to hold onto. The reformist path of Junichiro Koizumi in the early 2000s was one such example; Another Abenomics. Kishida needs one of his own.

Selling “Invest in Kishida” can be difficult. First, many are rightly concerned about whether it will still be around in the long run. His predecessor Yoshihide Suga lasted only a year before becoming Japan’s newest short-lived leader. “Is it worth remembering the name of the new Japanese prime minister or will he be replaced in 3-6 months?” A Fintwit account Zerohedge asked when Kishida was elected leader last year, summed up the disdain of many for a country where it was long believed that returnees would die.

However, this disdain is misplaced. Even after the glory years of Abenomics faded, earnings continued to rise along with shareholder payments. The corporate governance reforms launched by Abe have made mergers and acquisitions easier. The country’s startups, which Kishida also supports, are attracting increasing interest from foreign heavyweights. Private equity is optimistic about the nation’s prospects. Banks are in good health. Money is still cheap. The country has weathered the pandemic better than most other countries without resorting to lockdown.

In fact, conditions look better for Kishida to attract foreign investment than they did for Abe. Back in 2013, Abe was viewed with suspicion by many apprehensive about his disastrous first term as a leader and misplaced concerns about rearming. The yen was coming out of record highs. Indeed, Chinese President Xi Jinping was viewed better, still the type to be invited for pints at the British Prime Minister’s local pub.

A decade later, China appears as a riskier investment destination. Bankers fled Hong Kong as its reputation as an international financial center was bruised. The Covid lockdowns in Shanghai have given expatriates a direct reminder of what it is like to live in an authoritarian country. While Kishida did not directly cite China in his speech, frequent references to Japan’s “stability” and being “open to the world” made clear the contradiction.

The weak yen should make investment in Japan and its companies look cheap. And in terms of Musk residents’ concerns, Japan is far from being the leader. Its fertility rate, while below replacement level, is still higher than in Italy, Spain or the current haven of South Korea’s popular culture, and is the lowest in the world.

However, perhaps Tesla itself tells a tale. While the automaker initially teamed up with Panasonic Holdings Corp. As an exporter of batteries for its cars, contemporary Chinese company Amperex Technology Co.Ltd has long overtaken it, becoming the world’s largest electric car battery maker. Unlike Shanghai, Japan does not have a giant Tesla factory, while sales of its cars in the country remain relatively negligible.

Investors are unlikely to be persuaded by a plea to invest in a prime minister who seems to be unable to bother remembering his name. Things have not been helped by the fact that Japan’s borders have been closed for most of the past two years. Entry into the country remains a problem.

Abe found a simple way to sell his vision with his “three arrows” from Abenomics. Kishida’s signature policy, which he calls “the new form of capitalism,” is difficult to comprehend even for the locals. He explained that he took 2,500 words out of his speech at Guildhall last week, his first real attempt to showcase the concept abroad.

With that, Kishida made some valid sounds. He set a long-held goal for Japanese leaders to convert family assets from cash to investments, but he also introduced plans to expand tax-exempt accounts. His goals of increasing corporate spending on research and development and capital spending are on track.

But this could only be the beginning. Kishida must change international perceptions. Investors want promises of structural reforms and productivity gains, which Kishida’s main rival to last year’s LDP leader, Taro Kono, seemed to deliver. Those promised then need support.

Ultimately, it is Elon Musk in this world that Kishida needs to convince the story of Japan’s growth. But this will require more than just a common rhetoric and slogan.

More from this writer and others at Bloomberg Opinion:

Ukraine has become a wake-up call in distant Japan: Jeroyd Reddy

The rise of Marcus Jr. is the cause of outrage. Target holding shock: Daniel Moss

The West forgot about the Pacific Islands. China didn’t: Ruth Pollard

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

Jeroyd Reddy is a senior editor for Bloomberg News covering Japan. He previously led the North Asia breaking news team and was the deputy head of the Tokyo office.

More stories like these are available at bloomberg.com/opinion

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