How to find equity opportunities in ageing Japan

Demographics are often used by investment managers as a tool in determining the projected GDP of a country or region. Whether an effective or informative tool or not, it is but one indicator and, on its own, often doesn’t paint a full picture.

The argument is that a country with a growing birth rate will likely, in time, boast a larger future work force translating into higher productivity and hence, GDP growth. This doesn’t, on the surface, bode well for Japan. Senior citizens currently make up just under 25 per cent of the population and are expected to expand to 30 per cent by 2025 and further beyond.

The Japanese government has been encouraging companies to adopt counter measures to adapt to the changes under Prime Minister Abe’s watchful eye. Therein lie the investment opportunities. In the case of Japan, the ‘labour crunch’, as it is often called, has presented some compelling investment opportunities. But first, some examples of how Japan’s workforce is changing.

With shrinking birth rates and an ageing population, a huge burden rests on government funded pensions. To tackle this, the Government has incentivised companies to treat their employees better, and offer different, and more flexible, working conditions. Many companies can, for example, offer potential retirees the opportunity to stay on albeit often at a lower wage.

Prime Minister Abe has also made increasing female participation in the Japanese workforce an essential element of his efforts to revive the Japanese economy. In fact, in 2000, females accounted for 40.6 per cent of Japan’s total workforce, a figure which had risen to just over 42 per cent in 2016. When compared to the EU (45.9 per cent in 2016) and the US (45.8 per cent in 2016) and Japan has room to grow.

As a result of these changes, many companies have been increasing their number of temporary or part-time worker contracts over the last few years. In 2015, there were 52.84m employees in Japan (excluding company executives), of whom 19.80 million, or 37.5 per cent, were non-regular staff members. Temporary employment pay is also now getting to a level comparable with that of full-time workers, which has means that temporary contracts have become more attractive for individuals. The clear benefit to companies is that it keeps fixed costs down.


One of Japan’s burning issues is its healthcare system which, according to many reports, is strained, with a shortage of doctors and care workers. Solasto provides medical ancillary workers on temporary contracts in the healthcare sector. Given the demographic profile of Japan, Solasto’s services are likely to be in strong demand.

TechnoPro is another interesting company which outsources skilled engineers on temporary contracts. It has a broad industry coverage but specializes in areas such as IT and software, areas of particular strong demand.

Investors focusing purely on the broad based Japan equity indices might well be disappointed as the constituents do not reflect the growth opportunities that currently exist in the country. Where some investors can only see problems, I prefer to look beyond these to the solutions. It is there that you can unearth some hugely compelling investment opportunities that might be obscured by the macro-economic headlines.

Richard Aston is portfolio manager of both the CC Japan Income and Growth Fund and the CC Japan Income and Growth Trust plc