Abenomics has change at its very core: change to the way in which the Japanese economy works, change to the very structures that underpin the economy, and targeting a change in the Japanese psyche.
And while Abenomics continues apace with an emphasis on innovation, social inclusion and productivity, so too does the natural evolution and self-improvement within its economy.
Robotics in Japan is at something of a crossroads. Faced with an ageing population and a reluctance to rely on cheap immigrant workers, the demographic impetus towards capital substitution for labour has never been as evident as it is now. Accelerating gains in productivity are delivering better machines at lower cost and the robots are becoming more efficient than human workers.
Companies like Nidec and other regional players such as Foxconn are vocal about their plans to replace the bulk of their own employees with robots in the next 10 to 15 years, and are getting in on the act of making them. Japan is the world leader in robotics hardware and well placed to benefit from the global robot boom.
And there is no Terminator complex about robots; they are seen as a positive force – and Japan is especially advanced in its work on medical and nursing robots to care for the ageing population. This leadership position is a good place to be as the rest of the rich world ages.
Renovation across the nation
Japan is undergoing something of a makeover, too. Improving infrastructure is a key tenet of Abe’s fiscal spending plans. A big part of this remains the task of rebuilding following the 2011 tsunami and Fukishima disaster. Meanwhile, large scale urban redevelopment projects are underway in Tokyo, Osaka and Fukuoka.
Together with these are the construction projects for the 2020 Olympics, a number of other stadia, and development of urban areas with a focus on sports to leave an athletic legacy from the games.
There has also been a palpable change in psyche of the Japanese consumer (encouraged by the government). In general, housing is utilitarian and living spaces are small – smaller than in China, for instance. And unlike the UK, second-hand houses depreciate in value over time. The government is keen to reverse this and for the housing market to double in size, to ensure people will have a good asset base in their retirement.
Given the space constraints in Japan, it is housing renovation rather than extension that is the order of the day. A new culture of aspiration has appeared recently and it has even prompted the first appearance of ‘property-porn’ programmes on Japanese television!
Life in the fast lane
As the world’s car manufacturers and tech giants scrabble for first-mover advantage when it comes to driverless cars, the Japanese car industry is no exception. Japan enjoys the position of world’s largest manufacturer of in-car semi-conductors and leads the way in 3D navigation.
And while Toyota has sold 10 times more hybrid vehicles than Tesla has sold cars, Japan is also a leader in hydrogen batteries, fuel cell technology and combustion engines – it is tech-agnostic as far as electronic vehicles are concerned.
When it comes to driverless vehicles, the Japanese are keen to have something, on a large scale, on the road soon. Indeed, as with much of the development afoot in Japan at the moment, the Olympics seems a handy target date by which it can show them off.
A Trump hump?
The victory of Donald Trump in the US presidential election has come at an opportune time for Japan. Prime Minister Shinzo Abe was the first foreign leader to meet the president-elect, underscoring the strength of the bond between the nations.
We believe the post-election rise in the US dollar and in long-term bond yields will lead analysts and investors to upgrade their earnings expectations for Japan, adding more fuel to the bull market we saw in the second half of 2016.
For investors in Japan, there has never been a more exciting time to invest in the country – certainly not in my investing lifetime – and over the coming years we expect Abe-led changes to continue to provide countless opportunities for active investors such as ourselves.
Rob Weatherston is the manager of the Old Mutual Japanese Equity fund