Breakingviews - Japan lives at the bleeding edge of good enough - Reuters

HONG KONG, Nov 11 (Reuters Breakingviews) - With maturation slowing, demographics depressed and the commercialized equilibrium successful heavy deficit, Tokyo wants to incubate startups and enactment much authorities wealth into cutting-edge sectors similar semiconductors and next-generation telecommunications. Prime Minister Fumio Kishida says helium volition enactment innovation and technological probe astatine the “centre” of his argumentation push. Perhaps it shouldn’t be.

There’s nary question that flagging innovation is simply a occupation successful Japan. In solving it, the authorities hopes to find an alternate to the ultra-low involvement rates Kishida’s predecessor Shinzo Abe rolled retired to propulsion growth, a strategy that is losing traction arsenic planetary ostentation rises. "We judge that alternatively of interfering successful monetary policy, the authorities should absorption connected ways to spur innovation that make wealth," said then-Economy Minister Daishiro Yamagiwa successful January. That has meant pushing the $1.3 trillion Government Pension Investment Fund to get progressive backing startups portion removing argumentation bottlenecks. In the United States astir a 3rd of task superior came from pensions whereas successful Japan it is lone 3%, according to a Nikkei report.

Another origin is anxiousness astir the competitory menace from China. The People’s Republic overtook Japan successful presumption of intelligence spot exports implicit a decennary ago. Japanese patent output has flattened out adjacent arsenic Chinese champions similar Huawei record manically away. The effect has been the erosion of Japanese competitiveness successful industries it erstwhile dominated: shipping, semiconductors, and electrical vehicles. Industrial robotics champions similar Fanuc (6954.T) whitethorn beryllium adjacent to consciousness Chinese pressure. Tokyo has besides rolled retired incentives for section companies successful strategical sectors to re-shore China-based manufacturing operations.

The initiatives are well-intended. However, the blunting of Japan is owed much to its nonaccomplishment to deploy existing tools and champion practices than invent caller ones. Decades of economical stagnation person trained the backstage assemblage to debar investing wrong Japan. Even now, aft the yen has mislaid a brutal 30% against the dollar since January 2021, Tokyo-based concern executives told Breakingviews connected a caller sojourn that the currency discount is inactive not charismatic capable to person section companies to enactment their other currency to enactment astatine home.

REFORM DIVIDEND

An IMF study shows Japan’s labour productivity, astatine astir $40 of GDP per hr worked successful 2019, has been the lowest of the G7 countries since 1989. The reasons are mostly social: the cult of workaholism that leads Japanese employees to enactment successful the bureau adjacent erstwhile they person thing to do, for example. The firm contented of promoting seniority implicit competence has led to absurdities – similar the lawman cyber-security curate who admitted successful 2018 to having ne'er utilized a computer.

“Japanese workers are immoderate of the champion successful the world,” quipped 1 backstage equity enforcement to Breakingviews, “Their bosses are useless.” Mediocre mediate managers person resisted upgrading clunky bequest bundle and stuck with obsolete hardware similar floppy disks, fax machines and ink stamps for contracts. Technical glitches, including the nonaccomplishment of the backup system, caused the banal speech to adjacent for an full time successful 2020. Mizuho Financial Group’s (8411.T) bundle and hardware logged 11 strategy failures successful the 12 months ending successful February 2021, freezing ATMs and stalling monolithic transactions adjacent aft the lender plowed $2.6 cardinal into upgrades.

Closing the spread with American labour productivity, astatine astir $70 of GDP per hr worked per the IMF paper, could astir treble the Japanese system successful size successful theory. Alternatively, employees could chopped pointless bureau hours successful fractional and walk much clip buying and procreating. Either result would beryllium a batch much awesome than the 0.3% Nomura analysts predicted cryptocurrency adoption could adhd to Japanese GDP.

The world’s 3rd largest system does person an innovation problem, but it is not a crisis. It enjoys a modular of surviving envied by its neighbours; stagnation has persisted successful portion due to the fact that complacency is truthful comfortable. And galore home products are inactive superlative. Nidec (6594.T) claims 80% of the satellite marketplace for the brushless motors wrong hard-disk drives; little-known firms similar $43 cardinal Shin-Etsu Chemical (4063.T) person a stranglehold implicit profitable niches successful silicon wafers and cardinal chipmaking chemicals. Manufacturing process decorator Keyence (6861.T) is 1 of the world’s astir profitable concern consultancies.

Rhetorically, Tokyo aspires to spur innovation and bin obsolete practices simultaneously. Yet politicians people similar distributing taxation largesse among capitalists to prying floppy disks retired of bureaucrats’ cold, dormant hands. This whitethorn explicate wherefore the country, which successful immoderate ways resembles a robot-powered wonderland, inactive uses obsolete exertion similar fax machines. Investing successful the aboriginal makes for riveting speeches, but Japan Inc volition get much from reinventing itself than inventing caller things.

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CONTEXT NEWS

In June 2022 the authorities of Prime Minister Fumio Kishida unveiled plans to propulsion the Government Pension Investment Fund to summation enactment for startup companies, arsenic portion of Kishida’s “new capitalism” docket that includes promises to amended quality capital, accelerate decarbonisation and upgrade technology.

Editing by Robyn Mak, Katrina Hamlin, Thomas Shum and Pranav Kiran

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