Japan Becoming Capital

A great question, not just for Americans, but also for the globe to consider, is whether the election of Donald Trump means a shift in American foreign policy. Long-term planning for nations has to account for many factors, but one of the utmost important in this era of interconnectivity and global markets is economics. Those factors don’t simply reduce down to how one’s national economy performs, but includes aiding the economy of partners as a potential sign of commitment to an ally.

Kissinger always said there are no allies for America, but there are shared interests.

Prior to Prime Minister Shinzo Abe’s visit to America to affirm the alliance between the U.S. and Japan, reports emerged that Japanese firms and business interests were providing Abe with details for him to throw a number of American jobs that Japan would help make happen. Supposedly, a tweetable number of 700,000 was whispered and reported. Many wondered why, but shared interests, as well as long-term planning for the changing, graying and shrinking Japan, makes it work. The rise of China and warming of smaller Asian nations to China’s financial, economic, and even territorial moves fits into Japan’s search for confirmation of a friendly partner in America.

This explains the confusion over the reports that Japan was ready and willing to contribute to any Trump infrastructure plan. People were not seeing the changes Japan must make as it grays, as well as how it orients its economy. Why would the Japanese want to provide Americans with jobs? The key is that the investment would be from Japan’s pension funds. Japan has a graying and shrinking population. They have an incredibly low unemployment rate of 3%. Each year, they have fewer children, which turns into fewer eighteen to twenty-two year olds seeking work to replace generations of workers technically larger than theirs.

The low unemployment has come with an offset of stagnant wages, as the economy appears to have been locked in for decades now. The Japanese have never quite done capitalism similar to the Anglo tradition, with some authors calling their form collective capitalism. Employees are often hired while still in college, and lifetime employment is expected. The lifetime employment does guarantee a job, but it does not guarantee the promotion opportunities that an American is accustomed to, or was. Stagnation has a cost. This stagnation has been tolerated, due to deflation in the economy that has allowed for the heavy cash Japanese society to enjoy strong purchasing power. Debt has been run up, but at low interest rates. Their government debt is held by other Japanese, but the ticking time bomb continues.

They do not need job creation as much as capital return as their population shrinks and ages. The Japanese have had high savings rates for decades. They now have a large number of high net wealth individuals who are known for not touching their capital and merely living off returns. Japan ranks as either the second or third highest nation in total net wealth with a smaller generation to hand it off to than its contemporary across the Pacific. Japan is also seeking currency diversification as the yen endgame draws closer. Japanese firms have bought American insurers to learn about investing in America as well as provide geographic and currency diversification.

What is happening is the twist of Japan’s economy away from the super focus on employing all and driving job creation and towards providing returns for all. The Japanese are potentially transitioning to a rentier economy. This is not collecting revenues off of a natural resource but the original meaning of the term. Japan can be more colonial in its orientation. Japan would be deploying its massive capital hoard for returns around the globe to provide an income stream. Creating hundreds of thousands of American jobs also creates hundreds of thousands of Americans who can also pay for Japanese-manufactured goods. Japan has funded American deficits for decades now in a national form of vendor financing, so this is the next step.

Some economists argue that America’s asset bubble mania since 1980 has been an attempt to switch Americans’ income from labor wages to rents from asset holdings. This is a stretch, but if applied to larger interests makes sense. Consider the pension funds of different groups in America and their need for returns. They often invest in assets the common man can never touch. They also have to bid against other heavy investors. The zero interest rate policy of the Fed has allowed hedge funds, big banks, and private equity to all bid with pension funds for anything with a return. American pension funds in combination with these other investors have driven down the capex rate on most commercial and even large residential investment opportunities.

This is why the Japanese would seek to help Americans get jobs. While American federal funding might be limited due to the debt markets or simply sabotage from a Congress wanting to block President Donald Trump, private-public partnerships will need private sources of capital. The Japanese have a need in deploying capital that will generate returns in a zero yield world. For all its problems, America is still a more liquid, stable, and safer region to invest in than the developing world.

Moreover, Japan is right next door to China, which is its historical antagonist. To this day, the Chinese use Japan to rile up its disgruntled mobs. As Asia reconsiders the default settings of its foreign relations and looks hard at what China is offering, Japan really has no alternative to America. An alliance or friendlier relations with Russia would be advantageous, but Russia is no substitute for America in the Pacific at this time. America is Japan’s largest ally and proper counterweight to the large and growing neighbor next door on the mainland. Deploying capital to America, Japan would deepen its interests in America by helping keep it afloat as geopolitically it needs to adjust for a rising China and changing Asia.

This should not be viewed as alien, but as the next stage of Japanese keiretsu development. The intertwined businesses with shares become a larger pool of capital seeking returns for an ever shrinking population. As investment decisions become more automated, the capital held for this continuously shrinking population may become automatic and self-driven.

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7 Comments

  1. As much as some people on the altright admire the Nips, i don’t want them, nor the Chinese, nor the Russians, nor any of these asiatic cultures creeping into the turf of the free west. A Job at a nip owned company is not something worth it. Best thing america can do is containing threats to itself and not bringing the pathologies that bring down the rest of the world in. That goes for Syrian Refugees as much as for Nips and their declining culture.

    Reply

    1. Though I have spent several years studying and working in Japan, I wouldn’t say that I admire the Japanese. What I can say is that I’d much rather work with them than with the Chinese menace – and as it stands, whatever qualms we might have about Japanese money, they should be outweighed by concerns over not only Chinese capital but human exports. Perhaps the issue is different in Australia than in America.

      I think it’s perfectly safe to cooperate with the Japanese PROVIDED our own nations maintain a clear view of interests, unclouded by notions of friendship or alliance. Let’s take what we can get and pay what we can afford for it, but we should not make undue sacrifices – do what’s relatively best for us, not for Japan; but if Japan happens to benefit somewhat, too, no harm done.

      Reply

  2. If you still think Japan is running principally a lifetime employment system you don’t know much about Japan. It’s not the 80s anymore. Temps and contract employees are legion.

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    1. You’re pretty much right, but this is mostly true of workers with poor education. Those who graduate from university still tend to be hired by way of mass recruitment drives, and while there is more career mobility than in the past, once hired by a certain company, there remains some expectation (perhaps a result of the same sot of ’80s holdover mindset that you have spotted in this piece) that they can have a job there until retirement – and while this is a less reliable expectation than in the past, prospects of its fulfilment are far better than they would be in any Western country.

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  3. The cunning thing about Japanese debt is that when it is criss-crossing inside Japan in a reciprocal way between and inside companies and/or bureaucracies, they would largely cancel each other out, if they would have to be paid immeadiately. Thus I think Japanese debt is not really normal debt, no, it is in reality one of the ways in which Japanese large complex organizations tie themselves to each other and each others success, prosperity and continuity. This moderates too intense cut throat market competition and allows companies and bureaucracies enough breathing room to care about Japanese people and Japanese society, and to not to give in to immigration and universalizing pressures. From pure economic point of view, Japanese debt is largely unnecessary. The most important things thrive on little inefficiences. Westerners and their large complex organizations on the other hand are ready to sell their souls, grandmothers, religion and race/ethnicity to get the “winning” extra dollar, and then they lose gradually everything, in the end that measly dollar too.

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  4. When you wrote “capex” you meant “cap”. Sorry to be pedantic, I just do a lot of RE analysis.

    I think the low-rate phenomenon is something you guys could write about, more generally. Low rates = high asset prices, which IMO create a lot of social tension (difficult to use labor income to overcome rents -> frustrated laborers, difficult to overcome lack of inheritance -> frustrated social climbers).

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    1. You could add difficulty of self-insuring (replacing an income stream with capital income becomes more expensive). The difficulty of overcoming rents and self-insuring combines with the growing rent-intensity of urban housing and credentialing to make K-strategist family-formation an uphill battle.

      Reply

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