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.