Fresh limits on global investors won’t fit greater national interests in Japan
The debate is a feature encouraging discussion and deep understanding of contentious issues by presenting varying perspectives
With reform of financial regulations and legislation an essential part of the debate, the Japanese Government needs to be commended for having prioritised national security. There can be no question that governments need to and can do more to insure that Japan remains a leading country, respected for its stability, growth and global competitiveness.
Unfortunately, making it harder and more difficult for global investors to buy Japanese companies will not do much to ensure greater national security.
If at all, the coming changes in the foreign exchange legislation to accomplish this noble purpose are too harsh, rather than using a sledgehammer to raise a thumbtack. The threats of unforeseen effects can not be discounted, and if the wall breaks down, legal changes will almost definitely disrupt the secure, effective running of Japan’s financial markets. Most specifically, a new trend towards insularity and ossification will potentially be exacerbated in corporate Japan.
The main issue at stake is not so much the legal improvements to the Devises Act. It is straightforward to understand why Japanese politicians feel pressure to follow the lead of the United States in trying to increase regulatory and political control of global investment flows.
Nonetheless, in my personal opinion, the fact that it is all done in the name of ostensibly preserving national security is the real red flag. Why? Because the best way to protect protection is to guarantee the reliable, creative and globally competitive business sector in your region.
Unless Japan is to have a bright future, more active discussions with global finance executives are necessary. And indeed, the opportunity of the founders to threaten members of the board and current corporate frameworks is often absolutely vital to all stakeholders ‘ mid and long-term profitability and survival.
Yes, this is explicitly confirmed by the empirical reality of Japan’s sector. In recent decades, virtually all productive corporate turnarounds have been grounded in either major foreign equity acquisitions or aggressive lobbies for reform by global investors— Nissan, Sharp, Sony, Fanuc, Shiseido, to name a few.
Don’t make a mistake— the more contact with global investors, the better the external importance and potential prosperity of Japan and, therefore, its national security will be.
Enhancing awareness and perspectives of global investors is essential for listed companies. Around 63 per cent of the earnings of listed companies now come from worldwide sales, up from some 49 per cent seven years ago. Sure, Japan’s domestic economy is set to grow faster than any other global market, so there is an ever-increasing demand for a more competitive and transparent outlook and threats to the status quo.
Unfortunately, certain Japanese officials are eager to use the imminent changes in the law to lock out a foreign competitor and to defend the business as usual behind “national security” arguments. Future changes to trade legislation may quickly become a kind of “poison pill” that prohibits required market transformation and creativity. Corporate Japan is unlikely to take little intervention or change, and the new legal rules threaten to reinforce this trait.
My real concern is the corporate ossification and isolation from globalisation and, sadly, updated foreign exchange regulations may quickly become a diminishing burden for Japan’s economic stability and global competitiveness.
New and stricter regulations are ready to virtually remove Japanese companies from the global risk capital market and feed complacency and inflation under a national security mantle. In many new advanced technologies such as cryptography, quantum computing, drone technology and more, Japanese conglomerates have already fallen behind.
Whether or not we like it, global finance is the most efficient most successful means of keeping senior management high. The chances are therefore keen that the new rules would merely preserve old technology and feed a new race of zombie businesses in Japan. This is especially true because, unlike America, where the transition to tighter restrictions started, in cutting-edge technology, Japanese companies no longer have a natural competitive position.
What about international investors? Technically, the upcoming legislative changes would boost both the costs of production here and threats. External enforcement and checks must be improved to minimise new possible criminal liabilities.
We will need to see what institutional processes are exactly necessary and are still under consideration (Japanese technocrats have done an excellent job proactively gathering feedback from foreign investors).
Nonetheless, the net result is an improved regulatory expense base for investing in Japan irrespective of how seamless the processes may be. This should not be a concern for big, established players. Nevertheless, smaller start-up asset managers will be adversely affected by the new regulations imposing higher legal costs and enforcement. The prestige of Tokyo as the global financial hub for implementation should rise.
From the viewpoint of a Japanese stock investor, much of the bull argument for Japan relies on the unblocking of the high value given to Japanese companies which is well illustrated by the historically low price and historically high cash balance sheets of the listed companies.
To activate this interest, we need a catalyst. Sadly, it does not make it easier for the Japanese to purchase Products for foreigners.
To improve health, the government must provide increased public opportunities to technology firms to extend and sweat their engineers; boost R&D investment for university and corporate researchers; and promote the commercialisation of new technologies that are considered of national interest by providing tax breaks to academics, start-ups and in-house production staff.
Protection typically looks backwards and what Japan wants are forward-looking opportunities to enable creativity and commercialisation in the next decade. Japan wants extra, not less, competition from global financial markets to get there.
Japan needs more involved and dedicated domestic investors and fund managers who are not afraid to engage senior corporate leaders and threaten them. Policies aimed at helping local property owners to release corporate interest are not only welcome but also necessary to create a new corporate recovery catalyst.
It is here that international action is necessary to support Japan for the Japanese. National security is focused on home-grown energy and national ambitions, not on restricting the expansion of global capital.