Japan Emerges From 30 Years of Economic Malaise

People pass an electronic board showing the closing numbers on the Tokyo Stock Exchange along a street in Tokyo on May 22, 2023. Kazuhiro Nogi/AFP via Getty Images

Global chip makers are expanding their operations in Japan as the East Asian nation’s economy recovers from a 30-year low.

According to the Nikkei Chinese website, Japan’s stock market has been on a winning streak, closing at 31,086.82 on May 22—the first time it exceeded 31,000 points since July 26, 1990 (31,369.75). It was the highest level in about 33 years. It fell back slightly over the following two days.

Since 2022, the Nikkei has typically traded between 25,000 and 29,000. In May, the upswing became clear. Foreign investors have been net buyers of Japanese stocks for seven consecutive weeks, totaling over 2.8 trillion yen ($20.3 billion).

With investors frustrated by the global market downturn, Japanese stocks stand out. According to data compiled by Bloomberg, Japan’s market value has surged by about $518 billion since its low on Jan. 5.

The world’s most prominent investors and biggest Wall Street banks are bullish on Japan, with recent reports from JPMorgan Chase & Co. and Goldman Sachs expecting Japanese stocks to have more room to rise.

Global chip makers have also decided to expand their operations in Japan as the stock market has risen.

Ahead of the G-7 summit, Japanese Prime Minister Fumio Kishida met with the heads of the world’s seven largest semiconductor companies in Tokyo on May 18. The seven companies—Taiwan Semiconductor Manufacturing, Samsung Electronics, Intel, Micron, IBM, AMAT, and IMEC, a Belgian semiconductor developer. It is rare for the heads of the world’s seven semiconductor giants to meet in one place.

During the meeting, Kishida expressed his hope that companies will expand their direct investment in Japan and he said that the Japanese government will provide support to the semiconductor industry.

Japan's Prime Minister Fumio Kishida speaks during a late-night press conference during the G-7 Summit Leaders' Meeting in Hiroshima on May 19, 2023. Japan Pool/JIJI Press/AFP via Getty Images

According to the Nikkei report, Micron announced a 500-billion-yen ($3.6 billion) investment in Japan to introduce equipment to produce state-of-the-art products at its Hiroshima plant; Samsung will open a research and development facility in Yokohama; Taiwan Semiconductor said it is considering expanding its investment in Japan, where it has already spent $8.6 billion on a new foundry in Kumamoto prefecture in the south-east; Intel, for its part, said it would deepen cooperation with Japanese companies and research institutions to develop technologies and materials for semiconductor manufacturing. AMAT, the U.S. company, will hire 800 engineers in Japan over the next few years and increase its headcount by 1.6 times.

Ahead of the meeting, IMEC said it would set up a research and development facility in Hokkaido and collaborate with Japanese wafer maker Rapidus on state-of-the-art lithography using extreme ultraviolet (EUV). IBM has already partnered with Rapidus in developing 2nm technology.

Trade Minister Yasutoshi Nishimura said the government would use 1.3 trillion yen ($9.63 billion) from last year’s supplementary budget to support commitments to foreign chip makers.

The Japanese government has set a goal of tripling the country’s semiconductor-related revenue to 15 trillion yen ($108.5 billion) by 2030.

‘Sleeping for 30 Years’

Japan’s economic recovery has surprised the world, reviving a nation that has been described as  “sleeping for 30 years.”

Beginning in 1986, Japan’s monetary and interest rate policies led to a speculative boom and rapid economic expansion, especially in the stock and land markets. The Nikkei 225 stock index rose 197 percent in four years from 13,083 in late 1985. Back then, the total land price of 23 districts in Tokyo was enough to acquire the entire land of the United States. But as rising asset prices were not supported by industry, the bubble burst when Japan’s economic indicators reached unprecedented levels.

The Nikkei hit an all-time high of 38,916 at the end of 1989 and has since fallen. By March 1992, the Nikkei was below 20,000; In August 1992, it fell further to around 14,000, wiping out a lot of paper assets in just a year or two. By its lowest point of 6,994.9 on Oct. 29, 2008, it was down 20 years and more than 82 percent. Then it eased up a bit.

A passer-by looks at a stock price index board at the window of a security company headquarters in central Tokyo on Aug. 17, 2007. Toshifumi Kitamura/AFP via Getty Images

In 1990, the Japanese government imposed controls on land finance and mortgage purchases. The Bank of Japan then adopted a policy of financial tightening, which caused the bubble to burst further. With the rapid decline in land prices, loans secured by land appeared to be at great risk. At that time, bad loans at major Japanese banks were exposed, dealing a severe blow to the Japanese financial sector. All capital investment objects have appeared too late to get out of the “trapped family”, with many companies going bankrupt and people ending up unemployed.

The stakes in land and stocks are often huge; usually more than a person can earn in a lifetime, leading to many family tragedies in Japan. Panic feeds on the effects of a contraction in consumption and investment, damaging the real economy as well as the bubble. Japan subsequently entered a long and deep recession.

The Warren Buffett Affect 

American investor Warren Buffett was an early bull on Japanese stocks, and the multi-billionaire has been described as instrumental in Japan’s economic recovery. In 2020, his investment group, Berkshire Hathaway, spent $6 billion on five Japanese companies in August and added about $2.4 billion in additional stock in November.

The five Japanese business houses that Buffett bought were Marubeni, Mitsubishi, Mitsui, Sumitomo, and Itsuchu. Over the past three years, the share prices and earnings of the companies have done well, with Marubeni more than tripling, and Mitsui and Mitsubishi more than doubling.

His bullish stance on Japanese companies has been credited in part with encouraging foreign investment in Japan.

Warren Buffett, CEO of Berkshire Hathaway, attends the 2019 annual shareholders meeting in Omaha, Neb., on May 3, 2019. Johannes Eisele/AFP via Getty Images

Buffett made three points to Nikkei in April about why he was bullish on Japanese stocks: Firstly, to diversify international investment; Secondly, Japanese equities are grossly undervalued; Thirdly, he wants to invest in companies he can understand because he is not picking stocks, but business models and competent people.

Stance Against Beijing 

Yuwen Ming, an economic researcher at the Hong Kong Institute of Finance and Commerce, believes that a reason for Japan’s reemergence is its stance against a more belligerent communist China.

The performance of Japanese defense stocks has been very bright recently, Yuwen told The Epoch Times on May 24. The stock of Mitsubishi Heavy Industries, the biggest defense stock in Japan, has soared since last year, and the five companies Buffett chose embody defense stocks.

In late 2022, Japan’s cabinet approved a record annual budget, including a 20 percent jump in the military budget to 68 trillion yen ($55 billion). The main purpose of Japan’s increased military budget is to counter an increasingly assertive China and an unpredictable North Korea.

During the Trump era, the strategic focus of the United States began to shift to the Indo-Pacific, and checking the aggression of the Chinese Communist Party (CCP) gradually became a concern for many nations.

Due to former Japanese Prime Minister Shinzo Abe’s staunch anti-communist stance, Japan has become an axis of the U.S. Indo-Pacific strategy as it is involved in almost all U.S. alliances in Asia, he said.

Japan’s alliances with the United States include Chip 4, the Quadrilateral Security Dialogue (Quad) between the United States, Japan, India, and Australia, and the Trans-Pacific Partnership Comprehensive Progressive Agreement (CPTPP) led by Japan. The North Atlantic Treaty Organization (NATO) is also expected to open its first liaison office in Asia next year in Tokyo, Japan.

“The current world pattern is undergoing great changes, among which the U.S.-China confrontation is the main line,” said Yuwen.

“The United States is far more worried about the CCP than it is about Russia,” he said.

“As the world pattern changes, global wealth will also reshuffle. By standing firmly with the United States and assuming an increasingly important role, Japan has won not only the support of the world’s major powers but also its wealth.”