Jesper Koll: Japan is “Unbelievably Rich” Yet “Dirt Cheap”

Jesper Koll: Japan is “Unbelievably Rich” Yet “Dirt Cheap”

the most exciting thing and this it’s the one thing I want everybody to take away here japan’s corporate metabolism is on fire you’re seeing yes GDP um is probably going to slip into negative over the next couple of quarters that’s perfectly fine this is not a recession because you and I as investors you and I as business leaders what we focus on is the metabolism of corporations soft power Japan you know China could have had its moment but unfortunately because the rule of law is not being enforced and the policy and political direction is going in a slightly different way as a result of that you know what you want to focus on in Japan is really as I call it it’s the headquarters nation for Asia and it’s interesting you actually see that I’m having more and more discussions with American corporation who are thinking about possibly shifting the Asian headquarters here to Japan because you know you’ve got the intellectual property protection Hi everyone I’m Maggie Lake and today I’m talking macro with Jesper Call a longtime Japan expert XJP Morgan in Maryland’s chief economist and now uh an active angel investor one of the founders of Japan catalyst group one of the first retail investor activist funds in Japan um advisor to government officials i mean there too many titles to talk about Jasper but I’m so excited to be able to catch up with you welcome to the show no thank you for having me excited to be here
so I we were just talking before we came on and I’m really excited to get to spend some time with you because we don’t hear enough from people who are sitting outside of the United States who have a different perspective of you of course you’ve been based in Asia for so long and been embedded in in Japanese uh society and economics for so long uh so I’m I’m really fascinated and you’re of course an author on Substack as well as am I so you’re the author of the Japanese optimist Substack and you wrote something recently that really caught my attention uh and you said “Japan is poised to emerge a winner now that change is everywhere and previously unthinkable policy actions are disrupting the global economic financial and socopolitical architecture.” And that just struck me as so interesting because in so many of the conversation I have Japan is seen as as a risk so can you explain what you meant by that
look um first of all Japan is unbelievably rich um you know and has enormous resources i mean people always forget that this has been the world’s largest creditor country for the past 37 years yes there was domestic deflation yes there were all sorts of issues that got addressed um you know and here we are today where corporations have cash reserves that are almost one times GDP um and you’ve got uh you know the private sector the household sector you know also enormously cashri and you find that the resources that Japan has are now being mobilized um you know for good use over the last 30 years it was a strong balance sheet recession you had companies and individuals focusing on paying back debt that debt has now been paid back and given that the world is such a complex place now given for Japan specifically what has changed Maggie is that um you know Japan cannot trust its two biggest partners and the two big partners obviously are the people’s republic of China on the one hand Japan’s largest trade partner and then of course the United States of America which is also a significant trade partner but is also you know very very important to Japan’s ‘s national security
and what has happened over the last five six years is that basically both those partners the People’s Republic of China and the United States of America have become untrustworthy and so the ruling elite of Japan the bureaucrats the politicians corporate leaders even the media everybody is now saying all right we’re going to have to do things ourselves we cannot be a free rider anymore more
we need to be focused on getting our own act together and as a result of that the most exciting thing and this the one thing I want everybody to take away here Japan’s corporate metabolism is on fire you’re seeing yes GDP um is probably going to slip into negative over the next couple of quarters that’s perfectly fine this is not a recession because you and I as investors you and I as business leaders what we focus on is the metabolism of corporations you’ve got record mergers and acquisitions record management buyouts you’ve got record human capital investment i mean starting salaries in Japan are now growing at 7 8 9% last year was the first year ever in Japan where companies hired more people midcareer rather than at the graduate intake that’s unheard of in a very very proud you know human capital management culture liquidity uh in the labor market the metabolism is going up and by the way um Maggie you know if you switch jobs in Japan and you’re in your 20s your average pay increase is 42% and so you’re seeing yes a stagnant national economy because the MC Jagger generation the baby boom generation is retiring they’re living off their pensions that’s not going to contribute much purchasing power but the younger generation the generation in their 20s and 30s they are the ones who are in high demand they are scarce because the number of high school and university graduates is dropping every year by about 50,000 kids and as a result of that you know they live in a country where a new middle class is being born it’s the young generation that is getting better contracts higher pay access to leverage and you know is living in a country where the infrastructure the public and social infrastructure is second to none i mean this thing functions extremely well we don’t have Newark uh you know airport issues here everything actually works and so from that perspective you know Japan actually is you know now in a superbly interesting place because the metabolism of the economy is rising and getting stronger and that’s what makes it very exciting to be here very exciting to invest in Japan
that that’s so interesting and that that Newark airport comment hits close to home Jasper that is one of my one of my the airports I operate out of so I I feel that pain i know what you’re talking about but this is so interesting because I feel like so so let’s address the population issue since you mentioned the the scarcity as a positive because most of the time what you hear is Japanese inopa Japan is in population collapse and that is one of the major weights on it and the reason people are are scared of it
yeah you and you look I mean it’s always the push back I get how dare you be optimistic on a place where in 1667 years only six people are going to be left right i mean every day the Japanese population declines by about 2,200 people now I operate on the side that scarcity is the mother of all invention japanese corporations are extremely proud they you know have you know multistakeholder capitalism taking care of your workers you know there’s a lot of you know praise for the whole thing now that labor that your most important asset is getting scarcer and scarcer you’re finding that the incentive structures inside the firms are changing let me be specific um NT which is uh you know the big telecommunications giants here in Japan um you know they have a new president and that new president last year announced to do away with seniority based promotions so it’s now shifting towards um you know a general meritocracy um and you know when the internal dynamics inside proud corporations when that begins to change you’ve got a catalyst for something positive and that’s exactly what’s going on here now let me do something else i mentioned the population declines by 2,200 people every day over the last 18 months every day 1,200 non-Japanese received a work permit this country has become an imig immigration superpower and of course you know once you switch towards a meritocracy you know in the way that you evaluate people all of a sudden everything opens up you know female participation in the labor force is increasing females are now being empowered because thank you you’re evaluated not on the basis of seniority you’re evaluated on the basis of merit foreigners non-Japanese and it’s predominantly Asians obviously right um you know who come to Japan work for a Japanese company they had nowhere to go because everything was seniority based now that you’re shifting towards a meritocracy whether you’re from China whether you’re from Indonesia whether you’re from wherever right now you’ve got a fair shot at actually building a career here so trust me you and I want to be reborn as a 23 year old Japanese amazing and and again counter to some of the narratives out there i will say obviously you’re in good company um because Warren Buffett you know made big investments um it was it was sort of where he pivoted uh before he stepped down so that c you know made a lot of headlines caught the news so I don’t think it’s a secret that there’s interest there but we still get this drip of sort of news headlines and concerns la last month there was an article in the New York Times that suggested that Japan has hit its limit on debt and faces very tough choices ahead ahead that was pretty much the title of the article so I’m not discounting the positives you say but can you contrast that with maybe some of those difficulties yeah look and and I mean you know like I mentioned the private sector is incredibly rich has very lazy balance sheets and of course the counterpart to that is that the public sector you know does have an enormous amount of debt i mean it’s 2.6 times national income is the level of gross debt now the bank of Japan um you know owns about you know 52 53% half of the debt is basically owned by the Japanese government and that of course you know it’s this wonderful Ponzi scheme you know that uh Japan has established in line with I mean obviously other countries during uh the pandemic um you know did similar sort of things but Japan has been the biggest experiment in financial socialism where you’ve had massive intervention mention I mean the bank of Japan owns half of the debt as I mentioned the bank of Japan at one point owned 10% of the Japanese equity market
um Japan has about 400 trillion corporate loans um the bank of Japan supplies about 80 trillion of that lending to zombie companies has been a big thing so that was the emergency policies that Japan has been running with over the last 25 30 years now the interesting thing is that this is all being privatized that uh Bank of Japan Governor UEA right his number one mission is to reprivatize uh Japanese capital markets so the Bank of Japan is getting out of the way they have stopped buying equities they have in December last year um they uh announced not just an increase in interest rates to 0.5% but they also announced that the lending to zombie companies program is being phased out no more new loans to zombie companies so the average duration of those loans is about 2.8 years so over the next 2.8 eight years um you know the uh the the zombie companies will be starved of public capital and if you’re good if you’re actually not a zombie but you do have a plan the private banks will lend if not yes it’sa you’re going to go bankrupt so this is very important and this goes to the bond market as well very importantly I mean the bank of Japan with this financial socialism was the fundamental buyer of government debt this has now gone out and you can look at the data you actually find that you know the bank of Japan used to be about 80% of all the buying and selling in the JGB market
now we are down to the bank of Japan being only about 25 to 30% right so private you know this this requification the banks the insurance companies actually doing the work of channeling savings into investments you know which was blocked by the Bank of Japan now is being privatized and of course you’ve got tensions
right as a result of that i mean there was this wonderful story Maggie I think Americans will appreciate this there was when when when Governor UA became the governor a couple of years ago um you know there were rumored to be only 18 JGB traders left here in Japan you know because everybody had gone for basically 20 years the Bank of Japan did everything you know you didn’t have you didn’t need a JGB trader right
that’s incredible so I think this is where time frame becomes important because what you’re describing sounds like what people had been hoping for for years years and years i remember talking about zombie Japanese companies like when I was first starting out i mean this is this is how long it’s been going on and that being an issue if you’re finally doing it I can see why that would lead to optimism but is there an enormous amount of short-term pain you must be talking about defaults you must be talking about higher borrowing costs or higher interest rates as they try to manage that if you’re if you’re talking about this moving to the free mar you know to the private market at least let’s not say free but private private markets is that a worry especially when we have an election coming up in Japan but look I’m not worried at all um first of all at the big picture macro level right japan runs massive current account surpluses i mean I’m sorry this is very very different um I’m richer than you i can do this at my pace
right um so the resources are here the interesting thing is that the ruling elite now has the ambition to go capitalism to actually reduce the financial socialism and yes you’re completely right there is pain there’s frictions right there’s the occasional hiccup that’s going to come through but the fundamental opportunity for the private sector if you’re a Japanese bank right now for the first time in one generation you can actually make money on your net interest income imagine that for 30 years I had no margin now I’ve got margin and you know the borrowing by the private sector that young generation taking out a mortgage domestic corporations borrowing money to do that MBO borrowing money to do that M&A borrowing money to actually commit and build new factories and logistics hubs and data centers and IT systems that is happening here and the interesting thing is exactly like you said Maggie for the last 30 years you know it didn’t matter the conversation that we had was basically always the same oh there’s always hope the interesting thing is now the liquidity the metabolism of corporations companies are actually doing stuff they’re building new stuff they’re buying in their subsidiaries they are doing management buyouts there is an openness to listen to activist investors and say “Hey you’ve got a very lazy balance sheet.” I mean still today about 40% of Japanese companies trade below book value still today you know there’s about 70% of companies who’ve got more cash on the balance sheet than they’ve got equity so enormous opportunity set here in the past they didn’t do anything because they were so rich m
now they are forced to do something because number one they’re running out of labor their most important capital and number two the global situation has become not just uncertain but very scary from a Japanese perspective because my largest trading partner China and my largest security partner United States have become untrustworthy
that so that we we always wondered what would be the trigger for reform and I you know AB tried it and there was some progress but it never materialized you’re saying in a strange way the Trump administration and some of the the uh policies that have been in set in motion not just from Trump but through the last few years but accelerated now um are the thing that finally took root and caused them to say we need to make a change
so the crisis is existential in the past the crisis was always in your head because yes your return on equity is only 1.7% you should be sweating your balance sheet harder you should be generating a higher rate of return for your shareholders that was all very nice but it wasn’t concrete now the threat is concrete because even Mitsubishi Corporation you know one of the leading stars in Japan has problems retaining labor so all of a sudden Mitsubishi the lazy HR the proud human resource you know uh of of Mitsubishi government now is thinking of new ways to motivate and to retain their people and that’s where it gets exciting
you know and disruption is very you know it’s very challenging to sh to make a shift like that is very challenging
no no no you’re you’re you’re completely right um you know but you know I have enormous trust that the discipline that the level of education that you know particularly the younger generation but also the older generation that they bring to the table that they can get this done and let me give you rather than talking in the abstract let’s just be precise here um you know several years ago there was this push oh my god you know we need to build semiconductors um you know here in Japan and so Sony and TSMC C uh announced this joint venture you know nicely supported by the Japanese government to build a factory in Kitakushu in the southern island of Japan um they built this factory in 22 months normally that sort of high-spec factory takes on average 36 months to actually be built so the Japanese when they pull their sleeves sleeves up when they actually make action they actually do the right thing and you know this is what’s very very exciting you know the resources are here
um you know the capital is here and importantly the level of um you know intelligence and discipline because of an education system that has been constantly invested in in Japan i mean Japan remains you know when you look at these international surveys like the Pisa survey Japan is always number one or number two in terms of mathematics and science literacy they can’t express themselves that’s where they fall down right but you know in terms of the fundamental knowledge the young workforce here is disciplined is highly educated I mean just remember this is a country where 11 year olds study calculus
yeah I mean it’s such a contrast to so much of what’s happening state side whether you talk about immigration or education the cuts from government spending it’s you just have to point out remarkable the contrast you’re making so talk to me about the recently Japan had a bond auction that that went poorly uh and and really scared people in this transition as the government steps out of the way is there room for bond vigilantes to come in and perhaps challenge the pace of what the government wants to too
yeah Maggie and and this is this is the number one issue and you know at the macroeconomic level it’s all about inflation i mean the one thing and I I’m I’m having this discussion with uh the people at the Bank of Japan right i mean you know inflation here if you just if you draw a chart right you’ve had basically three decades of zero to slightly negative inflation you know then a couple of years ago you had 1% then you had 2% and now you’ve got 3% um and for all intents and purposes the evidence is mounting that this is demand pull inflation driven by higher wages um you know particularly from the young generation and so from that perspective the risk that the Bank of Japan is actually behind the curve in the sense of doing too little too late you know that risk is exactly what the bond vigilantes you know are starting to point out to i mean just think about this
i’ve got a 20 or 30year bond yielding less than 3% but I’ve got consumer price inflation running at 3.70% now you can argue about the CPI outlook but you know for all intents and purposes given the labor shortage given how resource constrained Japan is the risk of Japan actually you know entering a wage price spiral is quite significant and so that’s the tension governor wants to do it cautiously wants to do it calmly but the nice thing is that the more you privatize financial markets the more of the liquidity is driven by private savers you know the more vigilant the bond markets are actually going to be so it’s going to be a very very interesting tension going forward here just for 30 seconds Maggie just to to point out um after that bond auction went poorly um there was a very very wellcoordinated meeting with the Treasury and the Bank of Japan and as you know they have changed the parameters they have cut issuance from the longerdated maturities towards the shorterd dated maturities um and the bank of Japan has reduced its reductions of the bond purchases there so they are extremely responsive to the market and Maggie which is wonderful because they are highly coordinated i mean if you ask me I mean there’s many many differences between the United States capital markets and Japanese capital markets but one of the one one of the standouts is that this is an extremely coordinated public sector the Bank of Japan talks to the Treasury talks to the issuers there is a constant set of communication that’s going on so is there going to be you know uh uh are there going to be occasional disruptions i think the answer is absolutely yes but I think is there real worry of a collapse in the Japanese debt market right i think the probability is close to nil given that number one the private sector does have the resources and number two the government the officials are actually extremely um well coordinated so so talk to me about the yen because the unwind of the yen carry trade last August sent caused huge upheaval in the markets it didn’t last very long but it was kind of shot across the bow with many people worried about the global ramifications of something like that what’s your outlook for the end
look I mean I think that uh you know the carry trade is going to continue to be an issue because it’s just there i mean I can borrow at below 1% here in Japan and I can invest you know at above 3% 3 and a half% 4% in the United States of America i mean it’s just this is what capital markets do so you will always have this situation where the carry trade exists where investors climb the staircase building up those positions and then something spooks them
and whether it’s going to be the Federal Reserve cutting interest rates because the US is actually slipping into a recession whether it’s going to be the Bank of Japan actually resuming its increase in interest rates right um that’s I think right
no so it’s it’s it’s very interesting I mean I I I have learned the hard way that if I want to make money on trading dollar yen I need to watch first and foremost the Federal Reserve
i mean it is the Federal Reserve that determines things um and uh you know the Bank of Japan I think as uh as a key player um I think is unlikely because the Bank of Japan has the wherewithal to continue to be moderately rather than actually having to step on the brake to destroy demand while you know if American unemployment were to start to increase right you know that the Federal Reserve is not just going to go 25 basis points you know that they’re going to cut 50 basis points and they’re going to tell you we’ll cut more right in terms of the communication so the bottom line is um you know I think from a Japanese perspective right um I think that interest rate normalization will continue um that this time next year policy rates are not going to be 0.5% but are going to be 0 are going to be 1.25 to 1.5% and you know I expect that the United States is going to have a moderate recession
and so as a result of that I think it’s perfectly reasonable to uh anticipate that the dollar is going to be a moderately weaker currency going forward
moderately weaker but not not a collapse in the dollar
well the collapse of the dollar is interesting right i mean it’s it’s it’s everybody wants to talk about the end of America of dollar supremacy etc etc when you actually and I’m an adviser to several of the big funds um when you actually have to move size when you have to move 1520 billion dollars where you going to put it you know and and and this is just you know I mean I always joke and it’s not a joke actually but I think that the biggest risk to the dollar as anchor currency of the world is China actually opening its capital account because if Chinese sovereign bonds actually became uh realistic and liquidity uh uh based um alternative to US treasuries then it would get more interesting but I think that that risk is very very small at this point m so what what is the you mentioned the uh the risk to Japan’s looking at both its trading partners biggest partners and and can’t trust either of them what’s the what’s the worry around China when it comes to Japan
so first of all you know let’s just be let’s just look at the facts Japan and China are linked at the hip um you’ve got China is Japan’s largest trading partner on both in imports and exports 70% of the imports from the People’s Republic of China come from joint ventures and cooperation with Chinese corporations right uh onethird of the graduate students at Tokyo University are from the People’s Republic of China um you know this is I mean where where I’m sitting right now in central Tokyo I can be in Shanghai in two and a half hours
right i mean let’s just not forget how dense and intertwined that relationship is
number two let us not forget that you know within 10 days of America declaring liberation day um Toyota announced a massive uh next investment in the People’s Republic of China right building another factory and plant there
so China Japan that nexus right uh is in economic terms in financial terms in human exchange terms you know is strong and for all intents and purposes given the resource constraints that Japan has you know continues to be uh very strong by the way you know in the first quarter alone Chinese nationals bought about $15 billion worth of Japanese properties right uh here in the domestic real estate market there’s now a million uh Chinese who’ve got residency in uh in Japan it’s not just Jackmar you know there’s a whole you know upper capital outside of China
yeah you know I mean it’s it’s and it’s look it’s it’s very clear that for whatever reasons you know America is no longer as attractive and Tokyo University Ko University provide perfectly fine educations
right so a lot of Chinese are actually opting on that so you know is there a worry that the um you know Chinese balance sheet recession right is going to pull down the global system the answer is no because the Japanese are way smarter than that um you can only have a capital crisis if the banks run out of capital
but the Chinese banks are already nationalized right so public capital injections are already there
so um America always wants to have the big dramatic cycles the boom bust cycles china is managing that cycle you know and it does have the fiscal and current account resources to actually manage that so is there worry that the people’s republic of China is going to be collapsing absolutely not there is a worry that the policies of the United States of America are actually significantly adverse to Japan because if America continues to make it more difficult for China to sell to Americans that means that Chinese capacity will be dumped into third markets yes and whether that is you know whether that is whether that is paper cups or whether that is increasingly high-tech machinery construction machinery even robotics
and so ironically the America first and foremost policies that America is implementing right now hurt Japan and this is very interesting if you look at leading companies like uh Fanuk the robotics companies or Kian the factory automation companies these are the rock stars of Japan these are the guys who keep things going their global orders are down 30 40% over the last n months and the reason is that made in China competition is intensifying they’ve got an obvious price advantage they are now being incentiv ized to dump their capacity into third markets which means Europe and the global south and that’s making it harder for Japanese companies to actually compete
does that create tensions rising tensions between Japan and China
uh it’s creating rising tensions between Japan and America
right because it’s it’s the root of what why it’s happening
yeah i mean look I mean the fact that that China climbs up the value scale that it’s no longer toys and paper cups but that it’s high-tech um you know machinery robotics um you know the Japanese can live with that but ironically America’s policies are now almost forcing the People’s Republic of China to dump their excess capacity and that’s creating you know an unfair competitive nature and it’s doing it and this is very very sad in the old days when you had the WTO as a functioning body
if a if a third country was dumping products you could have an investigation you can’t do that anymore
because the WTO for all intents and purposes has been taken out of power by the Trump administration
right of course the Trump administration would say like “This is what we’ve been dealing with now you all deal with what we’ve been dealing with which is China which you
but that that’s again I don’t I don’t want to talk about America right I mean that’s that’s uh um so uh what are the areas that you think are you know let’s say there’s some sort of resolution on tariffs i don’t know if you think there’s going to be or not but at some point people think that there will be some sort of some sort of agreement they may be higher but we’ll we’ll get to some sort of agreement with with the various parties involved what what sectors do you think stand to benefit most from this remab japan
look it’s Megie I think it’s it’s very straightforward and and I think you focus on the domestic sectors um you know the number one my absolutely most favorite sector is the Japanese financials and be my guest whether that’s the banks whether that’s the regional banks whether that’s the brokers whether that is the insurance companies you know this is a sector that is finally allowed to make money because the bank of Japan is getting out of the way that is finally allowed to make money because the yield curve is steepening which is great for the basic capital arbitrage that those institutions ution intermediate um on top of that we are having a concerted push by the regulatory authorities to make Japan an asset management powerhouse so they are actually easing rules and regulations and to some extent even taxation um you know to uh rekindle an asset management industry so for example what you guys had in the United States you know where you’ve got your personal advisor your RA um you know basically the moment you’ve got a little bit of money to invest that somebody gives you advice not just a Robocop that sort of change is actually starting to happen so I love the Japanese financials play it safe and there’s several ETFs on just the Japanese mega banks that’s the perfectly correct way to actually play that if you do actually want to stay up at night and trade Japan um you know have a look at uh you know some of the emerging companies even like Orex Corporation um you know or SBI corporation I mean there’s there’s there’s plenty of interesting stuff going on
the second element um you know really is um the Japanese service sector and anything that deals with hospitality in particular I mean let’s just be very clear the global mega trend we’ve got two global mega trends the first one is unfortunately defense
right where budgets are growing everywhere
the second one which is not as well recognized particularly in the United States of America is the emerging Asian middle class m I mean you know from where I sit here in Tokyo um the IMF calculates that about 90% of the new middle class in the world economy over the next decade is going to come from Asia-Pacific and whether that’s the Philippines whether that’s Malaysia whether that’s Indonesia these young and me men and women these young and me men and women in Asia Pacific they have dreams their consumer needs their um you know need for services supplied by Japanese corporations because whether you like it or not Japan is the role model for a lot of Asia-Pacific this is the first country if you made it in Indonesia where do you take your family your first overseas trip it is to Japan and as you know the soft power that Japan has so specifically where does that come into if you look at a company like AON you know which is basically you know a big retailer here in Japan their internationalization and particular the Asianization strategy building consistently you know uh malls in Indonesia in the Asia-Pacific that’s going to yield super returns because of these creature comforts and dreams for the Asian middle class that’s what Japanese corporations are going to be fulfilling and then you know anything that deals in my opinion with media in Japan
i mean this is no no people look mega it’s interesting because I mean Americans are always so good they brag about everything right do you know that Hello Kitty which is owned by a company called Sano the annual revenues the brand income is double of what it is for Disney Corporation oh I’m sure it’s all over here by the way all over the US yes so so soft power Japan if you look at companies like Tollway or like Tohjo or like TBS these are contentrich companies but they haven’t done anything with it so interesting
now they’re going to start to do something and you know the next big thing is not going to be Netflix doing Asia but it’s going to be Japan doing something like Netflix for Asia so I love the whole media and content side in Japan
so you concentrated in when in your ventures is that the sort of areas that you most interested in yeah I I think that you know that the the made in Japan global standard you know is going to be a very big thing because look I mean Japan is not the only place in the world i mean you cannot trust China you cannot trust America so who can you trust
who’s left and actually Japan
everyone I’m sorry to interrupt you but what you’re describing is sort of what everyone thought China was going to offer right that that idea ah no Maggie and this is this is where where this point is very cool right and there is the Chinese isolation by the current Chinese leadership themselves
because they’ve isolated themselves right plus that being reinforced by whatever America is doing right now or trying to do right now to the People’s Republic of China so plus the underlying reality that I’m terribly sorry but the rule of law the way you and I understand it is not applied in the People’s Republic of China
it is applied in Japan
right and so from that perspective you and I building a research center here and whether it’s for design whether it’s for fashion whether it’s for movies whether it is for biotechnology whether it’s for quantum computing the patents that you make in Japan are yours and they will be defended in court
that you cannot say about anywhere else in Asia with the possible exception of Singapore right so from that perspective you’re exactly right soft power Japan you know China could have had its moment to actually develop that but unfortunately because the rule of law is not being enforced and the policy and political direction is going in a slightly different way as a result of that you know what you want to focus on in Japan is really as I call it it’s the headquarters nation for Asia right this is where and it’s interesting you actually see that I’m having more and more discussions with American corporations right um who are thinking about um you know possibly shifting the headquarters the Asian headquarters here to Japan because you know you’ve got the intellectual property corre you’ve got the intellectual property protection and you’ve got something else now everybody who’s cool wants to move to Tokyo which is very cool right because the quality of life I mean we could talk about wages that’s a different story but you know there’s uh there’s there’s there’s growing evidence right that you actually have a little bit of a brain drain to Japan
where you know the best and the brightest from around Asia and the best and the brightest from the United States of America actually are happy to take a pay cut
right in terms of your notional dollars that you earn but the quality of life and actually your purchasing power power that you get here um you know actually uh uh you know makes Tokyo Kyoto Osaka Fukushima no not Fukushima I’m sorry Fukuoka um you know very very good places to actually live and work very very fascinating so obviously you were ahead of that curve the cool people being in Japan Jasper by many by many years you beat you beat the
by two by too many years you know you know
that that’s fascinating so Um what the the we we talked a little bit about the risk but you believe this transformation it sounds like you have a lot of faith that policymakers will be able to make the change moderately because you know we have sometimes say well the stock market and the bond market can’t both be right so if bond yields are going up and stocks are going up something something has to give but you you think it’s all in the pace with the of the change that if they moderate the higher interest rate environment and it’s not something like a Liz Trust moment they’ll be able to manage that in a way that equities can thrive am I is that your
No and and look I mean again this is this is my opinion this is obviously an an an optimistic take on things right um and I’m sure that there are going to be uh hookups but hiccups but I think that you know these these are all buy on dips uh uh type of you know uh uh scenarios right the fundamental question um comes back to this point is do you have surplus funds or do you not
america does not have surplus funds in fact America is highly leveraged so you are unbelievably geared to changes in capital markets right japan is not you know because again companies have more cash on the balance sheets than they’ve got debt i can do this my pace
right um plus also be realistic from a macro perspective yeah um you are you know what we are in the only place on earth where the real cost of capital is negative
right because I’ve got you know inflation of give or take three three and a half% i’ve got if you and I go to the market you and I take out a mortgage right a 10-year fixed rate mortgage it’s going to set us back about 180 basis points i’m sorry that’s a negative real rate so you know for all intents and purposes you know the macro overlay to the Warren Buffett Japan thesis I mean there’s many different complexities to the Warren Buffett Japan thesis but from a macro perspective your real cost of debt is negative right and you’ve got at least 200 250 basis points of rate hikes before that actually starts to become a break
on the system because as you and I know what matters for capital markets right you know is the real cost of capital and that’s where Japan I’m sorry to say this I I don’t want to sound like a stock broker is just dirt cheap right and the pace with which they are normalizing interest rates right is my pace it’s a slow pace i’m not beholden to global capitalists because I finance my own debt right foreigners only own about six 7% of the Japanese debt market this is not you know the Asia crisis in the making because Japan runs current account surpluses its debt is denominated in yen and it’s owned predominantly by Japanese savers so I can pick you know my pace of adjustment the biggest risk would be in my opinion if you actually had panic in the People’s Republic of China if China actually were forced to devalue its currency and I’m not talking about a three four five percentage points creep in the peg i’m talking about a rise in Chinese unemployment that makes the policy makers so nervous that they actually begin to use the exchange rate as a possible tool to maintain employment levels now that risk is not zero
you know but I think it’s very small precisely because China actually does want to run the world and if you want to run the world the last thing you do is devalue your currency because that way you undermine all credibility right so that’s that’s the Chinese devaluation would be a risk to Japan right but I think it’s a it’s a relatively low risk jasper this has been such an amazing conversation so appreciate getting uh you know just a very different view from someone who’s living and breathing what’s happening there um and and able to sort of you know I think put some nuances in on some of the narratives we hear so thank you so much i appreciate your time
no thank you very much for having me and uh look I hope to see you in Tokyo we should Tokyo
well I feel like I need to book a ticket there immediately after this conversation
you know do it do it while the dollar is still strong
i know time is ticking i feel it jasper thanks so much
thank you ciao

On this episode of Talking Markets, Maggie Lake welcomes Jesper Koll, a long-time Japan expert, former chief economist at JP Morgan and Merrill Lynch, and now an active angel investor and advisor to government officials. They discuss why Jesper thinks Japan is poised to emerge as a global winner, why it’s been galvanized into action due to loss of trust in its two biggest partners (China and US), and why it’s debt doesn’t matter as much as you might think. From Japan’s corporate metabolism being “on fire,” to the move to meritocracy, the emergence of a new middle class, and potentially the new “headquarters of Asia,” this is Japan as you’ve (possibly) never considered it before. Recorded: June 24, 2025.

For more from Jasper, his excellent Substack: https://japanoptimist.substack.com/

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Connect with me on Twitter: https://x.com/maggielake

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We know you get this, but gotta say it anyway – this show is for informational purposes only and is not financial advice.

Chapter:
00:00 – Japan’s Corporate Metabolism Is on Fire

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