Notes from the Ground: Japan, in bloom?

While originally the cherry blossoms were used to divine the year’s harvest, they have come to symbolise ideals of impermanence, hope and renewal.

It is an optimistic time all round on the island nation, as the economy also sees some long awaited tailwinds creating some possible opportunities for investors also. But, as ever, there are reasons to be cautious. 

Japan has been somewhat slower to fully recover from the Covid-19 pandemic, after it imposed some of the strictest requirements across the globe. For instance, some of its school children were required to eat in silence.

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On 13 March the government finally relaxed the remaining rules and guidance around mask wearing. Given the Japanese population already had a culture of wearing masks prior to Covid, this was more symbolic than anything else. It marked the end of a long journey fighting the virus and for the first time since 2019, Japan’s residents could participate in hanami, or flower watching parties.

Parks, canals, shrines and any place with more than a single cherry blossom tree were flooded as the Japanese set up their elaborate picnics and settled down to celebrate the season.

“Japan is now fully reopened and is seeing the immediate benefits of increasing consumption that we in the West saw on our own reopening,” explained Nick Wood, head of fund research at Quilter Cheviot.

“This will likely have a positive benefit in the short- to medium-term as consumption rises. China’s own reopening is also likely to have a positive impact as tourism picks up further.”


While most of the world is struggling with inflation levels which have triggered a cost-of-living crisis, the Japanese have been persistently shy of the 2% inflation target over the past ten years.

In March, the core consumer prices index, which strips out energy and food prices, but includes alcohol, rose 3.5% in February, the fastest year-on-year increase since January 1982, according to data from Refinitiv.

“Inflation in Japan has reached the highest level in over 40 years, exacerbated by the weak yen,” explained Emily Badger, portfolio manager in the Man GLG Japan CoreAlpha team.

“However, in pursuit of sustainable inflation, the Bank of Japan’s super easy monetary policy remains in place.”

After a period of sustained deflation, the Bank of Japan is hoping for steady wage increases to kick-start domestic demand and keep inflation sustainable, added Wood.

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Spending has been resilient in the face of inflation, as consumers have had their pandemic savings. Shops are full and every person on the train or in the street seems to have a shopping bag.

While things may feel more expensive for domestic Japanese, for those coming from abroad it feels cheaper than it has in the past.

The yen, which has long been seen as a safe haven currency, started to slide at the end of last year, trading at a 32 year low back in October at ¥150 against the US dollar, according to data from MarketWatch.

However, it has fallen even further this year, currently trading at around ¥133.70 versus the US dollar, following Kazuo Ueda, the new Bank of Japan governor, signalling he would stick with the ultra-loose monetary policy of his predecessor.

According to Maiko Uda, manager of the Nippon Growth fund at Eric Sturdza, a weak yen has its benefits for not just tourists, but also investors which are bullish on Japan’s future.

ESG and tradition

While Japanese companies may look more appealing from an FX perspective, there remain challenges when it comes to their corporate governance.

Japan has historically not been regarded as competitive when it comes to corporate governance. Post-war companies were interlocked and dominated by banks and industry, which was coupled with a lack of monitoring capability among board directors, ineffective engagement with shareholders and inadequate group governance.

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Badger said Japan was in the “middle of a radical corporate governance revolution”, which is “the most significant transformation that our investment team has witnessed”.

In 2014, the government embarked on corporate governance reforms and established a corporate governance code, which was most recently revised in 2021, but these polices now starting to bear fruit.

Shareholder activism in the country was previously limited, but it has been growing.

At the end of last year, the trust bank unit of Japan’s Mizuho Financial Group said it was fielding about 100 enquires a month from companies seeking advice on shareholder engagement.

According to data collected by Oxford Business Law, just 24 companies received shareholder proposals in 2011. This rose 51 in 2019, before dropping off to 46 in 2021.

Wood agreed the country had come a long way over the course of the last decade.

“There are plenty of examples of where there have been material improvements, such as statistics on the number of independent directors on board, which have significantly increased,” he explained.

“There has also been real progress in improving balance sheets and returning capital to shareholders. One of the main criticisms, however, would be diversity, both by gender and race, where Japan must be seen as a laggard, certainly at board level.”

While more than 70% of women in Japan work, a number that has grown significantly over the past number of years, just 12.6% of board seats were held by women across major Japanese companies in 2021, according to the Organisation for Economic Cooperation and Development.  


Japan can feel like two places simultaneously. Its technology is unrivalled. The shinkansen – bullet train – is luxurious. The vending machines, equipment and day-to-day simplification through technology makes it feel like you have travelled forward in time.

However, it is also a country steeped in tradition. The streets of Kyoto still have geisha, the population remains religious, and they follow the rituals that have been passed down through centuries; and there is pride in the historical values.

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While this is admirable in many respects, in some ways it has held back the country’s companies.

In one small museum, a guide explained to me that the Japanese hold a level of resentment to the Americans, who they felt post-war tried to instil Western values that did not fit within their own culture.

This included respect for hierarchy and defined roles for men and women.

While it is understandable the Japanese would not want to be forced to change the fundamentals of their culture, there is a challenging question over whether or not some parts of the population would want more of a shift.

There is clearly a lot of work to be done, but there has been improvement, and as respectful stakeholder engagement continues there is hope that Japanese companies can retain their tradition and embrace modernity, echoing the dual world that makes Japan such an appealing country to experience.

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