This year has certainly been an eventful one for Japan, with the ongoing battle to contain Covid, the delayed and controversial staging of the Olympics, and yet another change in Prime Minister among the notable events. What might next year have in store?
Making predictions, even for just a year ahead, is fraught with potential to look foolish. Any “outlook for 2020”, inevitably written shortly before the phrase novel coronavirus began featuring in headlines, probably had a useful lifespan shorter than the Christmas decorations. Despite that caveat, we’re as confident as we can be that the following themes will have resonance for investors in Japanese equities in 2022 and even beyond.
1: A quiet man, but with big ambitions
Fumio Kishida was few people’s favourite for Prime Minister, apart from his powerful parliamentary colleagues, and it would be a surprise if his tenure is a long one. All eyes are on his efforts to push through a sizeable economic stimulus package, designed to catapult the country out of its Covid-related malaise. This is an error. Japan has a rich history of supplementary budgets and stimulus packages with little to no lasting impact on the real economy or financial markets.
However, for a quiet man Kishida has been surprisingly profound in his call for “new capitalism”, especially in a country with an ambivalent relationship with the old one. A move to a more interventionist style of government, as one might presume a new capitalism would entail, would be in line with global trends but investors will still want to be alive to what this might mean in a Japanese context. State-directed strategic investment in semiconductor manufacture might create pockets of opportunity, for example, but an overbearing government influence on the corporate sector constitutes more of a risk. Negotiating this new landscape will be a key challenge in 2022.
2: Time to stop just talking about the environment
If 2021 was about talking about the environment – most notably at the COP26 – then 2022 and thereafter will be about doing. For its part, Japan’s government has committed to cutting greenhouse gases by 46% by 2030 and to be Net Zero by 2050. Many of its companies are leaders in aspects of low carbon technology, as their piles of patents will attest. Yet the country refused to sign the pledge in Glasgow to phase out coal power and is the only G7 country building new coal fired power stations domestically. Some of its most emblematic companies are car makers sitting right in the bullseye of the environmental dartboard.
The environmental challenge facing Japanese companies is a multi-decade one, but the coming year could be a crunch period for setting the course for the mid to longer term. Even the least ecologically aware investors will be looking for companies which can contribute to the government’s – indeed all governments’ – new project. Expect those companies with green gems sitting in their R&D departments to start talking about them more, and for Japan’s increasingly rich pipeline of new stock market listings to feature more environmental solutions companies than before. The most interesting developments in the coming year could be from those companies with the biggest contributions to make: the car makers. One thing is clear, some cars will be in front and others will be left behind.
Source: European Patent Office
In 2022, diners at Yoshinoya, a restaurant chain, will have to stomach more than just the signature gyudon or beef bowl, they will also have to swallow a ten percent price hike. As global prices surge, will 2022 mark the year that Japan finally escapes the gravitational pull of its deflationary mindset?
Maybe, but probably not. Food companies appear to be the exceptions rather than the rule, as general consumer prices remain stubbornly muted. Japan’s ageing population, along with persistently weak wage growth, acts as a brake on consumption and dampens inflationary forces. The Bank of Japan wants consumer price inflation and the Government is urging companies to bump up wages, but it does so more in hope than expectation.
Pricing power will be key. Without it, companies will be squeezed between the unstoppable force of global inflation and the immovable object of the Japanese consumer. On this basis alone the difference between the winners and the losers in 2022 is likely to be starker than ever.
Read more about Jupiter outlook 2002
Asia Pacific for income & growth – but be selective
Why 2022 could be a good year for Chinese equities
CoCos remain an oasis in the yield desert
Tightening into a slowdown: central banks risk policy mistake
US may set the tone for 2022, but solutions set the pace
The value of active minds: independent thinking
Get in touch
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. For definitions, please see the glossary at jupiteram.com. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK.