econVue +
The Hale Report
Japan: What Investors Need to Know - with Nicholas Benes

Japan: What Investors Need to Know - with Nicholas Benes

The Hale Report - Episode 31
Nicholas Benes, CEO, Board Director Training Institute of Japan

Thank you for reading econVue+. This post is public, so feel free to share it.


Dear Readers,

Japanese is a language isolate in spite of many attempts at broader classification. “Japanese can boast a wider range of languages and language families for which an attempt to establish a genetic relationship has been made than any other language in the world" according to linguist Martine Robbeets.

Japanese has many uncommon characteristics, including placing verbs at the end of sentences and highly specialized vocabulary to express politesse. Japan’s culture reflects this singularity. When I first arrived in Sendai as a high school exchange student, so much more than the language was different than what I expected. Today the country in many respects remains a global outlier.

For example, there have been numerous futile attempts to discover similarities between Japan’s economy and the rest of the world. However the inner workings of its financial system are familiar territory for my guest on the 31st episode of the Hale Report, Nicholas Benes who is also one of our original EconVue experts.

Unlike me, once Mr Benes got to Japan he stayed, and he has made Tokyo his home for the past thirty-six years. A fluent Japanese speaker, he has become an integral player in Japanese corporate reform. He might pose a challenge to some Japanese executives, but his work is highly valued by investors, especially foreign investors looking for greater transparency.

During our podcast I asked him why he choose to become a crusader for corporate governance.

When I proposed the concept of a governance code to the ruling party, my main argument was that there are only two ways the government can improve productivity without spending money. The first is by improving corporate governance, and the second is by improving matching and efficiency in the labor market. The labor market is taboo to change in a significant way; politically, it has to be left to mutate in its own slow and ineffective way. That left corporate governance.

We also spoke about Japan’s Economic Security Act and its possible negative implications for foreign investors. Nick mentioned a paper by John Coates, The Future of Corporate Governance Part I: The Problem of Twelve about the hazards of passive investing and the entanglement of the State and business. As we say in Japanese, 勉強になりました (I learned a lot) and I think listeners will too.

Japan remains the odd man out in terms of monetary policy. Bank of Japan Governor Haruhiko Kuroda has vowed to keep interest rates low which in contrast to increases elsewhere has resulted in a very weak yen. Unlike the rest of the world, core inflation has not risen much either, with the notable exception of energy and food prices which are not included in the BOJ’s figures and are reaching critical levels. The next MPM is July 20-21st. It is hard to imagine a bigger shock to markets than a hike by the BOJ - other than a cut by the Fed.

Low rates and inflation might not protect Japan if the US and Europe fall into recession. Richard Katz, another longtime EconVue contributor, believes that Japan will suffer disproportionately compared to other developed markets, primarily because of depressed wage rates. Productivity has not improved by not raising salaries. GDP growth will slow because ill-paid consumers have less to spend.

At the Tokyo Aquarium, penguins were recently given cheaper food to lower costs. They refused the substitution. Japan’s Upper House elections are scheduled for this Sunday, July 10th. The eternal question is, when will Japanese voters revolt as well, catalyzing changes in both monetary policy and corporate behavior? Even Nick Benes cannot do all of this by himself.

econVue + is a reader-supported publication. To receive new posts and support our work, consider becoming a free or paid subscriber.

By Nicholas Benes

Sept 13, 2021 / Financial Times

A crucial change is needed to improve corporate governance in Japan

Dec. 11, 2021/Youtube

How We Saved Our Planet

In this article and video published in Ethical Boardroom, I urge a much deeper discourse about #ESG and the structure of profit-seeking corporations – one that considers ways to install the right incentive drivers.

Nov. 29, 2021 / Nikkei Asia

Japan's stewardship framework for investors needs urgent reform

Current rules hinder mainstream institutions from acting as better stewards

June 15, 2020 / Harvard Law School Forum on Corporate Governance

Redesigning Corporations: Incentives Matter

I am not writing this post as a tree-hugging idealist. Indeed, I have devoted much of my life to the cause of improving corporate governance policy and board practices in Japan, for the purpose of making companies here more shareholder-conscious and profit-minded.

March 15, 2015 / Wall Street Journal

How Japan’s Corporate Governance Code Was Born

Dec. 12, 2012 / Wall Street Journal

”Japan’s Coming Shareholder Revolution” (written in 2001!- perspective from the past)

An article I published in 2001 in the Wall Street Journal predicting the topic of the title. I stumbled across it again a few weeks ago.  I think it makes interesting reading and lends perspective some 20 years later, so I am republishing now.

Useful Links

Highly recommended: Richard Katz’s new Substack, Japan Economy Watch:

Japan Economy Watch
Is Japan’s Inflation As High As It Seems?
Above: different measures of inflation, excluding hikes in the consumption tax Bank of Japan Governor Haruhiko Kuroda faces a real dilemma. As of May, Japan’s inflation appears to be running at a rate of 2.5%, if we measure inflation by including all items without exception (dotted line light in the chart above). That would seem higher than Kuroda’s long…
Read more
July 4, 2022 / Financial Times

Global inflation: Japan faces a moment of truth
Kana Inagaki and Leo Lewis

Followed by an excellent reader comment from economist John Greenwood:

This entire article makes the classic mistake of using interest rates to judge the stance of monetary policy. Low interest rates do not necessarily indicate an easy money policy.* From 1992 until the onset of Covid, Japanese monetary growth (M2) averaged just 2.6% p.a. -- about half the rate required to reach the 2% inflation target. Yield curve control and negative rates are both misdirected policies. The fundamental problem is that when the BOJ buys JGBs it buys them from banks instead of non-banks. If, like the Fed or the BOE, it bought them from nonbanks, this would create new money. Instead, by buying from banks it has simply done an asset swap with banks but created no new money. Until Governor Kuroda corrects this error, deflation or low-flation will persist.

Recent Podcasts

Episode 30 - Andrew Smithers: The Economics of the Stock Market

Episode 29 - with Kevin Rudd

Episode 28 - with Marsha Vande Berg

As I send this, the news that former Prime Minister Abe was attacked in Nara shows that Japan is sadly in some respects like the rest of the world, here in Chicago and elsewhere, and that unexpected violence can touch our lives at any time.

With all best wishes,

Lyric Hughes Hale
Twitter: @lyrichues

econVue +
The Hale Report
Unconventional Wisdom on the Future of the Global Economy: Monthly newsletter, The Hale Report podcasts and The Hale China Report