Jesper Koll Japan Macro Outlook
Beyond Abenomics : The Bull-Case For Japan’s Economy
Jesper Koll
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to
learn how to avoid being deceived by economists� Joan Robinson (1903-1983) ; Exercises in Economic Analysis, Cambridge 1960 Jesper Koll
Economic Goals ◆
Freedom
freedom from Govt intervention & unfair competition
◆
Equity
fair distribution of wealth & equality of opportunity
◆
Efficiency
making most of all resources
Japan
US
◆
Security
stability and predictability
◆
Growth
innovation growth higher living standards
Germany
France Source: National Institute of Population and Social Security Research
Jesper Koll
Household Wealth Patterns 2014 wealth per adult in US$ -- Global Wealth Databook Credit Suisse
Median Japan $96k USA $50k France $86k UK $126k Australia $168k
below $10K 9.0% 28.1% 16.9% 10.0% 7.2%
above $1M 2.0% 6.4% 3.7% 4.9% 5.7%
Old & Wise…or Scared ? % of Population over 65-years
Japan
Europe
USA Median Age
30
25
Japan
20
Monaco Japan Germany EU US US
52 47 47 43 38
15
10
5
China Germany Turkey Germany India Iran France Iraq
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
Jesper Koll
Source: World Bank & CIA World Fact Book
37 30 28 29 20
BAD Inflation CPI for Medical Services – Japan versus US 240
220
Japan
200 180
US
160
140
Germany 120
Germany
100
France 80 2000
Jesper Koll
2004
2008
2012
Source: Cabinet Office & TSE
2016
Engaged Human Capital Labor Force Participation Rate (15-65 year male & female)
Japan versus US 78
Japan
76
US
74
Germany
72
Germany
France
70
1995
Jesper Koll
1998
2001
2004
2007
2010
Source: OECD
2013
2016
Japan Reality !
Jesper Koll
Japan Dynamics:
End of Delfation Workers Compensation – current Yen trillion 290 280 270 260
250 240 230
220 1990 Jesper Koll
1993
1996
1999
2002
2005
2008
2011
2014
2017
Source: Japan Cabinet Office
Japan Dynamics:
New Middle Class Full-Time Employment – million
34.3 34.1 33.9 33.7 33.5 33.3
33.1 32.9
32.7 32.5
2008 Jesper Koll
2009
2010
2011
2012
2013
2014
2015
2016
Source: National Institute of Population and Social Security Research
Japan Dynamics:
Demographic Sweet Spot Employees : non full-time as % of total
40
35
30
25
20 1990 Jesper Koll
1995
2000
2005
2010
2015
Source: National Institute of Population and Social Security Research
Japan’s New Middle Class :
Mortgage Credit Growth Loan Growth 2013-2016
Total Loans
: Y48.8 trillion
o/w
Mortgages
Jesper Koll
: Y11.8 trillion
Financials Real Estate
: :
Y 7.4 trillion Y 6.1 trillion
Overseas
:
Y 5.3 trillion
Government Utilities
: :
Y 4.8 trillion Y 3.2 trillion
Industrial
:
Y 2.8 trillion Source: BoJ
Japan Dynamics:
New Credit Cycle Interest Rate on New Loans versus Total Bank Credit 600.0
2.0 1.8
560.0 1.6 520.0
1.4 1.2
480.0
1.0 440.0 0.8 400.0
0.6 1998
Jesper Koll
2000
2002
2004
2006
2008
2010 Source: BoJ
2012
2014
2016
2018
Yes, Still Growing Japan Population versus Employment 130
60.5
128
60.0
126 59.5 124 59.0 122 58.5 120 118
58.0
116
57.5 1990
Jesper Koll
1994
1998
2002
2006
2010
2014
2018
Source: Cabinet Office
2022
2026
2030
Pragmatic Immigration % of non-Japanese by Total Resident Population, Working-Age Population, avg. Taxable Income
Population
Japan
1.4%
1st Kawakami (Nagano)
15.8%
4th 5th 6th 7th 8th
9.1% 7.7% 7.0% 7.0% 6.9%
Shinju-ku Toshima-ku Minato-ku Taito-ku Arakawa-ku
Jesper Koll
WorkAge
Income
2.3%
3.3m
27.1%
3.4m
12.7% 10.9% 10.9% 10.5% 10.6%
5.0m 4.3m 10.2m
4.0m 3.7m
Source: 2015 Japan Census and 2015 Tax Survey ; also NIKKEI March 20, 2017
Real Success: Inbound Tourism Boom Tourist Spending as % of Total Consumption
Inbound vs Outbound
1.4 1.2
Japan 1.0 0.8
US
0.6
Germany
0.4
Germany
0.2
France
0.0 1994
Jesper Koll
1996
1998
2000
2002
2004
2006
2008
2010
Source: Cabinet Officec
2012
2014
2016
Japan Dynamics:
New Japan Inc. Dec 1989 590 50%
Dec 2016 591 7%
Foreign Holdings
4%
30%
Foreign Trading
8%
69%
61x 21 1.9% 1165
15x 100 8% 1885
Market Cap Cross Holdings
P/E EPS RoE Companies
Source: TSE, Bloomberg, Jesper Koll Calculations
Jesper Koll
Yes, Capital Stewardship Historic First 2016 :
Listed Companies EPS - TOPIX Yen
Despite a drop in Corporate Profits Buybacks & Dividends continue to grow (year-to-date 2016, annualized)
100
Buyback Stream
80
2013 : 2014 : 2015 : 2016 :
60 40
Y3.7 trillion Y4.3 trillion Y5.7 trillion Y6.7 trillion
20
Dividend Stream 0 -20 -40 2007
Source: National Institute of Population and Social Security
2009 Research 2011
Source: Bloomberg, TSE
Jesper Koll
2013
2015
2017
2013 : 2014 : 2015 : 2016 :
Y7.0 trillion Y7.2 trillion Y8.4 trillion Y9.6 trillion
Long Way To Go Total Shareholder Payout Ratio – Dividends and Buybacks as % of Operating Cash Flow
Japan
US Germany Germany
France
Jesper Koll
Source: Bloomberg, TSE, WisdomTree
Inclusive Capitalism ? Workers Compensation as % of Corporate Value-Add
SMEs vs Large
80 60
Japan
40
US
20
Germany Germany
0
France
Japan Jesper Koll
US
Germany Source: OECD
Underutilized Assets Listed Companies’ Corporate Cash Balances as % of GDP
2005 vs 2016
140% 120%
Japan
100% 80%
US
60%
Germany 40%
Germany
20%
France
0% Japan
Jesper Koll
France
China
UK
Korea
US
Brazil
Germany
Source: Milken Institute, Bloomberg and Jesper Koll calculations
Japan Inc is Global Source of Profits for Listed Manufacturing Companies
Total Domestic 41% Global 59% Exports 28% Offshore 31%
US
China
10% 14% 24%
5% 6% 11%
AsiaX
6% 5% 11%
US includes Mexico & Canada Jesper Koll
Source: TSE, METI and Jesper Koll calculations
Rich Japan R&D spending by public and private sector as % of GDP
Japan
3.5
3 US
2.5 Germany
2 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Jesper Koll
Source: OECD
Real Success:
Global Market Share -- Shipbuilding
60.0% 50.0%
China 40.0%
Korea
30.0% 20.0% 10.0%
Japan
0.0% 2002
Jesper Koll
2004
2006
2008
2010
2012
2014
2016E
Source: Clarsons& JP Morgan
No Room For Complacency Patent Applications Per Million People 2006 & 2016 Patens Outstanding millions
US Japan China Korea Germany
2.64 1.95 1.47 0.91 0.60
3500
Japan
3000 2500
US
2000 1500
Germany
1000 500
Germany
0
Korea
Jesper Koll
Japan
USA
Source: World Intellectual Property Office
France Germany China
Cool Japan Inside‌ Analog Engineering versus Marketing Genius
Jesper Koll
Source: Corporate Websites
Abe’s “Japan First” ◆
Power Politics, Not Consensus
◆
No Taboos Japan
◆
Unorthodox
◆
Focus on Coordination
◆
“Kakusa Complex”
◆
Fiscal Dominance Source: National Institute of Population and Social Security Research
Jesper Koll
US
Germany
France
“In policy as well as in morality, the grand secret is not to constrain the actions, but to
awaken the inclinations of mankind.� Jean-Baptiste Say (1967-1832), A Treatise on Political Economy (1803)
Jesper Koll
The Cost of Debt Fiscal Debt Outstanding versus Interest Expense 12
900 800
10
Japan
700
8 US
600
6 500
Germany
4
400
Germany 300
2
France
0
200 1995
Jesper Koll
1999
2003
2007
2011
Source: MoF -- All Yen Trillions
2015
Debt Nationalization % Ownership of Public Debt Securities:
Private Sector
&
BoJ
90.0 Japan 60.0 US Germany
30.0
Germany
France
0.0 2004 Jesper Koll
2009
2014 Source: MoF, BoJ
2018
Growing Dependency Foreign Ownership of Japan Public Debt : % of Free-Float ex BoJ Holdings 30.0
20.0
10.0
0.0 2004 Jesper Koll
2009
2014 Source: MoF, BoJ
2018
Save Not Spend Quarterly Growth In Current Yen
Consumer Spending vs Workers Compensation
3.0 2.0
During 2016 : Compensation up 5.4trn Consumption up 1.9trn
1.0 0.0
During Abenomics
-1.0
(End-2012 to End-2016)
Compensation up 17.3trn Consumption up 10.6trn
-2.0 -3.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Jesper Koll
Source: Cabinet Office and Jesper Koll Calculations
Sources of Growth Share of Entrepreneurs versus Economic Growth 18
USA
16
14
Germany
12 10 8
Japan
6 4 France
2
0 0
Jesper Koll
0.5
1
1.5
2
2.5
Note : Averages for 1995-2013 Source: OECD, Global Entrepreneurship Council ; Jesper Koll
Full-Time Jobs Created by Age of Company Cumulative 2010-2015, Millions
2 1 Japan
0 US
-1 -2
Germany
-5Source: National -10Institute of-20 -30 -40 Population and Social Security
-50
France
50-
Research Source: Professor K.Fukao and Jesper Koll
Jesper Koll
Paradigm Shift
Jesper Koll
Who is Afraid of China? % of Country’s Exports That Compete Head-to-Head with Made-In-China Products in the US Market
Japan Korea Taiwan Philippines Thailand Indonesia Jesper Koll
1996
2006
2016
8% 28% 35% 46% 48% 56%
28% 49% 69% 76% 77% 67%
65% 72% 87% 81% 86% 78%
Source: Jesper Koll Calculations based on UNCTAD Trade Statistics
Japan
US
Germany
France Source: National Institute of Population and Social Security Research Source: Guangzhou Automotive Company
Jesper Koll
Japan Dynamics ◆
National Ambition – 1st Class Power
◆
Fiscal Dominance
◆
Rich Companies & Rich Consumers
Japan
US
◆ ◆
New Middle Class Lifestyle Super-Power Germany - Local Baby-Boomer Retirees - Asian Tourists Source: National Institute of Population and Social Security Research
Jesper Koll
France
Not Sinking ? The Yen floats on water…
Jesper Koll