Politics, as the German statesman Otto von Bismarck once
said, is the art of the possible. Shinzo Abe would no doubt
agree. He has been redefining the limits of political
possibility since taking power in Japan in December.
Abe comes from a long line of political leaders. His
grandfather Nobusuke Kishi served as prime minister in the late
1950s, and his father, Shintaro Abe, was a leading figure in
the Liberal Democratic Party who held a number of ministerial
posts, including head of International Trade and Industry and
Foreign Affairs, in the 1980s.
Shinzo Abe has not only continued in that tradition, he has
revitalized politics in Japan. Since leading the LDP to victory
in the December elections and returning to the prime
ministers office he held briefly in 200607,
Abe has jolted Japan out of its long political torpor and
showed that policy does matter. He began to set change in
motion one month before the election, when he made a bold
promise to reflate the economy and push the Bank of Japan to
ease monetary policy. Stock prices immediately took off on a
massive rally, and the yen entered a major decline.
In office Abe has continued to deliver. The government
adopted a ¥10.3 trillion ($101 billion) fiscal
stimulus plan earlier this year to revive growth. The prime
minister appointed a radical new governor at the Bank of Japan,
Haruhiko Kuroda, who hit the ground running by pushing through
a quantitative easing program bigger than the Federal Reserve
Boards at his first meeting, in April, and doubling the
central banks inflation target, to 2 percent. The
governments policies have generated a new climate of
optimism about Japan. The economy accelerated in the first
quarter of 2013, with growth running at an annual rate of 3.5
percent, up from 1.0 percent in the previous quarter. Foreign
investors have piled into the Tokyo Stock Exchange, hoping to
benefit from a major rerating of Japanese stocks.
Notwithstanding a sharp, 1,143-point sell-off on May 23, the
Nikkei 225 index of leading stocks had by that point gained
67.2 percent since the rally began in November.
That optimism is beginning to infect Japans corporate
leaders a crucial factor considering that the new
policies must spur corporate investment and expansion if they
are to succeed in fostering a sustainable economic
Abenomics has put Japan back at the center of the
world, says Carlos Ghosn, chief executive officer of
Nissan Motor Co., the countrys second-largest automaker.
We hope this focus on the economy and on the revival of
Japan will continue.
Responding by e-mail to questions from Institutional
Investor, Ghosn explains that Nissan had been urging the
government to remove the headwind of exchange rates since
2008. Five years later it is happening. So we applaud and we
recognize the fact that something has been done. The new
easy-money policies and the governments apparent support
for a weaker yen have caused the currency to drop by 16.7
percent since mid-November, to 102.84 to the dollar late last
The French auto executive (Nissan is 43 percent owned by
Renault, of which Ghosn is chairman and CEO) believes the
reflationary policies will continue to stimulate Japan Inc.
In my opinion its not finished, he writes.
Companies are starting to build up more production.
People are starting to reinvest again. The stock market is up.
Foreign companies are more interested in Japan.
Ghosns views carry great weight in Japan given his
prominence as an executive who helped rescue Nissan from steep
losses at the end of the 1990s and return it to profitability
over the past decade. Investors and analysts welcome his
leadership and performance. Ghosn is voted the best CEO in the
Autos sector by the buy-side and sell-side analysts who chose
the 2013 All-Japan Executive Team, II s inaugural
ranking of the top chief executives, chief financial officers,
investor relations professionals and IR teams.
The company with the No. 1 management overall is Nidec
Corp., a maker of small precision motors for computer
equipment, appliances and autos. CEO Shigenobu Nagamori is
cited as the best chief executive in the Electronics/Components
sector by both buy-side and sell-side analysts. Masuo
Yoshimatsu wins similar recognition as the sectors best
CFO, and buy-side analysts rate Nidecs Investor Relations
team and its chief, Masahiro Nagayasu, as No. 1 in the sector.
Those scores make Nidec the Most Honored Company in Japan,
according to the ranking.
Auto-parts manufacturer Denso Corp. and giant lender Mizuho
Financial Group rank just behind Nidec on the Most Honored
list, followed by Nissan Motor, telecommunications operator
KDDI Corp. and drug company Astellas Pharma.
The All-Japan Executive Team is based on the votes of 387
buy-side analysts at 223 investment firms and 245 sell-side
analysts at 25 firms.
Japanese companies have struggled with deflation and a
low-growth economy for years while rivals such as China and
South Korea have expanded; the countrys consumer
electronics industry has lost market share to the likes of
Apple and Samsung Electronics Co.
Corporate Japan will consider the new government successful
if it can end the psychology of deflation and stagnation and
offer the prospect of renewed growth. So far, business leaders
are fairly optimistic.
Abe-san has already achieved a lot, Nidecs
Nagamori says in an interview at the companys
headquarters, outside Kyoto in western Japan. In particular, he
cites the reversal of the yen after years of punishing strength
that made companies increasingly uncompetitive against South
Korean rivals. I believe now Japanese companies are
coming back to a level playing field, he says.
Going forward, much depends on the LDPs ability to win
the July elections for the upper house of Parliament, Nagamori
says. Until the elections have been held and are seen to
have resulted in an endorsement of Abes leadership
notably on the yen but also in fiscal policy the prime
minister basically has to keep his head down, the CEO
Abe needs a solid majority in the upper house to enact
growth-enhancing structural reforms, which he calls the third
arrow in his policy quiver after fiscal and monetary stimulus.
In a speech last month, the prime minister said the reforms
would include deregulation measures aimed at boosting private
investment to ¥70 trillion a year, the level that
prevailed before the financial crisis.
Investment does appear to be picking up. According to the
Bank of Japan, new loans for fixed investment rose 7.1 percent
in the first quarter of 2013, to ¥12.1 trillion.
Corporate profits are also on the rise. By May 17 some 376
companies, or 22 percent of the total traded on the Tokyo Stock
Exchange, had released their annual reports. They showed an
average profit rise of about 30 percent. Many analysts are
forecasting a further increase of about 50 percent in the
current financial year, ending March 31, 2014; this would
roughly restore profits to their precrisis level. Even that
projection may understate the potential.
Jesper Koll, director of Japan equity research at J.P.
Morgan in Tokyo, predicts that corporate earnings will jump by
58 percent this year. Japan Inc. is now in a sweet spot
where the dramatic cost cuts and restructuring that were
implemented after Fukushima and the Thai floods yield the first
concrete benefits, he says, referring to the tsunami that
caused a meltdown at Japans Fukushima Daiichi nuclear
plant in March 2011 and the floods that disrupted production in
Thailand later that year. In the financial year just ended,
Japanese companies have reported sales gains of about 3 percent
and earnings gains of about 20 percent, Koll says. By
comparison, these companies have typically needed 5 percent
sales growth to generate earnings gains of 10 percent.
Efficiency and margins have almost doubled, Koll
says. This is not about Abenomics; windfall gains from a
weaker yen are negligible so far. Thatll be a turbocharge
to earnings going forward, particularly since giants like
Toyota and Hitachi are budgeting for a ¥90-dollar
rate for the current year.
Will Abenomics work? Jun Konomi, COO of Asia-Pacific equity
research at Nomura Securities, says the aggressive fiscal and
monetary policies adopted by Abe and Kuroda have created the
right framework. The macro economy is in fine shape, and
the central bank will definitely take the measures necessary to
let inflation rise to a 2 percent per annum level, he
says. The micro economy, however, will take more time, Konomi
adds. Even if the LDP secures a victory in the upper-house
elections this summer, it will take time to put in place
structural reforms considering the likely opposition from
entrenched interest groups, such as Japans agricultural
Abe is reaching out to the business community to help push
his agenda. The prime minister tapped Takeshi
Niinami, CEO of convenience store chain Lawson, to take a seat
on the new Industrial Competitiveness Council, led by Heizo
Takenaka, a prominent reformer who helped resolve Japans
banking crisis a decade ago. The council was created to advise
the government on structural reforms. Both buy-side and
sell-side analysts voted Niinami the No. 2 CEO in Retailing,
and Lawson ties for 16th place on the list of Japans Most