00:00We start with the story of Choraku. That's a Japanese term meaning falling behind.
00:05In 1980s, Japanese industry was the envy of the world in a variety of sectors such as automotive,
00:10electronics and steel. As a result, asset values went up, particularly here in Tokyo,
00:15where real estate values went sky high, supported by patient capital that did not demand a lot of
00:21returns. The 1990s, though, saw that asset bubble burst. And when the Japanese government and
00:26Japanese banks did not step in aggressively, they took what was a lost decade and turned it into a
00:32lost three decades. Most people's expectation of Japan or business mindset of Japan is 30 years
00:40of stagnation. I think, you know, we call the lost ages during decades, and we do not have
00:49substantial growth in Japan. Japan faced the deflation for a very, very long time. Japan has
00:55been suffering from deflation for more than two decades. In the late 80s, Japan's economy grew
01:02by as much as 6.7 percent a year, only to have that growth plummet for most of the next
01:0830 years,
01:10hovering between zero and two percent and contracting during the great financial crisis and the COVID
01:15pandemic, relegating what had been the third largest economy in the world to number four
01:20as Germany surged past. The Nikkei stock market went 34 years without setting new highs.
01:26Japanese government bond yields turned negative and stayed there for years. But all that could now be
01:33changing as Japan emerges from those lost decades. What a lovely day in Tokyo. Mark Rowan is CEO of Apollo
01:40Global Management. This is a savings culture. And holding on to your cash or leaving your money into JGBs for
01:47the past 30 years has been fine because there's been no inflation. In fact, there's been deflation.
01:54All of a sudden, you have closer to three percent inflation. You have interest rates up for the first
01:59time. And that savings is going to be deployed productively. And now some of it has to go toward
02:06retirement. They will want better solutions for retirement. But some of it is just going to keep
02:11up with purchase price and purchasing power. I think about what's happening in Japan.
02:16And in Japan, they're going through generational change. And it's generational change in corporate
02:22governance. It's in interest rates. It's in government policy. And in many ways, they are the
02:27first of the Western democracies to face real aging, retirement, and high levels of government debt.
02:35And what's happening here is totally different than people's expectation because most people's
02:41expectation of Japan or business mindset of Japan is 30 years of stagnation. And that is so dynamic
02:48here today. The thing that got things going again for Japan was, ironically, adversity. As supply chains
02:55came under stress from the COVID shutdown and a war in Ukraine put pressure on energy prices,
03:00a big problem for a country dependent on oil from abroad. With the supply chain breakdown,
03:07corporate has executes to transfer the price to the retail. So now the CPI started to suddenly,
03:15which has been zero or negative for a very long time, suddenly went up to almost 3%. If she can
03:22get
03:22to third, that's a bond. Eiji Ueda is head of Asia Pacific for Apollo. Everybody has to think
03:30differently. So with the differential environment, cash has been the king. But with the inflation
03:37at close to 3%, cash is not the right assets to own. It's actually the worst assets to own.
03:45So that has to put the pressure out of a lot of people to think about things differently.
03:51Even before the return of inflation, those responsible for Japanese markets were thinking
03:56differently, starting with Prime Minister Abe's call for market reform back in 2015.
04:01And it's true that for maybe a good decade, Japan did struggle in finding its way out of that banking
04:07crisis. Maria Solis is director of the Center for Asia Policy Studies at the Brookings Institution
04:13and author of Japan's Quiet Leadership. But the fact is that we have overused the image of the last
04:20decades. Because this has not been a period where Japan has stood still. And people refer to this
04:26period as 30 years. And a lot has happened in the economy, in the politics, in international
04:32projection of Japan, that actually shows that undercurrents of change have repositioned where
04:38Japan stands today. Some areas actually, there was a lot of progress. I think in the area of corporate
04:43governance, you do see important changes there. I also believe that the notion of womenomics, the idea
04:50that Japan needed to create conditions for women not to have to choose between a career and a family,
04:56raising a family, those also were very, very positive. So much so that Japan actually has a
05:02very high level of female level participation. As much as Prime Minister Abe may have laid the
05:10groundwork for reform, the state of the economy did not demand the changes he wanted. For that,
05:15they needed 3% inflation to kick in. Well, it has changed everything. It has changed the politics. It
05:22has changed the main economic challenges that the country faces. And I think in many ways, it has
05:28redirected areas where reform is necessary. Now inflation has returned. And there's a new prime minister
05:37in town, one who's just won a landslide victory and seeks to take Abenomics reform to a new level.
05:43So many significant changes in the Japanese, not only Japanese market, but also Japanese society.
05:51Hiromi Yameji is Group CEO of the Japan Exchange Group, which oversees the Tokyo and Osaka stock
05:57exchanges. What was the role of government, the Japanese government in the reforms?
06:01I think, you know, since the Prime Minister Abe supported our governance reform back in 2015,
06:09I think all the successors of Mr. Abe, like Mr. Suga, Mr. Kishida, Mr. Eshiba, and the current
06:17Ms. Takaichi, all of them were quite big supporters of governance reform, because all of them were convinced
06:25that growth of the private sector is essential for the growth of entire Japanese economy.
06:32Since taking over the TSE in 2021, Yameji has implemented a series of reforms to encourage
06:39Japanese companies to become more profitable and more accountable.
06:43Your reforms of the markets has various aspects to it, including price to book ratio,
06:48and interlocking ownership of equity and independent directors. What are the most important ones?
06:54I think to transform the mindset of the management of the companies.
06:59That's very important and also probably the most challenging thing. And PBR is just kind of a
07:07financial indicator to just gauge, you know, how much you've progressed.
07:13But I think a fundamental challenge is to transform the mindset of the management.
07:20Not all minds are willing to be transformed. Have you had some management changes in order to respond to the
07:27reports?
07:28Well, I think, you know, at least once a year, we've analyzed the current situation of the Japanese
07:34market or Japanese companies, and we are not the entity to assess the progress. The global investors
07:41is the, you know, the people who assess how much progress we've made. And, you know, last year,
07:49with the most recent one, we did an analysis of the current situation in December last year,
07:55based upon the 400 global investors, domestic and overseas.
08:00If the markets are any judge, Yameji's efforts are bearing fruit.
08:03Last year was a record high, more than we have 5,100 in Mondays. And the total amount was 35
08:11trillion yen.
08:12Both of them are record high. And that means that the buyer side seeking for, say, more growth,
08:20or Asian needs for growth. And the seller side is trying to reorganize their business portfolio.
08:26Or Tokyo Stock Exchange pushing the corporate to create more efficiency in the capital usage
08:33for corporates. And ROE has been very, very low. And more than 50% of the company listed in Japan
08:42has been trading below the book value. So they are pushing for capital efficiency. And they need to
08:51explain the reason why they trading below the book.
08:55The Japanese push for higher returns in response to reflation
08:59comes against the backdrop of a long-term challenge that's increasingly common in
09:03major economies around the world. A rapidly aging workforce.
09:08Population between age 14 to 65 hit the peak in 1990. And since then, because society started aging,
09:19people spend less. So always demands shrink faster than supply. So the country faces long-term deflation and low growth.
09:30I think we're looking at things that are structural that are going to take place over the next 5 to
09:3410 years.
09:35The need for Japan to provide for its aging population and to deal with its aging population.
09:41The need for Japan to finance what it needs to finance. And the opportunity that Japan has.
09:48Japan responded to the challenges of its aging workforce by adding workers from groups that had been on the sidelines.
09:54Well, this is clearly one of the most serious challenges because the sheer drop in the level of the population,
10:00the absolute numbers, but also the graying of the population. The other one is, of course,
10:05to bring in women into the workforce, to bring in the elderly, who in Japan tend to be still very
10:11active,
10:12and to make sure that you can as much as possible maximize labor participation.
10:18But there is a limit to how many women, elderly, and foreign workers Japan can bring into the workforce.
10:24What does reform of capital markets do to help that problem?
10:28I think, you know, the corporate governance reform
10:31sets that we'd like to see more active female workers in the workforce,
10:38and also more senior persons are working freely in Japan. Now, the labor force increased in Japan.
10:45But obviously, a female job participation, as well as a senior members job participation,
10:52there's a ceiling. I think, you know, we don't expect too much from those new forces coming in.
10:59So I think Japanese companies has been making a huge investment into automation or digitalization,
11:07AI usage. I think those are very important to enhance productivity, even though our population
11:13has been shrinking and also is going to shrink in the future.
11:18What are the large long-term capital means that companies say, I need to have this for a long period
11:23of time?
11:24This is manufacturing. This is energy. This is AI and data. This is infrastructure.
11:30These are the big buckets that we're looking at. And the scale just of the infrastructure market,
11:37or as I say, just of the AI data energy market as one package is beyond anything we can comprehend.
11:42This is measured in trillions. Sometimes I joke and I say, we're about to spend every dollar since
11:47the invention of fire. And that's what we're doing. We are, as a world, going to issue more debt,
11:54access more capital in 2026 than ever before. I think this is ultimately about growing the pie.
12:00I think the Japanese were very defensive for a long period of time with good reason,
12:05given what was happening in the home market. I think there's a new swagger.
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