Japan Surprises 2024

Ten twists & turns that would change the global Japan narrative in the Year of the Dragon

Forecasting is both an art and a science. Quantitative forecasts are based on probability models that cannot escape the assumption that the future will be a replay of the past. Qualitative predictions are based on a combination of experience and intuition. Like a beautiful Bach sonata, the former follows a predictable logic. Like an inspired jazz solo, the latter delivers a genuine surprise that you did not expect but cannot live without once you’ve heard it. The only certainty we have is that 2024 will bring both—existing trends evolving and genuine surprises.

Here is my annual list of ten possible Japan surprises for 2024 - and best wishes for a happy, prosperous, and healthy New Year to you!

1. Japan’s inflation and growth outpace the United States.

We will see a full decoupling of the US–Japan business cycle in 2024. America faces a slowdown as the 2023 US rate hikes cut down both consumption and capital expenditure. In contrast, Japan’s economy will re-accelerate: neither the Bank of Japan nor the Ministry of Finance is tightening public support - in fact the MoF is cutting taxes.

More importantly, Japan’s rising corporate metabolism in general, private investment in human- and physical capital in particular has the potential to turn the still dominant ‘End of Deflation?’ narrative into a “Japan’s Reiwa Boom!” one.

Bonus: watch for not just a strong “Shunto” base pay increase but for a growing number of CEOs from “Keidanren” establishment companies introducing merit-based compensation.

2. Japan’s M&A boom goes global.

The 2024 US slowdown and/or recession is poised to create opportunities to buy US companies and assets at significant discounts, which will turbo-charge Japan’s global merger and acquisition activity. Already Japanese industrial companies - Nippon Steel buying US Steel - started leading the way in late 2023. The 2024 surprise will be a broadening of the new “Japan buys America” trend to the services and asset sectors. Yes, I expect major Japanese financial institutions to buy US banks, insurers, or payments companies.

3. Japan’s MBO/LBO boom accelerates.

Spurred by pressure from shareholders and stock exchange, as well as low debt financing costs, management buyouts and leveraged buyouts will continue. Surprise: 2024 may be the first year when more companies go private and delist from the stock market than new startups going public and listing via IPOs.

4. Japanese CEOs step out of their comfort zone.

Rather than just relying on in-house R&D teams, Japanese CEOs will start to buy startups for future growth. One reason for US corporate dynamism is the aggressive use of “outside” innovation to supplement, improve, or disrupt “inside” businesses. Ninety percent of US startup exits are acquisitions, while in Japan, 90 percent are IPOs. Mark my words: Japan’s new generation of CEOs are taking risks and are not afraid to try and make 1 + 1 = 3 … or 4.

5. Japan’s corporate governance goes global.

So far, Japan’s corporate governance reform has been one-way, importing US “best practices” into Japanese boardrooms. There are now more than 150 non-Japanese serving on the boards of Tokyo-listed companies, up from fewer than twenty ten-years ago. Meanwhile, there are fewer than ten Japanese outside directors on global boards. A Japanese CEO or exCEO appointed to a Wall Street firm’s board would be proof that Japanese governance has truly become world class. A positive surprise, yes. But if US multinationals were serious about multi-stakeholder governance, there is much to learn from Japan’s corporate leaders.

6. Japan launches its own Defense Advanced Research Project Agency.

Rising defense spending demands a fundamental rethinking of collaboration among universities, scientists, private enterprise, and public policy. Without fundamental change, the risk is that higher defense spending will bring little or no positive benefit to Japan’s global competitiveness or domestic economy. The sooner Japan’s elite can agree on the rules and institutional governance for dual-use technologies and their scalable commercialization, the greater the certainty of both private and public spending on defense yielding positive multipliers.

7. Japan deregulates home-helper visas.

The combined problems of a growing labor shortage, a falling birthrate, and more Japanese women aspiring to professional careers cannot be solved without outside help for families. A very positive surprise would be if Japan followed the Hong Kong and Singapore model. There, professional couples can sponsor home helpers, with proper supervision and governance by local authorities. This is a pragmatic solution to reverse the declining birthrate and to reduce the runaway costs for public social and medical support for children and the elderly.

8. China synthetic biology moonshot delivers domestic food security.

China is the world’s largest importer of food. Dependence on the global food supply is the single biggest challenge for China’s leaders. Public and private investment in synthetic biology and the development of lab-grown and tech-assisted food is huge. The question is not if, but when, a supermassive scale-up solution will be announced by China’s biotech leaders. A science-based breakthrough on food-security for China—and thus the world—would supersize China’s credentials as the rightful global leader she aspires to become.

9. Elections shift alliances.

While all eyes are on the 2024 US presidential election in November, the vote in India in April or May could bring a big negative surprise. If Prime Minister Narendra Modi loses reelection or control of Parliament, the impact could be far-reaching—not just for the Quad alliance comprising Japan, the United States, Australia, and India, but also the leadership of the emerging alliances around the Global South.

10. Germany wins Euro 2024.

Sunday, July 14, will bring the final of the UEFA European Football Championship. I am German, so naturally, I support Team Germany. But they have been playing shockingly poorly, and their performance has only gotten worse after they lost to Japan in the 2022 World Cup. So, the biggest positive surprise for me in 2024 would be Germany actually winning the Euro 2024 championship—especially since the final is played on the French national holiday, Bastille Day.

Thank you for reading. As always, comments welcome. A happy New Year & Many cheers ;-j

A Japanese version of this article was published by the NIKKEI online on December 14, see Nikkei (print version December 15)

The ACCJ also published a version earlier this week, see here

日陰鬘 — Kyoto traditional new year decoration Hikagekazura thanks to Gallery NichiNichi