PrintMarch 14, 2011
Japan's Resilience
One of the frequent comments I hear from American citizens concerning the Japanese people is how they have managed to stay calm and resolute in the face of an unprecedented modern day natural disaster for that or any country. The fact that there is no looting or criminal activity taking place as compared to what would take place in the U.S. amazes many people.
In my quarter century plus of working in the international marketplace, I have come to have utmost regard for the Japanese businessmen and individual citizens I have encountered. Integrity, dedication, hard work and honesty, as compared to the lack of same with so many other people, have been a reliable lynchpin of my dealings with the Japanese.
The Kobe earthquake in 1995, which claimed 6,400 lives, marked a definitive end to Japan's era of all-conquering industrial expansion and initiated the entry into deflation and banking crisis. Its economy was the hardest hit of all of the Group of Seven advanced economies in the 2008 financial meltdown. The Topix index of stock prices remains mired at 1985 levels.
Yet as Peter Tasker in the Financial Times writes:
Yet Japan's hidden strengths are being under-appreciated, not the least by its own public. Since the summer of 2007, the yen has risen dramatically against the euro, the pound, the dollar and the renminbi [China]. Even so, listed companies are expected to return to peak profitability next year.Japan is aging rapidly, but -- for better or worse -- has not opened its doors to large numbers of immigrant workers. Instead Japanese workers keep going longer -- 20% per cent of over-65's are in the workforce, against 5% in most European countries. Even people in their 80's can be found working -- usually with good spirits -- in securities houses, restaurants and other businesses. Living off your pension is a concept from bygone era. Japan may not be supreme in consumer electronics any longer, but it is leading the world in realism.Young Japanese are much criticized by the elders for apathy and lack of political engagement, but one remarkable side effect of the Kobe earthquake was the surge in volunteerism. More than a million Japanese participated in way or another. [A scenario being repeated today]The greatest cause for optimism about Japan is the reservoir of social capital that has sustained it through two tough decades.
It is human nature to assume that an event of such destructive force must have a powerful lasting effect on stock markets and currency values. But that is not necessarily the case. When combined with international respect for the diligence of the Japanese people and the fact that many companies in Japan have a globalized earnings stream the value of the majority of the listed companies on the Tokyo stock exchange will be little affected.
Today the Tokyo stock market (Nikkei 225) declined by 6.6%, a major drop. However most of the fall was reflected a sell-off of insurance companies (e.g. Tokio Marine Holdings, the largest property and casualty insurer) tumbled 12% and Tokyo Electric Power (owner of the Fukushima nuclear plant) dropped 24%.
However, as the day progressed across the globe the other markets reflected this clinical and nuanced sell-off. The FTSE All-World index is down only 1 percent and many Asian bourses were in positive territory. The NYSE Dow Jones Industrial Average is down 1.0%; not all of which is reflective of the situation in Japan.
The Yen continues to maintain its strength against other currencies even as the Bank of Japan injected 15 Trillion Yen (US$ 183 Billion) into the banking system.
While the U.S. media runs around imitating "chicken little" in their reporting on the on the nuclear reactor issues in Japan, it should be noted that the safety systems worked as well as they could, considering the unimaginable double punch of a magnitude 9 earthquake and a 30 foot tsunami and that Japanese construction technology is in a class of its own.
Finally, as I can personally vouch, the Japanese public remains as disciplined and stoic as ever and that the Japanese government has fiscal and monetary leeway to manage and re-build from this tragedy. There are many lessons to be learned by the leadership and citizens of the United States.
