Of all the developed nations, Japan remains the most misunderstood.
One of the greatest misconceptions is the widely held belief that Japan remains hostile to foreign labour; in actuality, as other developed nations are building walls against immigrants, Japan is opening its doors.
Prime minister Shinzo Abe’s government, which has looked to redress Japan’s military status, has presided over a significant increase in the foreign worker population over the last six years.
Although Japan’s working-age population peaked at 85 million in 1995, its actual workforce hit an all-time high last year of 62 million and a large portion of that workforce increment has been foreigners. Foreign residents numbered 2.4 million last year, compared to one million 30 years ago.
Working visa allocations to foreigners in 2018 were 1.28 million, compared to only 628,000 in 2012. Since 2012, 212,000 of these new workers have come from one country, Vietnam.
Last December, Japan created a further 345,000 annual working visa allocations with five-year residency rights that are extendable under certain conditions.
As professor Taiji Kawaguchi of the University of Tokyo notes, the significance of foreign workers in the economy is likely even larger than those figures suggest since many foreign workers hold more than one job, and foreigners on student visas – with limited permission for paid work – will in fact often exceed their allocated hours by working at more than one location.
The government is considering a general work visa, as opposed to one requiring sponsorship by a particular employer, which will further facilitate foreign labour fluidity.
The quantitative story tallies with anecdotal experience. I have lived in Japan for over two decades and in the last five years there has been a noticeably sharp increase in non-Japanese Asians managing the check-out at convenience stores, serving in restaurants or working on construction sites.
Many of these newcomers seem well integrated, with excellent language skills, Japanese friends and a respect for the way of life. A lot of them appear to have no intention or desire to return to their home country. Among the Japanese, there has been seemingly no reaction to remove such workers, nor a fear either for the dilution of their culture or that jobs are being taken from them.
All of this merely consolidates Japan’s decades-long experimentation with the foreign workers called 'nikkeijin', mostly Latin American people of Japanese ancestry, to whom the country offered preferential access to work visas and who became an important element in the country’s manufacturing industry.
Many of the factories that I have visited in northern Japan have signs in Portuguese, because many of those workers are Brazilian-Japanese. Since statistical analysis of these immigrants has been ambiguous, Japan’s actual foreign worker exposure might already be bigger than the earlier figures suggest.
Misconceptions such as this mean important investment themes can be overlooked. For example, just because GDP growth has been lacklustre for many years, we should not ignore the fact that Japan’s corporate profit growth has outpaced all major regions for the last six years.
In addition, despite ballooning gross sovereign debt, the country’s net debt position is far less critical – which is why its government bond market has not cracked. Similarly, the population may be in decline, but the workforce is growing and adapting. This is one of many social or regulatory changes in Japan which our research process seeks to identify, and in which our fund seeks to invest.
What we hold
Persol Holdings and Recruit, Japan’s two largest placement companies, are both in our portfolio and delivering consistent profit growth in the teens thanks to the increased fluidity of the workforce. Recruit has invested in leading job search platforms such as Indeed and Glassdoor that optimise placement operations globally.
In comparison, Persol has offices in Asia which help manage the immigrant labour flow. It is one of the largest temporary labour dispatch companies in Japan and can readily place foreign workers in contract positions.
At the same time, it has played a central role in returning women to the workforce – which was the aim of the company’s founder Yoshiko Shinohara, and indeed Japan currently has a higher female labour participation rate than the United States, according to professor Kawaguchi.
Another Comgest portfolio holding is Nihon M&A Center, which started life as a consultant for Japanese companies without successors but is now expanding into Asia as Japanese companies look to buy Asian manufacturing facilities directly, with a view towards repatriating Asian labour to Japan.
During a meeting with Nihon’s founder, Yasuhiro Wakebayashi, a couple of weeks ago, he stated that the labour shortage of Japan has created an unprecedented situation that requires new solutions.
Citywire A-rated Richard Kaye co-manages the Comgest Japan Growth fund, which, over the last three years, has returned 51.8% versus a sector average of 38.6%.