It’s symptomatic of the Japanese economy that the most important commercial road transport headline of 2015 focused on the acquisition of a foreign entity instead of a local event. In February, Japan Post placed a AU$6.5 billion (€4.3 billion) bid to acquire Australia’s Toll Holdings as part of a more aggressive global expansion plan, with the final take-over publically celebrated in Melbourne, not Tokyo.
It may have been coincidental that the first outing of Japan Post President, Toru Takahashi, as the new strong man behind Toll happened to take place at a distribution centre 8,000km from home, but the picture the deal painted was symbolic: Despite Tokyo stock prices hovering at a 15-year high, Japanese businesses seem increasingly pessimistic about the country’s growth potential under the leadership of Prime Minister Shinzo Abe, mastermind behind the much-talked about Abenomics model.
“The demographics are negative – Japan is a super-aging society, not a growth market,” Fujitsu Research Institute Senior Economist, Martin Schulz, summarised during a CNBC interview in March. “Japanese corporations have adapted and their strategy is to look for growth overseas.”
Schulz’s verdict came as a surprise after a relatively solid stint of economic growth – a weak yen had spurred a sharp stock rally in Q1 – but it went to show that the troubled powerhouse is not yet ready to gear up and give road transport a reason to invest locally again.
The reason why the Japanese market is still treated with reserve is simple, yet deep-rooted, says Mizuho Research Institute Chief Economist, Hajime Takata. “Companies still do not believe in Abenomics,” he says. “[Even] after 15 years of deflation, corporate Japan’s mind-set remains conservative. Corporations are still stuck in the same retrenchment mode that has prevailed since the [post-war economic] bubble burst [in the early 1990s].”
Like many a local analyst, US journalist and Japan expert, Mia Tahara-Stubbs, argues that the structural change Japan would need to perform a full turnaround has not been achieved under the Abenomics model. Even though the Abe government demonstrated some newfound optimism after Q1 – a feeling shared by the Japan Automobile Manufacturers Association (JAMA) in its bi-annual truck market report – Tahara-Stubbs says growth has been insular and driven by cost-cutting measures instead of new investment.
“Just like Tokyo is booming while the countryside falls by the wayside, Japanese companies are adapting to the absence of growth in their home economy by looking overseas or carving new businesses catering to an ageing population,” she explains – inadvertently touching on the fact that Japanese truck makers have long relied on experts to keep afloat as well.
Preliminary Q2 data* is now likely to confirm her concern. The world’s third-biggest economy may have shrank as much as 2.5 per cent, Yoshiki Shinke of the Dai-ichi Life Research Institute told Bloomberg during the last week of July. “The median estimate of 25 economists is for 0.8 per cent growth after the 3.9 per cent expansion in the first quarter,” summarised Bloomberg journalist, Toru Fujioka. “The question isn’t whether the economy contracted but how deep the contraction was.”
According to Fujioka, the warning highlights growing caution about the resilience of Japan’s recovery, with industrial production dropping in three of the five months through May, and exports falling in the second quarter the most since late 2012.
While a – potential – Q2 relapse would not necessarily label 2015 a lost year, it would still reinforce Schulz’s notion of a country that is on the brink of a much-needed structural shift but not capable of executing it. As a result, Governor Haruhiko Kuroda reacted quickly last month by saying the slump was only temporary, predicting a moderate recovery will continue in Q3.
After all, change is undoubtedly needed in the proud nation of Japan. While the country’s post-war economic miracle produced world-renowned firms like Sony and Sharp, today many of them have lost direction. In consumer electronics and appliances, they have been left behind by the likes of Apple and Samsung, while CIMC of China and Panus of Thailand threaten the local trailer manufacturing elite.
Regardless of the industry, Japanese companies often fall back on the competition for the same reason – while there is still ample liquidity left, the lack of a clear future vision is blocking innovation and hindering effective change management. The result is a challenging environment for the asset-rich commercial road transport industry, as structural shortcomings are often offset by overseas acquisitions that do not directly feed back into the domestic economy. The growing average age of the nation’s truck population is one concerning side effect of that development, according to JAMA.
What’s more, the Economist recently cautioned investors against a “huge cultural barrier” that still has to be overcome locally, over-employment. “Corporate Japan in effect forms part of the country’s welfare state, by keeping on more staff than are needed,” it said in its June edition, adding that companies were reluctant to shed surplus workers to avoid making a negative impression on suppliers and business partners – another potential holdback for a quick turnaround that could flow down to road transport.
Seemingly in contrast to the still over-staffed manufacturing sector, much of corporate Japan is now struggling from a decline in the country’s working-age population, which has already seen job vacancies outnumber applicants by 10 per cent in industries like haulage and construction.
Yet what could be seen as a paradox is more of a generational mismatch, experts say, with the old generation securely employed by slow-growth businesses and a lack of young staff moving into positions that can drive Japan’s future growth.
But with Q2 figures now putting up the pressure on the government again, a move to rationalise unwieldy structures and put Japan’s cash hoards to work locally could finally be on the horizon. While the Economist said in June it wasn’t yet certain that corporate Japan had the will to take the drastic steps that are needed to restore its competitiveness, more optimistic observers argue it’s only a question of time before Japanese success stories are written in Japan again, and not overseas.