Conference Presentation, Panel
Asia Summit 2015 - The Rising Sun: Japan's Resurgence in the Asia-Pacific Region
- Corporate profitability is forecast to remain positive with growth projections of approximately 10% for fiscal years 2015 and 2016, driven by improved balance sheets and a shift in business leader mindset despite a 0% growth and inflation environment.
- Japan's potential economic growth rate is constrained by a shrinking labor force due to low fertility and minimal immigration, with the effective exchange rate and inflation pressure expected to pick up in 2017 provided momentum is maintained through a second-half consumption tax increase.
- Government fiscal targets aim to bring the primary deficit down to 1% of GDP by fiscal year 2018 and achieve a primary surplus by 2020, with readiness to implement additional expenditure and revenue measures to ensure plan resilience.
- Domestic consumption is anticipated to be stimulated within one to two years as wage increases for younger generations take effect in a tight labor market characterized by a 3.3% unemployment rate.
- Japanese corporations are expected to transition from a domestic focus to becoming "Asian" and "global" entities, with retained earnings exceeding 350 trillion yen (over 70% of GDP) facilitating cross-border expansion into markets like the US and Thailand.
- Tourism targets aim for 60 million visitors by the 2020 Summer Olympics, an influx projected to have a demographic impact equivalent to 10 million people based on average consumption spending.
- Structural reforms are expected to proceed incrementally through widespread deregulation, including visa relaxations for ASEAN, China, and Brazil, tax exemptions for cosmetics and alcohol, and the introduction of foreign house helpers, nurses, and caregivers starting from the current or following year.
- Corporate governance improvements are being driven by government enforcement and external pressure to enhance ROE, though challenges regarding shareholder treatment, decision-making speed, risk aversion, and post-merger integration due to a lack of diversity and lifetime employment culture persist.
- Japan faces headwinds from premature fiscal consolidation and demographic challenges, while also being positioned at the lower end of countries most affected by a potential Chinese investment slowdown, with a risk of yen strengthening that could negatively impact inflation pressure.
- Global equity prices are cited as a reason for a lack of confidence among business leaders globally regarding profitability over the next 5 to 10 years, even as S&P hopes market perceptions of the renminbi and Chinese GDP growth shift from pessimistic to normal.