2022 Outlook: The Japanese economy

We are kickstarting 2022 with short conversations with some of our regular contributors about their outlook for the new year.

Here, we speak with Motoya Kitamura, seasoned private equity investor and founder and CEO of Northvillage Investment, about Japan’s economic prospects in 2022, factors impacting the investment landscape in the country and key economic challenges the government must prioritise addressing.

Unravel: What is your outlook for the Japanese economy in 2022?

Motoya Kitamura: The overall trend in 2022 is likely to be the recovery of a COVID-struck economy in 2020 and 2021. Booster vaccinations, in addition to the 77-79% vaccination rate achieved already, are expected to beef up consumption and improve employment.  

Unravel: What do you think the investment landscape will look like in Japan in the coming year?

Mr Kitamura: The investment landscape in Japan will be favourable given the following factors. First, the small likelihood of the Bank of Japan being able to revise its policy to stick with the negative-to-low interest rate and buy Japanese public stocks. Second, domestic investors are eagerly looking for assets to invest post-COVID – this is because several sectors such as travel, hospitality and dining have slowed down considerably as a result of the pandemic and become less investable. Third, in the Asian context, international investors are keen to look at Japan partly as an alternative to China – given concerns around human rights and geopolitics, many investors are considering diversifying from making investments in China. Finally, the scheduled restructuring of the Tokyo Stock Exchange in April 2022 is expected to increase transparency and attract more capital from international investors in small-cap public equities.

Unravel: What are some of the pressing issues the Japanese government will have to contend with?

Mr Kitamura: Prime Minister Fumio Kishida’s “redistribution” policy, logistics, priority and pacing to support workers and sectors that have suffered most severely from COVID – such as part-time workers, travel, restaurants and entertainment. There is also the issue of the speed and quality of response to the next COVID variant or next pandemic.

Unravel: Are you optimistic about the new year? Why or why not?

Mr Kitamura: Generally speaking, yes, with some cautiousness over externalities such as the US interest rate, geopolitics in China/Taiwan and Russia/Ukraine, the next COVID variant, the next pandemic, and the bursting of China’s real estate bubble.