Writing in 2009 about the root cause of the British Industrial Revolution, economic historian Joel Mokyrsaid: “Economic change in all periods depends, more than most economists think, on what people believe.”For Britain, the invention of rapid economic growth was a case of ‘mind over matter’. Keynes made the same point during the economic and social psychological depression of the 1930s, as did president FD Roosevelt:“The only thing we have to fear is fear itself.” Shinzo Abe is on the right tack – in bringing about dramatic economic change,mindset matters.
And the evidence of mindset change in Japan is building. In corporate life, firms are radically changing the way they think.Seniority-based pay is being replaced by performance-based pay; ‘managed decline’ by profitability-based targets; inert governance by progressive governance.In asset allocation, key institutions, most notably the GPIF, the Government pension fund, are shifting away from bonds and back into equities after years of low allocations.
Both firms and households are starting to believe wages and land prices will rise in the years ahead, which we predict will break the self-fulfilling deflationary cycle.Japan today is not just a story in which the medicine being administered to the economy is beneficial to investors as a side effect. Rather, it is a real turnaround candidate, and the fact so many remain sceptical of thismeans it is not too late to profit from it.
