Trump Could Usher In a New “Meiji Moment” Worth Billions

Keith Fitz-Gerald Dec 02, 2016
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[Tokyo] – Having rolled off the plane and successfully navigated the wilds of Tokyo’s notoriously busy subway system on my way into the city, I made a beeline for my favorite guilty pleasure – the neighborhood sushi shop.

And the questions started almost as soon as I sat down elbow to elbow with other patrons…

…what did I make of Trump?

…would he be a real” president?

…is he as unpredictable as he seems?

As always, it wasn’t so much the questions that interested me, but rather, the unspoken “language” driving them.

You wouldn’t believe what it says about what’s next for your money.

Shock Treatment for Japan’s “Lost Decades”

Japan’s got every reason to come to terms with Trump quickly and effectively.

It is the world’s third largest economy, a long-time economic trading partner with hundreds of billions on the line, and key to strategic interests here in the Pacific.

But… how, exactly?

Japanese politicians were completely stunned by Trump’s victory, which is entirely understandable because they suffer from the same sort of erudite institutional bias that ruling elites all over the world do. They have no idea what to make of Trump’s victory, let alone the man.

Japanese citizens, on the other hand, don’t seem to have that problem. Most of the people I’ve run into on this trip, in fact, are far more pragmatic about a Trump presidency. By and large, they’re also respectful, even if the reasons driving Trump’s election are not readily apparent.

Most of that is pretty straight-forward. Having spent the better part of my adult life here, I wouldn’t expect anything else.

Then, it got real as I reached for another plate of maguro and our conversation took an  unexpected twist…

…what if Trump forced Japan to change?

To my way of thinking, that would make him like Commodore Matthew Perry, who steamed into Tokyo Bay in 1853 and forced the Tokugawa Shogunate to open trade after 250 years of seclusion.

We’re used to hearing the gunboat diplomacy argument in our history books, as are the Japanese in theirs. Perry wasn’t exactly subtle considering he had a fleet of “black ships” with him and punctuated his message with cannon.

Without realizing it, my new friends Masa and Taka were referencing Perry’s arrival as the start of more than a century of openness and economic development that happened at jaw-dropping speed. And, by implication, wondering if Trump could be the singular influence that forces Japan to open up a second time.

Not only do I think that’s possible, but entirely likely.

Japan’s economic machine has languished since the early 1990s and the so-called “lost decade” that was supposed to be over in a mere 10 years has never ended. The once-vaunted Nikkei trades at only 86% of its peak value, and employment has never really gotten back on track, nor have property values.

Demographics are going in the wrong direction. The nation now suffers under the highest debt to GDP ratio on the planet… a whopping 600%+ if you factor in combined public, private, and government debt, according to PIMCO’s Jamil Baz last August.

Prime Minister Shinzo Abe’s recovery programs are working no better than those of his predecessors, and by all accounts it will take something truly earth-shattering to put things back on track.

But Trump??!!

For most investors, this is as unthinkable – just as Trump’s victory is to long-time Japanese politicians – but for that very reason, it’s plausible.

Japan, you see, has a long history of making profound changes that are frequently borrowed from outside influences and “Japanified” as they happen. Written Japanese, for example, originally came from Chinese, as did Buddhism, architecture, city planning, masked drama, and more.

Shortly after Commodore Perry did his thing, a group of forward-looking Japanese leaders and citizens began the Meiji Restoration in 1868. In little more than 10 years they turned Japan upside down and inside out while engaging in a complete changeover that modernized the government, pried open borders, and completely reformed industry.

As a side note, the 2003 action adventure film, The Last Samurai, starring Tom Cruise, captures this time period exceptionally well in case you haven’t seen it.

Anyway…

The Meiji Restoration left Japan with a sense of optimism that nothing is insurmountable. That’s why, even today – 148 years later – you don’t see the Japanese giving up.

In fact, what you see is quite the opposite. Most Japanese believe that the country can change direction if they absolutely have to, and them with it.

I think it’s just possible that Trump’s shock victory provides Japan with another “Meiji Moment” and that a similar group of forward-looking leaders will emerge to take the country in previously unimaginable directions.

That means a stronger, more entrepreneurial Japan – especially when it comes to small companies, not the exporters we usually talk about. They’re the ones with the highest economic incentive and lowest resistance to change. Plus they can move fastest as new opportunities develop because they focus primarily on domestic demand.

A choice like the iShare MSCI Japan Small-Cap ETF (NYSEArca:SCJ) is a great place to start. It’s up about 11% year-to-date and represents about 40% of the eligible small cap universe.

The other logical play for a “Meiji Moment” is the so-called “Mother’s Index” which is a Tokyo Stock Exchange listed group of Internet and Biotech firms. You can track it by purchasing the TSE Mothers Core ETF (TOPIX:1563) if your broker has access.

In closing, I’ve obviously just scratched the surface here but I find myself more excited about domestic Japanese markets than I have been in a long time.

Ganbarimashou!


Keith

6 Responses to Trump Could Usher In a New “Meiji Moment” Worth Billions

  1. Stu Cutbill says:

    Hey Keith — Is there any way you could leave a twitter link so I could tweet your timely commentaries? I’m sure others would love to hear what you have to say!

    Best regards, Stu

    • Jessica Sheppard says:

      Hi Stu, and thanks for reaching out!

      Keith’s editorial team posts each of his articles (and media appearances) on both his Facebook and Twitter soon after they appear on the Total Wealth website.

      And of course, feel free to tweet, comment, or share anything you see! We love to see the Total Wealth Family grow.

      Again, thanks for the comment, and we look forward to hearing from you again soon!

      Jessica Sheppard
      Associate Editor

  2. Jrnhkkdo says:

    The one think you failed to comment on is the profound change in the Japanese psyche that occurred at the conclusion of WWII. Specifically, the Japanese people are currently mired in a funk of avoiding a standing military, or even war, at all costs. They are totally weaned on a US military umbrella to protect them from most everyone. That, along with the demographic future (aging population) may be their undoing, regardless of anything that others (including the US/Trump) can possibly do or say.

    • Keith says:

      Howdy.

      You raise an important point and a viewpoint that is changing very rapidly. As an interesting aside, consider reading “The Emperor’s General” by James Webb which is set in the immediate aftermath of WWII. Part fiction, part truth, it will challenge many of the assumptions we have about who “won” the war and why that matters today.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. James says:

    Today marks the 75th anniversary of the Japanese surprise attack on Pearl Harbor. The Japanese Navy had six carriers carrying 350 fighter planes attacking Pearl Harbor and surrounding air bases on Oahu. Pearl Harbor was a day of infamy for the U. S. Three thousand lost their lives or were casualties of the attack of which 1,177 navy personnel are entombed in the sunken battleship Arizona.

    The U. S. reciprocated by dropping atomic bombs on the cities of Hiroshima and Nagasaki in August 1945 to end the bloody war in the Pacific where thousands upon thousands of lives were lost. The truce led to the demilitarizing of Japan and eventually brought prosperity to Japanese people. Japan was protected and became a strong ally of the U.S.

    The alliance will continue, but my guess is Japan wants more freedom from the U. S. to conduct its own affairs, like building up its own military machine. My guess is Japan must suffer economically for new leaders to emerge to take the country in a new direction. The direction will be probably be the status quo which probably is best for Japan. The reality is the Japanese people are prosperous despite the government mired in debt.

  4. Joe says:

    Yes, Japan is certainly capable of changing very quickly although the past two plus lost decades would indicate otherwise. I’ve observed that first hand during my decade and a half living there right before the bubble that burst and when the pundits declared Japan the invincible economic super power. What the catalyst will be exactly is unclear but I doubt it will be Trump who I don’t consider a new Perry at all. After the initial surprise they will deal with him effectively, of that I’m sure.

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