Earlier this week, Japanese TV audiences glimpsed a potentially revolutionary contraption from the Matsue College of Technology that rapidly separates closed shijimi clamshells into those with a live mollusc inside and those without.
Cut to footage of a human sorter, expertly performing the same function at a rate of just 90 kgs of shijimi per day and whose job this machine seems destined to replace. In other parts of the world, the juxtaposition could seem cruel or politically charged; in Japan, it is almost celebratory.
The great conundrum for investors — and increasing preoccupation of sellside analysts attempting to talk clients out of underweight Japan positions — is whether the equity market provides a neat play on Japan’s deepening worker shortage and the promised surge in wages that has to date been all gong and no dinner.
There is now no ignoring the practical effects of labour market tightening, or how it guides corporate behaviour in the world’s third-biggest economy. From small restaurants to giant conglomerates, businesses are battling to adapt to a world where they cannot dependably hire the people they need.
To date, one of the simpler investment plays on labour shortage has been to see Japan as a pre-eminent innovator and customer of labour-saving technologies — a logic that prompted Nikko Asset Management to launch an actively managed robotics fund in 2015 and has made factory automation companies like Fanuc and Keyence such staples of strategists’ model Japan portfolios.
The strength of that theme, says Nicholas Smith, a Japan strategist at CLSA brokerage, can only intensify. Studies suggesting that 47 per cent of US jobs could be susceptible to computerisation, he says, are a “godsend” for Japan as a natural robotics innovator and a country where 55 per cent of listed companies are net cash and able to spend on labour-saving capex.
Japan’s demographics, says Mr Smith “suggest a critical unfair advantage for Japan: where President Trump’s government is compelled to fight to safeguard jobs and keep them in the country, Japan’s government is enthusiastically giving all the funds and support it can to labour-saving technologies”.
On an even more bullish reading, the labour shortage theme can be broadened far beyond robots. On Friday, the Labour Ministry will release the country’s latest jobs-to-applicant ratio, which hit a 25-year high of 1.36 in December and is expected to continue rising over the course of this year. For graduate job seekers, the ratio is already higher at 1.43. Other indicators are gaining greater market relevance: in late February, the Japan Statistics Bureau revealed that the rate of job-changing in 2016 surpassed 3m for the first time since 2009, with mid-career, full-time professionals representing an ever larger part of the mix.
For those baffled at the failure of labour market tightness to raise regular employees’ wages, this last figure is key if it keeps rising. Inertia and illiquidity in Japan’s job market (exacerbated by the non-portability of pensions) have protected companies from the usual effects of supply and demand. Despite the difficulties they may face hiring new waves of graduates, companies are not faced with the threat of mass defections. Any sign of that protection eroding, say analysts, is investable, especially where there is leverage. The favourite basket has been a range of eight large- and small-cap recruitment and staffing agencies, all with fairly stable fixed costs but with the notional value of the people on their books going up.
There remain heavily compelling reasons, says Peter Eadon-Clarke, Macquarie Japan Strategist, why the wages of regular employees could resist inflation far longer than many expect.
Low unemployment and high job-applicant ratios conceal a reality of an inefficient corporate sector where the ranks of regular, difficult-to-fire employees are actually deep reservoirs of underutilised labour. There is, in other words, more slack in the system than the wage-rise bull case accounts for. But if even that structure ultimately proves vulnerable to the pressures of the tight labour market, he says, then the investment story will leave robots and recruitment in the dust and enter the realms of reflation — the promised land for thematic Japan investment veterans.
If Japanese households even slightly recover confidence in future wage increases, they may initially drive greater demand for luxuries like shijimi clams and even the Matsue mollusc separator. Should real momentum follow, say the strategists, residential property developers would be the first sector to rally in the reflationary glow.
