This is Wall Street Week. I'm David Weston bringing you stories of capitalism. This time capitalism Japanese style. This is an ancient land with the imperial dynasty stretching back over one thousand years. Apollo Global Management invited us along as it convened the meeting of its two hundred partners from around the world to see firsthand the investment opportunities it sees in Japan today, a world that has not traditionally
been associated with risk. We're going to talk with Mark Rowan, the head of Apollo, as well as the leaders of Sony, Panasonic Automotive, and the Tokyo Stock Exchange. But we start with the story of choraku. That's a Japanese term meaning falling behind. In nineteen eighties, Japanese industry was the envy of the world in a variety of sectors such as automotive, electronics,
and steel. As a result, asset values went out, particularly here in Tokyo, where real estate values went sky high, supported by patient capital that did not demand a lot of returns. The nineteen nineties, though, saw that asset bubble burst, and when the Japanese government in Japanese banks did not step in aggressively. They took what was a lost decade and turned it into a lost three decades.
Most people's expectation of Japan or business mindset of Japan is thirty years of stagnation.
I think, you know the we called the lost ages during decads and we do not have substantial growth in Japan.
Japan faced the deferation for VADI eighty long.
Time Japan has been you know, suffering from deflation for more than two decades.
In the late eighties, Japan's economy grew by as much as six point seven percent a year, only to have that growth plummet for most of the next thirty years, hovering between zero and two percent and contracting during the Great Financial Crisis and the COVID pandemic, relegating what had been the third largest economy in the world to number four. As Germany surged past the nick stock market went thirty four years without setting new highs. Japanese government bond yields
turned negative and stayed there for years. But all that could now be changing as Japan emerges from those lost decades.
What a lovely day in Tokyo.
Mark Rowan is CEO of Apollo Global Management.
This is a savings culture, and holding on to your cash or leaving your money into jgb's for the past thirty years has been fined because there's been no inflation. In fact, there's been deflation. All of a sudden, you have closer to three percent inflation. You have interest rates up for the first time, and that savings is going to be deployed productively, and now some of it has to go toward retirement. They will want better solutions for retirement, but some of it is just going to keep up
with purchase price and purchasing power. I think about what's happening in Japan, and in Japan, they're going through generational change, and it's generational change in corporate governance, it's in interest rates, it's in government policy, and in many ways they are the first of the Western democracies to face real aging,
retirement and high levels of government debt. And what's happening here is totally different than people's expectation, because most people's expectation of Japan or business mindset of Japan is thirty years of stagnation, and that is so dynamic here today.
The thing that got things going again for Japan was ironically adversity as supply change came under stress from the COVID shutdown and a war in Ukraine put pressure on energy prices, a big problem for a country dependent on oil from abroad.
With the supply hand breakdown, corporate has executes to transfer the price to the retail. So now the CPI started to suddenly, which has been zero one negative for very long time, suddenly went up to almost three percent.
If she can get to third, that's a.
Long a g Waida is head of Asia Pacific for.
Apollo, everybody has to think differently. So with the defrational environment, cash has been the king. But with the inforation at the close to three percent, cash is not the right assets to own. It's actually the war's assets to own. So that has to put the pressure out of a lot of people to think about things differently.
Even before the return of inflation, those responsible for Japanese markets were thinking differently, starting with Prime Minister Abbe's call for market reform back in twenty fifteen.
And it's true that for maybe a good decade Japan did struggle in finding its way out of that banking crisis.
Maria Soliz is Director of the Center for Asia Policy Studies at the Brookings Institution and author of Japan's Quiet Leadership.
But the fact is that we have overused the image of the last decades because this has not been a period where Japan has stood still, and people referred to this period as thirty years. And a lot has happened in the economy, in the politics, in the international projection of Japan that actually shows that undercurrents of change have repositioned where Japan stands today. Some areas actually there was a lot of progress. I think in the area of
corporate governance you do see important changes there. I also believe that the notion of women omics, the idea that Japan needed to create conditions for women not to have to choose between a career and a family raising a family, those also were very, very positive, so much so that Japan actually has a very high level of female lever participation.
As much as Prime Minister Abbe may have laid the groundwork for reform, the state of the economy did not demand the changes he wanted. For that they needed three percent inflation to kick in.
Well, it has changed everything. It has changed the politics, it has changed the main economic challenges that the country faces, and I think in many ways it has redirected areas where reform is necessary.
Now inflation has returned, and there's a new prime minister in town, one who's just won a landslide victory and seeks to take Abyamk's reform to a new level.
So many similistic changes them in the Japanese not only the Japanese market, but also Japanese society.
Hiromi Yamaji is Group CEO of the Japan Exchange Group, which oversees the Tokyo and Osaka stock exchanges. What was the role of government, the Japanese government in the reforms.
I think it all since the prime ministave supported our governor's deform back in twenty fifteen. I think all the successes of Mista Abe Suga, the Kishida Shiba, and the current Miss Takaichi, all of them are quite big supporter of a governance deform because all of them are convinced that growth of the private sector is essential for the growth of entire Japanese economy.
Since taking over the TSE in twenty twenty one, Yamaji has implemented a series of reforms to encourage Japanese companies to become more profitable and more accountable. Your reforms of the markets has various aspects to including price to book ratio and interlacking ownership of equity and independent directors. What are the most important ones?
I think to transform the mindset of the management of the companies. That's very important and also probably the most challenging thing. And PBR is just kind of a you know, financial indicator to just gauge how much you progressed. But I think, I think fundamental challenge is to transform the mindset of the management.
Not all minds are willing to be transformed. Have you had some management changes in order to respond to it?
Well?
I think, you know, at least once a year we've analyzed the current situation of the Japanese market or Japanese companies, and we are not the entity to assess the progress. The Grover Investors is the you know, the people who assess how much progress we've made. And you know, last year we've the most recent one. We did a analysis of a current situation December last year based upon the four hundred Grover investors domestic and overseas.
If the markets are any judge, Yamaji's efforts are bearing fruit.
Last yea was the record or high modern We have five thousand, one hundred mondays and the total amount was thirty five two years. Yeah, both of them are recorded high. And that means is that the buyer side seeking for other say more growth or algier needs for growth, and the set out side is trying to reorganize their business portfolio.
Of Tokyo Stock Exchange, pushing the corporate to create more efficiency in the capital usage for corporates and ROE has been very, very low, and more than fifty percent of the company listed in Japan has been trading below the book valio. So they are pushing for capital efficiency and they need to explain the reason why they're trading below the book.
The Japanese push for higher returns and response to reflation comes against the backdrop of a long term challenge that's increasingly common in major economies around the world. A rapidly aging.
Workforce population between age fourteen to sixty five hit the peak in nineteen nine and since then, because society started aging, people spend less, so always demands showing faster than supply, so the country faces long term defration and low growth.
Well, I think we're looking at things that are structural that are going to take place over the next five to ten years, the need for Japan to provide for its aging population and to deal with its aging population, the need for Japan to finance what it needs to finance, and the opportunity that Japan has.
Japan responded to the challenges of its aging workforce by adding workers from groups that had been on the sidelines.
Well, this is clearly one of the most serious challenges because they share a drop in the level of a population absolute numbers, but also the graining of the population. The other one who's of course to bring in women into the workforce, to bring in the elderly, who in Japan tend to be still very active, and to make sure that you can as much as possible maximize labor participation.
But there is a limit to how many women, elderly and foreign workers Japan can bring into the workforce. What does reform of capital markets do to help that problem?
I think, you know, the corporate governance reform sets that we'd like to see more active female workers in the in the workforce, and also a more senior persons are working. Really in Japan now, the labor force increased in Japan but obviously a female job participation as well as a senior members job part spationition. There's a seedting. I think, you know, we don't expect too much from those new
forces coming in. So I think Japanan's companies has been making a huge investment into automation or digitalization AI usage. I think those are very important to enhance productivity, even though appropriation has been shrinking, and also he's going to shink in the future.
What are the large long term capital means that companies say, I need to have this for a long period of time.
This is manufacturing, This is energy, This is AI and data, this is infrastructure. These are the big buckets that we're looking at. And the scale just of the infrastructure market, or as I say, just of the AI, data energy market as one package, is beyond anything we can comprehend. This is measured in trillions. Sometimes I joke and I say, we're about to spend every dollar since the invention of fire,
and that's what we're doing. We are as a world going to issue more debt, access more capital in twenty twenty six than ever before. I think this is ultimately about growing the pie. I think the Japanese were very defensive for a long period of time, with good reason given what was happening in the hall market. I think there's a new swagger.
Coming up, matchmaking between abundant capital and abundant capital needs the opportunities that presents for companies like Apollo. This is a story about henkaku. That's a Japanese term meaning fundamental reform. We've come to Japan to see how and why it is changing the way it does business, changing what it expects from its corporations, and changing what it expects in its investments, not just for the sake of change, but in order to raise the capital needed to invest in productivity.
Over the last three decades, Japan fell from second to fourth in the ranking of world economies. As it struggles to climb back up the leaderboard, it is focused on investment. In this case, trillions of dollars.
Worth fifty five percent over the asset sits in cash, historic gardy, and the corporate has been accummulated a lot of cash balance sheet because they want to be safe and they want to be sustainable, and cash is the safest assets for them to own. So even though the raidars of the being lowest in the world. The ratio of the cash on balance sheet among the old the culprits was the highest in the world.
That must be a lot of cash.
It is retail asset is two thousand treating en, so that's a lot of cash.
Well.
Almost fifty five percent of household financial assets in Japan set in cash and deposits in twenty twenty two, a figure far higher than the US or Europe. By twenty twenty four, that number had inched lower to around fifty percent, and the percentage of assets in equity markets had crept up to fourteen percent. The head of the Tokyo and Osaka Stock Exchanges, Hero Mediyamaji, says that many Japanese companies are starting to use that cash to change the way they do business.
Japanese companies are quite receptive for new de mental technologies like AI. I think Japanese companies are are the adopters of a new technologies. But at the same time, how do we take advantage of those new technologies that you know, you have to be quite serious how to utilize in what kind of areas. So now we are still in the very early stage, but I think Japanese company is quite a receptive to those new ideas.
Japan is I think well positioned for the industrial renaissance, the energy shift, supply chain breakdown, and they need to rebuild it AI changes. There are a lot of big themes going on where companies need a lot of capets, and the size of the new finance finance needs is growing so fast that big demand for the capex will create a lot of demand for our news, which the note of a capital camp shift.
To Japan may have a big need for investment, it may have the capital that's needed, but our ex financial institutions in a position to direct the capital to where it is needed and at scale.
Japan is like I would say, like many economies. If you think about the structure of the Japanese market, it is primarily two financial products bank debt and equity.
Apollo CEO Mark Rowan sees his company is providing a much needed third way to finance the capital investment Japan needs.
The equity market in the context of the world is actually quite small though it is the second largest equity market in the world, but it is roughly the size of Nvidia. Just to put things in perspective, there's not the well developed you know kind of corporate bond market that exists throughout the US, and so I think what we're watching not just in Japan but around the world
is corporate CFOs. Corporate treasurers now understand that there are three types of finance, things that are really highly rated and short. You want to be with your banks. There's no better provider equity, very very expensive public markets for plain vanilla, very very good execution. Everything else comes to the private market. The largest part of the private market
today is investment grade. It is these large companies who have these transformational opportunities who want to match long dated investments, and most of what we're doing is long dated with long dated capital, and that is not what the banking system does well. That is not what the public markets do well. And so you're seeing this extraordinary growth in the US. We've seen it in lots of ways. You've
met as financing last year at some thirty billion. In Europe, we've seen the Europeans, who also have structural issues via v capital availability, really embrace private finance. In Japan, we're seeing the beginnings of that. The work we've done with Sony, the work we've done with SMBC, the work we've done in financing buy now, pay later Japanese companies is beginning to open up in the minds of CFOs and treasures that there's just another alternative.
It's not the private credit firms like a policy to replace Japanese banks. A POLOS team says that it can supplement what the banks do.
The public credit market is very very small. I think there's the only sixty trity again outstanding on the corporate bond market. Compared to the size of the finance, it's being quite small. So a lot of finance has been
done by banks, who is basically private credit. So I think there's a demand for longer dated capital and also compress capital because the bank can provide cheaper and short term finance, and with the huge capex needs, they need longer term, more complex finance structure where the private capital markets can solve the problem for it.
We will start to establish private as just another alternative for every CFO and every treasure and by the way, in partnership with the Japanese banking system, because at the end of the day, we don't do what the banks do. We don't provide advice, we don't provide hedging, derivatives, m and a any other service that's the purview of the banking system. We provide a piece of capital that is in very short supply in Japan, investment grade long dated to finance what they need.
It's growing gradually, and I think it's a good alternative investment alternative funding BIKU from the viewpoint of the companies, as you said, used to be banks are the main credits. But in these days because of the banking industry has so many restrictions, capital restrictions and kinds of things, and so their capability to provide lending to apply the sector is getting to a limited the amount. So I think private credit can play a big role in Japan as well.
Firms like Apollo Global Advisors may see an important opportunity in the newly evolving Japanese markets. But our Japanese investors and companies receptive to adding private market alternatives to their means of financing. As you go out into the Japanese market, what resistance do you get to these new forms of investment vehicles.
I don't think it's resistance. I think again, just like in the wealth market, this is about education. In many instances, we are not going to Japanese corporates directly. We're going with their longtime banker. In some instances, particularly when Japanese companies are financing overseas, we'll deal with them directly. Our
team here is unbelievable. From our chairman Tanakasan to the head of our Asian Business Aetasan, these are very well known, very substantive individuals who have been at the cutting edge of finance for a very long time. The weight we have put here, at the intellectual capital we've put here is second to none. I think we're at the beginning of a trend, but I think this is going to be just a fascinating market for any number of reasons.
I have never seen a business strategy or an investment that doesn't have some downside risk. So what are the possible downside risks to this bright new future that you see?
Well, look, the downside risks are the same risks that exist around the world. So for me, the way I describe it is in my business career, most of the time, where I'd say ninety five percent of the outcomes are between two sidelines, and sometimes we like what's on the playing field, and sometimes we don't. Sometimes the economy is
better or worse. Sometimes the capital markets are better worse, valuations better or worse, but we know how to navigate those things, and the chance of an outside the sidelines outcome was small and unpredictable. That's my normal setup today. I only think seventy seventy five percent of the outcomes
are between the two sidelines. And what's between the two sidelines is amazing capital cycle grow both employment, inflation coming down on a worldwide basis, lots of opportunity, but we can ignore that there is an increased risk of an out of the box, out of expected outcome, and it's of a magnitude that investors people like us, need to pay attention to that. And yes, there's always the credit cycle. I don't think that's what we're talking about. I think
we're talking about geopolitics. I think we're talking about government deficits. I think we're talking about rates up and rates down. And so for the first time in a very long time, we are trying to address outcomes that perhaps could occur outside of what we normally see in front of us.
But absent one of those outside the sidelines events. Rowan sees his firm as well positioned for a bright future in Japan.
When I look at our toolkit, our toolkit starts with retirement services. We have been here any number of years. We are a very large reinsurance player to the Japanese market, and we are creating products for Japanese retirees. Second, we're a provider of capital to industry, whether it's Sony or SMBC or others. Third, we are in the buyout business here. This is one of the best buyout businesses here. You've met with some of our portfolio companies or companies we've
had an investment in here. It is a very robust market and a very interesting market. The capital coming off the sidelines from households is looking for better rates of return now that they are facing three percent inflation, and I expect this to be a very promising wealth market where people want safe, healed, they want defensive equity, They want the kinds of things that have been available institutionally around the world for a long time that are now available as wealth products.
Coming up the challenges and opportunities of changing things, shaking things up in the Japanese c suite. This is a story about GSM that's a Japanese term meaning putting theory into practice. Japan is changing the way it does business so it can have the money it needs to invest in productivity. What does that mean for Japanese corporations the way they are structured and the way they finance those investments.
There is a real corporate revolution going on. The notion of every company needing a plan to get above one times book and essentially using shame as a tool for reform has been very very effective.
Management has the a best position to fulminate a plan how to improve it improve the current situation. Company itself has to drive how to transform the company.
The combination of a reflating economy and market reforms in Japan are reverberating through corporate boardrooms and sees suit causing CEOs to rethink everything from how they finance their businesses to what businesses they want to have in their portfolio. Are we seeing yet the effects of the reforms? Are CEOs acting differently more actively?
Well? I do think we're seeing changes. I think that we begin to see more diverse borts and we begin to see perhaps the taking more of opportunities.
Moreo Solis is a japan expert at the Brookings Institution.
I believe that this could be a good moment I think to think about new wave of investments. I think one of the challenges source of frustration is that corporate Japan has been very risk covers. This might be a way in which begin to see an appetite for taking on more investment.
Japanese company's willingness to rethink how they do business may extend even to whether they want to be listed on the Tokyo Stock Exchange.
The number of delisting used to be only fifty company delisted. Now you know last year was one hundred and twenty five company ditisted and now this year twenty twenty six already sixteen announced to a dealist. So I think in a number of companies scrutinizing whether the keep listing is the best way for them to ursu growth.
As the head of the company overseeing both the Tokyo and Osaka stock Exchanges, himI Yamaji leaves it up to individual companies to decide their best path for growth, but since taking over, he has also implemented reforms that required disclosure and explanation of firm strategies to become more profitable.
Used to be Japanese companies didn't spin off any operations last year. Only the half six months last year we had a two hundred and eighty coveouts spin offs, So you know that means that they are quite serious. To the ASCETA side, is quite serious to reorganize their business portfolio. But at the same time, they are realistic enough that they recognize that they are not a good owner. I think that's a good sign.
One of those carve outs came in twenty twenty four when Panasonic Holdings sold a majority interest in Panasonic Automotive Systems to Apollo Global Management. Shares of Panasonic Holdings have been on a tear ever since, up more than seventy percent since the deal was completed. It's amazing. Masashi Nakayasu is CEO of Panasonic Automotive, now focused on the transition from automobiles as driving experience to a mobility experience, something he calls joy in motion.
The value of the car a shifting from driving performance into the mobility experience which the people are having in the cas space, but individual person having a different sense of comfort like temperature as well. So we use our technologies and also AI enhanced technologies to fit to a personalization and make individual person making more comfortable in the car.
Nagayasu says, carve outs like Panasonic Automotives can bring with them a new focus on a more specific business.
Panasonia is congrammarated company and they have these diversified business models and they have decided that automotive sector is not the focus. So on the other hand, partnering with Aporo, we can really one hundred percent commit to our automotive sectors field. So this is rather you know, positive for us to really stick to that, you know.
Sadly, the purpose of the spin off is that probably that particular the now all now that of operations believes that they are not the best choice from the billpoint of the business itself. In other words, there might be better partner for them, and so that you know, they believe, you know, there are maybe a pe Funds which owns
other operations related to this particular business. I think, you know, those are many different kinds of ways thinking, but I think it's important for from the billpoint of the company that they believe they are not a good owner of that particular company and also they are not the best owner to stimulate the growth of this particular business. I think you know a Japanese companies started thinking many different kinds of ways, and that's good for the for the entire economy.
In addition to focus, Nagayasu says, a firm like Apollo can also bring its particular expertise and working closely with management.
So the way of of the style Aporo is asking us discipline. I take it this very positive way with few Panasonic group constraints. So I don't want to say the freedom, but we really can focus on what we need to do.
What sorts of profit goals or targets do you have for Panasonic a motive.
We are not disclosing much of numbers. However, you know our most important KPI right now is E minus c ebitda minus capex. We are aiming to triple that. This emails in number from in twenty seven compared to twenty twenty four. And so far since you know partnership started with Aporo, partnership has been started, then the number is showing a positive way. And also look ahead the midum a short medium goal. We are quite advanced in this situation right now.
The carve outs may help bring more discipline to companies like Panasonic Automotive. But there are other transformations in Japanese business that require injection of patient capital into existing companies, transformations like the one ongoing at Sony under CEO Hierarchy Totoki, moving from manufacturing the electronics on which the world consumes entertainment to producing the entertainment itself.
Sony has had a lydical to great reputation in the area of consumer ecmpanis and but you know the at the same time, digitalization has happened and things move from the analog to digital in terms of the technology, and in this area generally it's particularly different from the difficult to differentiate the you know, the pulla from the others in the area of the consumer electronics, and then it's very difficult to you know, the compete with the other players.
And that environment invite new entrant to the industry, first from Korea and followed by China and particularly China as you and son you know, they have enormous domestic market. Backed by that market, they try to export their products. The consumer efferentciata now need a massive scale and the compassion field comes to a volume and price and unfortunately it's very hard to maintain that volume in a Sony group.
How does the Sony transformation fit together with the broader transformation? Does it affect how you're transferring Sony that the entire industry is changing.
We forced to change because you know the when I came back from a subsidiary to headquarter, and that was twenty thirteen, that was a very severe time and the financial performance is very back and many good people who are left company.
It's been a big change for Sony to branch out from its traditional position in consumer electronics, but it's already well into that transition. Around a decade ago, entertainment made up only thirty percent of its revenue. By twenty twenty four, it had grown to sixty percent of the company. Let's talk about the creative side. As I understand it, it's more than half of the business for Sony at this point. What are the component parts of that that you rely on?
That's including game and the music and motion pictures and three these are entertainment business and the more than sixty percent of revenue now.
And of those three, which is the largest one is it gaming?
Gaming?
So tell me about the gaming business.
We are always talking about the play session should be a best place to play from users perspective and at the same time best to play to publish because we have a great relationship is a bunch of third party you know, game publishers, and of course we have great studios as a first party.
Sony's major games include international blockbusters like God of War, Ghost of Sushima, and Hell Divers. But as successful as they've been, Totki San prefers to supervise rather than be a gamer himself.
I'm good at, you know, the thinking about a business model and including a financial and also the you know, think about the top down approach, which industry is suitable, which we have in Sony, which field we can capable to compete with the other companies. That kind of you know, the way of thinking is very helpful to develop my career.
Do you personally consume Sony created a product on whether it's games or films or music.
I mean, I love music and TV dramas and music, but I cannot play game. To be videos, I can't play but very you know, the primitive level, and.
Sony is a major producer of the music and film that to Toki San loves.
We are doing good business in the film and of course you know some films are vlatile, but you know they try to avoid such PARTI TI and we developed the portfolio for to make a film and sometimes we do a deal with a big distributors such as a Netflix.
Anime is something many of us identify with Japan. Yeah, as almost uniquely Japan has it gone global.
Yes, now defentually thanks to the streaming big streaming platform. Now anime is simultaneously distribute you know, the the at the same time worldwid basis that helps you know, the animal glogle hits as a law and the you know, the that enable to mitigate the piracy risk control.
As part of its push toward content, Sony has made major investments in music catalogs, building on traditional strength and that's where Apollo came in.
It's quite important because you know, the the each capital resources have a different disc capitite as well as a different time horizon. And as we diversify our business and we need to acquire many asset classes and it's a you know, the we can find out the best fit of the you know, the capital, investment and asset class.
Is that why you edited a relationship with Apollo for music catalog because you needed a long term time.
Horizon exactly, and the music capital is a relatively low risk and lord E Town, you know the asset class, and that really fit to the you know the like private credit and you know, need a long time for item as a capital and outside that's a great example.
It turns out that Totky Sun has a long time horizon in his music tastes as well. His favorite artist is a British rock band from the nineties, one that's recently gotten back together and one of that over the years has worked with Sony in distributing some of their records. Do you have a favorite artist?
I actually joined the concert of the Oasis and in Tokyo and they have a dome concert two days and I didly enjoyed. And it's after twenty years. They had a concert in Japan and outofang are there and of course I heard old days music. Aushle is a really good, GrITT fun.
From Automotive Atonomy. Japanese corporate leaders are changing the way they do business and finding new ways to capitalize those changes with the help of firms like Apollo coming up. Is Japan truly different? We take a fresh look at what we thought we knew about Japanese culture. This is a story about bunka. It's a Japanese term for culture. The Japanese have developed their unique culture over one thousand years. It's a culture that has informed the way Japan does business. Now,
Japan is pursuing a new economic strategy. Peter Drucker famously said that culture eats strategy for breakfast. So what will happen as Japan's new economic strategy comes up against its ancient culture.
The economic growth of Japan has been the most spectacular in recent history, a fine example of what a system of pre economy can accomplish with wise planning, determination and hard work.
Many of us have an image in our minds of Japanese business traditions, like the groups of interrelated companies known as Caretsu's and the lifestyles of the salary employees who worked at them.
Under currents of change have repositioned where Japan stands today.
Maria Solis of the Brookings Institution says, the image of the salary man was always a bit overdone.
The traditional image we have of the Japanese employee, the salary man is applied really to just segment of the working population. The idea that people would stay in the same job all their careers, and that there was this steady progression, and that they would be extremely loyal to their company, they would not be seeking for opportunities. But many other workers in Japan who operated, who were employed
by smaller companies, never had that level of predictability. We believe that something like thirty eight to forty percent of all employees in Japan are in this category of non regular workers. The corporations and the government have also tried to bring more flexibility to employment practices, and we begin to see that many employees now are doing these lateral changes and they do not expect to stay in the
same corporation all of their careers. So I think that that's adding again more dynamism to the Japanese labor market.
The culture is changing here.
On me of the Tokyo Stock Exchange politely suggests that the idea of the salaryman is at the very least out of date. There was the salaryman that we all talked about when you had a long term job, fairly quiet, not a lot of races, but it was a lot of stability. This is a different world.
Well, yes, that's the kind of stereotype, kind of image of the Japanese workers. But it's amazingly since twenty fifteen or sixteen, about one out of three new a freshmen to the companies are thinking to leave the company to join their startups. Is a one of the most popular
jobs the university students to choose. Used to be like a bureaucrats or consultants or investment banks, those kinds of things, but now there's a number of students or you know, the freshmen it's trying to leave the current company and join the new start ups.
And large Japanese companies are relying more on those startups attracting new college grads. Companies like Masashi Nagayasu's Panasonic Automotive.
Our business model or profit model need to be also changed, so we need to have more capability to partnery with many kind of industrial or automotive industry sectors, including startup companies.
Even as Panasonic Automotive changes the way it does business and with whom it works to preserve the best of the larger Panasonic culture, a culture established by the founder of its predecessor company, Konosuki Matsushita at.
The same time. Okay, Matsusa is our own company is found This is no change forever. And the parasonit is almost one hundred ten years history, but Parasonian Automotive has eighty years history.
So we're still put importals on our founders.
You know, philosophy in our mind and this is our backbone. This won't change, but otherwise we can change.
One of the things you're changing is the name of the company. Yess how do you employees a Panasonic Automotive respond to changing these Panasonic is and iconic?
Yeah?
Yeah, you know.
You know I've been working for a parattery for forty two years. Yeah you know, yeah, yes exactly. Some people ah expressing, how to say it, kind of nostarigic, you know, feelings right, and first response from them are not very positive frankly some of them. But however, to speed up the process of transforming a company and of course profitabilities growth strategy, we need to show the evidence to the employees.
I do believe they would change the mindset to a polictive way, So that's why I have to show the result to the employee to make it everyone be positive. Way we will speed up the process of the transform of ourselves to fit to the market at a global basis, so customers a response are quite positive.
Over At Sony, CEO Hiroki Totoki has a similar goal of communication with employees as he continues his company's transformation. What you're describing is a very different Sony from what it was twenty years ago. How do you bring along Sony employees to this new world?
That's a great question, and that you know, even the Portofolio shift is a right thing from an investors point of view, and the the business has been done by the people and if you you know, the look down to the ground, people are very commit to the current business and the current job and to shift that job and that business domain is not really important. But as a CEO, most important thing is how to pathway with rationale. This is the right thing we have to do. That
kind of communication is quite important to the employee. We have to transform the entire Sony otherwise we can survive. And you know, sometimes that transformation is very severe, but we have to do that.
Over and above the experiences of individual Japanese company leaders and the experiences of Japanese workers, there's a larger cultural question whether the conservatism we've seen in Japanese markets and investors is imprinted or whether it has been the result of macroeconomic forces which have changed A Uita of Apollo observed the back and forth between economics and culture during his years at Goldman Sachs and National Pension Fund GPIF. For thirty years or so, Japan has been perceived as
sort of low risk, low return. Yes, as you say, cash is king yeap, and it's been thought maybe that's part of the Japanese culture. Is that not right, that Japanese are not inherently conservative.
I don't think so, because when I started in my career, DDP was growing, you know, a high single digit and the tenure yield was of six percent. So I don't think this is the cultural things. People based gott to make a rational decisions with the macro environment because the cash is the best assets to own compared to the others, and now things are different. So I think if people
make a rational decision, we go to rational decisions. I think people are open for various ideas on the new finance space.
There's nothing like three percent inflation to get people to think differently, and we have our work cut out for us, as do some of the other large providers of private market investment opportunities. But this is about education. This is not about whether they will move. They are going to move. The Japanese institutions are moving, and so it's just a rate of change, and we're now we're seeing an inflection point in that rate of change, spurred on by higher inflation.
That does it for us here on Wall Street. We're coming to you from Tokyo. I'm David West, and see you next week for more stories of capitalism.